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Spectra Forensics, Investigation Specialist

Regulatory framework · Lenders, insolvency and markets

Avoidance transactions and fraudulent trading in insolvency

In a CIRP, which past transactions can be unwound, who must find them, and by when?

Spectra Forensics7 laws and regulators

Short answer

The resolution professional must examine the corporate debtor’s past dealings for preferential, undervalued, extortionate and fraudulent transactions and for fraudulent or wrongful trading. Regulation 35A sets the clock: an opinion by day 75 of the insolvency, a determination by day 115 and an application to the Tribunal by day 130. Since the IBC (Amendment) Act 2026, look-back periods also cover the time between filing and admission, creditors can apply where the professional does not, and these proceedings survive the end of the CIRP.

The landscape

Laws and regulators in play

IBC 2016 (s.43): preferential transactions
Transfers for an antecedent debt that put a creditor in a better position than in liquidation; look-back of two years for related parties and one year for others.
IBC 2016 (ss.45 and 46): undervalued transactions
Gifts or transfers for significantly less than value, outside the ordinary course of business; same look-back periods.
IBC 2016 (s.49): transactions defrauding creditors
Undervalued transactions entered into deliberately to keep assets out of creditors’ reach; no look-back limit.
IBC 2016 (s.50): extortionate credit transactions
Credit on exorbitant terms within the two years before insolvency.
IBC 2016 (s.66): fraudulent or wrongful trading
Makes persons knowingly party to carrying on business to defraud creditors, and directors who knew or ought to have known insolvency could not be avoided and did not minimise loss, liable to contribute to the assets.
IBC (Amendment) Act 2026 (Act 6 of 2026)
Defines ‘avoidance transaction’, extends look-back periods to cover the time between filing and admission, lets creditors apply where the professional has not, and keeps these proceedings alive after the CIRP ends.
IBBI CIRP Regulations 2016 (Reg 35A)
Set the 75, 115 and 130-day milestones for the resolution professional’s opinion, determination and application, and require creditors to share their audit findings.

Step by step

Decision framework

  1. 01

    Collect the records early

    Books, bank statements, related-party registers and creditors’ stock, transaction and forensic audits, which creditors must now share with the resolution professional. Missing records are themselves a finding.

  2. 02

    Fix the look-back windows

    Two years for related parties and one year for others for preferential and undervalued transactions; two years for extortionate credit. Since 2026 they are counted back from the date the application was filed and also cover the period up to the insolvency commencement date, so the gap between filing and admission is included.

  3. 03

    Screen transactions with data

    Payments to related parties, asset sales and write-offs, round-tripping and circular flows, settlements just before filing, and transactions outside the ordinary course.

  4. 04

    Form an opinion by day 75

    Whether the debtor has been subjected to transactions under ss.43, 45, 50 or 66, usually on the basis of a transaction audit.

  5. 05

    Determine by day 115

    Identify the specific transactions, parties and amounts, with the evidence for each.

  6. 06

    Apply to the Tribunal by day 130

    File the application and share it with prospective resolution applicants. The Information Memorandum and resolution plans must deal with these claims.

  7. 07

    Pursue to conclusion

    Since the 2026 amendment, completion of the CIRP or liquidation does not end these proceedings, and creditors can apply where the resolution professional or liquidator has not.

Duties and deadlines

Who must do what, and by when

  • Resolution professional

    Form an opinion on whether the corporate debtor has been subjected to preferential, undervalued, extortionate or fraudulent transactions or trading.

    By whenBy day 75 of the insolvency commencement date

    CIRP Reg 35A(1)

  • Resolution professional

    Make a determination identifying the transactions.

    By whenBy day 115

    CIRP Reg 35A(2)

  • Resolution professional

    Apply to the Adjudicating Authority for appropriate relief, and send a copy to prospective resolution applicants.

    By whenBy day 130

    CIRP Reg 35A(3), (3A)

  • Creditors

    Give the resolution professional relevant extracts of stock, transaction and forensic audits they hold on the debtor.

    By whenOn request during the CIRP

    CIRP Reg 35A(4)

  • Creditor, member or partner

    Apply to the Tribunal where the resolution professional or liquidator has not, for avoidance transactions or fraudulent or wrongful trading.

    By whenWhere the professional has not applied

    IBC s.47, as substituted in 2026

Analysis

How the regimes interact

Why this question matters

When a company fails, value often leaves it in the months or years before: repayments to friendly creditors, assets moved to connected parties, credit on punishing terms, or a business kept trading when the directors knew it could not recover. The IBC gives the resolution professional tools to recover that value, and gives directors reason to take creditors' interests seriously as insolvency approaches. The 2026 amendments strengthened both.

