When a company enters insolvency, every unusual pre-insolvency transaction is not automatically void. The Insolvency and Bankruptcy Code, 2016 uses different legal tests for preferences, undervalued transfers, transactions intended to defeat creditors, extortionate credit, and fraudulent or wrongful trading. The practical job is to classify the conduct correctly, test the relevant period and statutory ingredients, preserve evidence, and decide what relief may be sought.
The current statutory framework should be read from IBBI's official Act repository, together with the Insolvency and Bankruptcy Code (Amendment) Act, 2026 and its commencement notification. The 2026 amendment now defines an avoidance transaction as a transaction referred to in sections 43, 45, 49 and 50, while fraudulent or wrongful trading is separately defined by reference to section 66. That distinction is useful because section 66 focuses on the way the business was carried on and on the conduct of persons, not merely on reversing one asset transfer.
1. Preferential transactions under section 43
A preference broadly involves a transfer of the corporate debtor's property or an interest in it for the benefit of a creditor, surety or guarantor on account of an antecedent debt or liability, where the transfer puts that beneficiary in a better position than it would have occupied in a section 53 distribution. The statutory analysis therefore asks two separate questions: was the transfer connected with an existing liability, and did it improve the beneficiary's insolvency position?
Section 43 also contains exclusions. A transfer made in the ordinary course of the business or financial affairs of the corporate debtor or the transferee is excluded, and the Code contains a specified new-value security-interest exception subject to its conditions. A court order by itself does not prevent a transfer from being examined as a preference.
Example: assume a company repays a promoter-related unsecured lender shortly before CIRP while similarly ranked outside creditors remain unpaid. The review should not stop at the fact that a genuine loan existed. It should test whether the payment was for antecedent debt, whether the recipient became better off than under section 53, whether an exclusion applies, and whether the transaction falls within the relevant period.
2. Undervalued transactions under sections 45 and 46
An undervalued transaction has a different focus: value leaving the corporate debtor. Section 45 covers a gift, or a transfer of one or more assets for consideration significantly less than the value of the consideration provided by the corporate debtor, where the transaction is not in the ordinary course of business. The resolution professional or liquidator may seek an order declaring the transaction void and reversing its effect, subject to the Code.
Example: assume machinery with independently supported fair economic value of Rs. 80 lakh is transferred to a connected entity for Rs. 15 lakh outside the company's ordinary business. The key issue is not whether the buyer was already a creditor. The core question is whether the company transferred value for significantly inadequate consideration, supported by reliable valuation and transaction evidence.
3. Section 49: when an undervalued transaction is deliberately used against creditors
Section 49 sits on top of the undervalue analysis. It applies where an undervalued transaction of the kind referred to in section 45 was deliberately entered into to keep assets beyond the reach of a person entitled to make a claim, or to adversely affect that person's interests in relation to the claim. The deliberate creditor-defeating purpose is what separates section 49 from a simple undervalue case.
That means a poor commercial bargain and a transaction designed to put assets out of creditors' reach are not conceptually identical. The first may call for a section 45 analysis if the statutory conditions are met; the second may additionally engage section 49 if the required purpose is established.
4. Extortionate credit transactions under section 50
Section 50 is about oppressive credit terms. It applies where the corporate debtor has been party to a qualifying financial or operational debt transaction in the relevant period and the terms required exorbitant payments to be made by the corporate debtor. The Code also makes clear that debt extended by a person providing financial services in compliance with the law governing that debt is not treated as an extortionate credit transaction under this provision.
Example: if a distressed company receives emergency funding on terms that require exceptionally burdensome payments, the review should capture the complete facility agreement, drawdowns, effective economic cost, security, repayments, side letters and the lender's regulatory status. The label used by the parties is less useful than the actual contractual and economic terms.
5. Fraudulent or wrongful trading under section 66
Section 66 is materially different from sections 43, 45, 49 and 50. Under section 66(1), where the business of the corporate debtor was carried on with intent to defraud creditors or for a fraudulent purpose, the Adjudicating Authority may order persons who were knowingly parties to that conduct to contribute to the corporate debtor's assets. Under section 66(2), a director or partner may face a contribution order where, before insolvency commencement, that person knew or ought to have known there was no reasonable prospect of avoiding CIRP and did not exercise due diligence in minimising potential loss to creditors, subject to the Code.
The 2026 amendment also permits the liquidator, in addition to the resolution professional, to make the relevant section 66 applications. For a forensic reviewer, this means intent, knowledge, chronology, board-level decision-making, cash-flow information and efforts to minimise creditor loss can be as important as the accounting entries themselves.
