What are avoidance transactions (PUFE) under the IBC?

Avoidance transactions are transactions entered into by a company before it went into insolvency that unfairly reduced the pool of assets available to creditors, and which the Insolvency and Bankruptcy Code 2016 (IBC) allows the National Company Law Tribunal (NCLT) to undo. Practitioners call them PUFE transactions: preferential, undervalued, fraudulent and extortionate.

When a company is heading for insolvency, its controllers may pay favoured creditors, move assets to related parties or strip value cheaply. Avoidance provisions restore that value for the general body of creditors.

What are the four types?

Transfers in the ordinary course of business are excluded from s. 43. Debt from a financial service provider given in compliance with law is excluded from s. 50.

Alongside these, s. 66 deals with fraudulent trading (business carried on with intent to defraud creditors) and wrongful trading (directors who knew, or ought to have known, that insolvency could not be avoided and did not try to minimise losses). These lead to orders that individuals contribute to the company's assets, rather than reversal of a specific transaction. See fraudulent and wrongful trading under s. 66.

What did the IBC (Amendment) Act 2026 change?

The IBC (Amendment) Act 2026 (Act 6 of 2026) received assent on 6 April 2026, and its avoidance-related provisions came into force on 26 May 2026. Key changes:

• New definitions. s. 5(2A) defines "avoidance transaction" as a transaction under ss. 43, 45, 49 and 50; s. 5(9A) defines "fraudulent or wrongful trading" by reference to s. 66.
• Look-back computation. For ss. 43, 46 and 50, the relevant period now runs from the stated period before the initiation date (the date the insolvency application was filed) up to the insolvency commencement date. Previously it was counted only back from the commencement date.
• Survival. The substituted s. 26 confirms that avoidance and s. 66 proceedings continue after the CIRP or liquidation is complete.
• Creditor applications. The substituted s. 47 lets a creditor, member or partner apply where the resolution professional or liquidator has not reported a PUFE or s. 66 transaction.
• Liquidators. A liquidator may now apply under s. 66.

How are they identified?

During a corporate insolvency resolution process (CIRP), the resolution professional must form an opinion on ss. 43, 45, 50 and 66 transactions by day 75, make a determination by day 115, and apply to the NCLT by day 135, under reg. 35A of the CIRP Regulations. To do this, resolution professionals commonly appoint a transaction auditor; see forensic audit in CIRP and how resolution professionals identify PUFE transactions.

What are the red flags?

• Repayment of promoter or group-company loans shortly before default, while other creditors went unpaid.
• Sale of property or plant to a related party at below market value.
• New security created for an existing unsecured lender.
• Payments to entities with no apparent business purpose, often traced through asset tracing.

How do they differ from related terms?

Avoidance transactions are a civil remedy in insolvency. They overlap with, but are distinct from, a wilful defaulter declaration by banks, fraud classification under RBI directions, and the criminal offence in s. 69 IBC of defrauding creditors. One set of facts can give rise to all of them. They usually come to light in stressed assets. Each route has its own tests, so specific legal advice is needed.

Spectra Forensics' stressed asset and insolvency forensics service covers transaction reviews to identify and evidence PUFE and s. 66 transactions.