Preferences, undervalued transfers, transactions defrauding creditors and extortionate credit are all reversible under Sections 43 to 50 — each with its own ingredients and look-back window. AMLEGALS advises resolution professionals, creditors and respondents on avoidance applications and defences.
Insolvency rarely arrives without warning signs, and in the months before it, value often leaves the company — a favoured creditor paid ahead of the queue, an asset sold below worth, security granted to an insider. The avoidance provisions exist to reverse exactly these depletions, so that the estate the creditors share reflects what the company really had, not what was quietly moved out. The clawback is one of the most powerful — and most under-used — tools in the Code.
The discipline the courts demand is precision. In Anuj Jain v Axis Bank, the Supreme Court insisted that preferential, undervalued and fraudulent transactions are distinct, each proved on its own ingredients, not pleaded as an undifferentiated bundle. The correct look-back window — one year generally, two for related parties — and the available defences, such as ordinary course of business and new value, decide the outcome. AMLEGALS builds and defends avoidance claims on that exact footing.
Forensic review of the corporate debtor’s transactions within the look-back period to identify avoidable transfers and benefits.
Classifying each transaction correctly as preferential, undervalued, defrauding or extortionate, with its distinct ingredients.
Drafting and prosecuting applications under Sections 43, 45, 49 and 50 before the National Company Law Tribunal.
Defending counterparties, including ordinary-course and new-value defences under Section 43 and bona fide value defences.
Assessing the extended two-year window and heightened scrutiny applicable to related-party transactions.
Securing and giving effect to restitution orders that restore value to the estate for distribution.
Avoidance (or avoidable) transactions are past transactions of the corporate debtor that the law permits to be reversed because they unfairly diminished the estate available to creditors. The Insolvency and Bankruptcy Code identifies four categories: preferential transactions under Section 43, undervalued transactions under Section 45, transactions defrauding creditors under Section 49, and extortionate credit transactions under Section 50. On a successful application, the tribunal can order the transaction reversed and the value restored to the estate.
A preferential transaction is one where the corporate debtor transfers property or gives a benefit to a creditor, surety or guarantor on account of an antecedent debt, in a manner that puts that person in a better position than they would have been in the distribution waterfall. Section 43 applies to such transfers made within the look-back period — two years before the insolvency commencement date for related parties and one year for others — subject to exceptions for transfers in the ordinary course of business and for new value.
Section 46 fixes the relevant time for preferential and undervalued transactions: the transaction must have been made during the period of one year preceding the insolvency commencement date for an unrelated party, or two years preceding for a related party. For transactions defrauding creditors under Section 49 and extortionate credit under Section 50, different periods and tests apply. Identifying the correct window is the first step in any avoidance analysis.
The resolution professional or the liquidator, upon examining the corporate debtor’s transactions, may apply to the National Company Law Tribunal for appropriate orders in respect of avoidable transactions. In Anuj Jain v Axis Bank (2020), the Supreme Court clarified the distinct tests for preferential, undervalued and fraudulent transactions and emphasised that each must be pleaded and proved on its own ingredients rather than conflated — a discipline the tribunal strictly expects.
Depending on the category, the tribunal may order the property transferred to be vested back in the corporate debtor, release or discharge of security, payment of sums to the estate, or reversal of the benefit conferred. For extortionate credit, it may set aside or modify the transaction. The aim is restitution to the estate so that value unfairly extracted before insolvency is returned to the pool available for distribution to all creditors.
No. No engagement is treated as accepted until conflicts, scope and terms are confirmed in writing.
Share the transaction, the parties and the timing for a confidential preliminary assessment.