Current look-back periods: use the initiation date correctly
The 2026 amendment changed the drafting of the relevant periods for sections 43, 46 and 50, and those provisions were brought into force from 26 May 2026 by the official commencement notification. For preferences, the related-party period now starts two years before the initiation date and the non-related-party period starts one year before the initiation date, with each period ending on the insolvency commencement date. The same one-year and two-year structure applies to undervalued transactions under section 46 for non-related and related parties respectively. Section 50 now uses a period starting two years before the initiation date and ending on the insolvency commencement date.
This makes chronology a first-day review issue. The team should identify the legally relevant initiation date, insolvency commencement date and related-party status before filtering the ledger. Using only a backwards count from the insolvency commencement date can now omit part of the statutory review window.
Regulation 35A gives the CIRP review a hard workflow
IBBI's updated regulations repository links the current CIRP Regulations, and the CIRP Regulations amended up to 9 June 2026 contain regulation 35A. Under that regulation, the resolution professional must form an opinion by the 75th day on whether the corporate debtor was subjected to transactions covered by sections 43, 45, 50 or 66. If the opinion is affirmative, determination is due by the 115th day, and an application for appropriate relief is due by the 130th day. The regulation also requires the application to be forwarded to the prospective resolution applicant and requires creditors to provide relevant extracts from audits such as stock, transaction and forensic audits.
These are not merely diary dates. They imply that the transaction review, data collection, related-party mapping and escalation process must start early enough to support a reasoned opinion and determination.
A practical transaction-review checklist
- Fix the statutory chronology: document the initiation date, insolvency commencement date and the applicable review windows before running data analytics.
- Build the related-party universe: reconcile statutory registers, group structure, promoters, directors, key management, common control, connected lenders and major counterparties.
- Extract high-risk transaction classes: review debt repayments, security creation or release, asset sales, gifts, write-offs, unusual journal entries, related-party settlements, new borrowing and payments outside normal patterns.
- Test substance, not labels: for every flagged item ask whether the issue is improved creditor position, inadequate value, creditor-defeating purpose, exorbitant credit terms, or fraudulent or wrongful business conduct.
- Preserve evidence: retain agreements, invoices, bank trails, board minutes, valuation material, e-mails, ledgers, security filings, audit reports and explanations with clear source references.
- Corroborate value and purpose: a ledger entry rarely proves undervalue or intent by itself. Use independent valuation, market evidence, contemporaneous correspondence and decision records where relevant.
- Track regulation 35A milestones: maintain an issue register showing each flagged transaction, legal category, evidence gaps, reviewer conclusion, dates and escalation status.
Section 47 is an additional accountability route
The substituted section 47 now permits a creditor, acting alone or jointly with other creditors, a member, or a partner of the corporate debtor to approach the Adjudicating Authority where a preferential transaction under section 43, an undervalued transaction under section 45, an extortionate credit transaction under section 50, or fraudulent or wrongful trading under section 66 has occurred but the resolution professional or liquidator has not reported it. The provision also contemplates disciplinary proceedings where the Adjudicating Authority is satisfied that the professional had sufficient information or opportunity but failed to report the matter.
Common classification mistakes
- Calling every related-party payment preferential: related-party status affects the review, but section 43 still requires its substantive preference test.
- Confusing undervalue with preference: undervalue asks what value left the company; preference asks whether an antecedent creditor, surety or guarantor was put in a better insolvency position.
- Treating section 49 as ordinary undervalue: section 49 adds a deliberate purpose of keeping assets beyond reach or prejudicing a claimant.
- Using an old look-back spreadsheet: the 2026 amendment moved the starting point for sections 43, 46 and 50 to periods preceding the initiation date and ending on the insolvency commencement date.
- Equating a bad business decision with section 66 fraud: fraudulent trading requires the statutory fraudulent intent and knowing participation test; wrongful trading under section 66(2) has its own knowledge and due-diligence conditions.
Practical takeaway
IBC transaction review works best as a classification exercise backed by evidence. Start with dates and related parties, then separate preference, undervalue, deliberate creditor-defeating conduct, extortionate credit and fraudulent or wrongful trading. Map every red flag to the exact statutory ingredients, preserve the supporting record and manage the regulation 35A timeline from the beginning of CIRP. For the underlying section text, IBBI also hosts the official consolidated Code text up to 12 August 2021; because later amendments apply, it should be read together with the current Act repository and the 2026 amendment rather than used alone.