How the regimes interact

The Code defines the claims; Regulation 35A sets the pace. The sections of the Code decide what can be challenged and over what period. Regulation 35A turns that into a CIRP timetable: opinion by day 75, determination by day 115, application by day 130. Courts have treated those timelines as directory rather than fatal, but a late or thin application weakens the case and invites questions about the professional's conduct.

The 2026 amendment changed the ground rules. Look-back periods now cover the period between filing and admission, which closes a window that was often used to move assets. Creditors can bring claims the professional does not. And the new section 26 settles the Venus Recruiters debate: these proceedings continue after a plan is approved or liquidation ends.

Bank fraud and insolvency feed each other. Lenders' forensic audits, done under RBI's fraud directions, must now be shared with the resolution professional, and the same transactions often feature in a fraud classification and an avoidance application. Findings should be consistent across both.

Who benefits is a plan question. Piramal v 63 Moons shows that the committee of creditors can decide, through the resolution plan, how recoveries are shared, including giving fraudulent-trading recoveries to the resolution applicant. Resolution applicants now price these claims, so the quality of the transaction audit affects bids.

How Spectra Forensics can help

We act as transaction auditors and support resolution professionals and creditors in stressed-asset and insolvency forensics, and trace diverted value through asset tracing. Speak to us in confidence.

Warning signs

Red flags

  • Large repayments to promoter-group lenders shortly before filing.
  • Assets sold to connected parties at book value or below, without valuation.
  • Guarantees or security given late for older related-party debt.
  • Advances to suppliers or contractors that were never delivered against.
  • Books not updated, or auditors resigning, in the year before default.
  • Interest and fees far above market on loans from connected lenders.

Checklist

What good looks like

  • A transaction auditor appointed in the first weeks, with terms of reference covering every avoidance category and s.66.
  • Look-back windows calculated from both the filing date and the commencement date.
  • Related-party mapping that goes beyond the declared list, using ownership and address data.
  • Each finding supported by documents a Tribunal can follow, not only analytics.
  • Regulation 35A milestones tracked on the CIRP calendar with owners.
  • Treatment of avoidance and s.66 recoveries addressed expressly in the Information Memorandum and resolution plan.

Myths and corrections

Common misreadings

Misreading

Avoidance applications lapse once a resolution plan is approved.

Better reading

The Delhi High Court’s Division Bench held in 2023 that they survive, and the 2026 amendment now says so expressly: completion of the CIRP or liquidation does not end them.

Misreading

Regulation 35A gives 135 days to file.

Better reading

The deadline for the application was changed to day 130 in September 2022.

Misreading

Only the resolution professional can bring these claims.

Better reading

Since 2026, a creditor, member or partner can apply where the resolution professional or liquidator has not, and a professional who failed to report can face disciplinary proceedings.

Misreading

Recoveries always go to the creditors.

Better reading

In Piramal Capital v 63 Moons (2025), the Supreme Court upheld a plan that gave fraudulent-trading recoveries to the resolution applicant, as the committee of creditors had approved. How recoveries are shared depends on the plan.

For the board pack

Takeaways

  • 01Start the transaction audit in the first weeks; the 75-day opinion comes fast.
  • 02The 2026 amendment widened look-back periods and gave creditors standing, so expect more claims, not fewer.
  • 03These claims now outlive the CIRP; plan documents must say who gets the recoveries.
  • 04Evidence wins applications: trace each transaction to documents and people.

Questions we are asked

What is the difference between avoidance transactions and fraudulent trading?

Avoidance transactions under ss.43, 45, 49 and 50 unwind particular dealings and restore value to the estate. Fraudulent or wrongful trading under s.66 makes people who ran the business in a particular way personally liable to contribute to the assets. Both are now defined terms in the IBC.

Does Regulation 35A cover section 49?

The regulation’s list refers to sections 43, 45, 50 and 66. The 2026 amendment defines avoidance transactions to include section 49, but Regulation 35A had not been aligned with that definition when this guide was reviewed.

When did the 2026 amendments take effect?

The IBC (Amendment) Act 2026 received assent on 6 April 2026, and the provisions on avoidance and fraudulent trading are reported to have been brought into force from 26 May 2026. Check the commencement notification for the provision you rely on.

Sources

  1. Insolvency and Bankruptcy Code 2016 link
  2. Insolvency and Bankruptcy Code (Amendment) Act 2026 (Act 6 of 2026) link
  3. IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016, consolidated text link
  4. Delhi High Court, Tata Steel BSL Ltd v Venus Recruiter Pvt Ltd, 2023 LiveLaw (Del) 51 link
  5. Supreme Court of India, Piramal Capital and Housing Finance Ltd v 63 Moons Technologies Ltd, 2025 INSC 421 link

This guide is general information on the law as stated above, not legal advice. Facts change outcomes; take advice on your own matter.

Go deeper

Further reading

Insolvency2 Sept 2026

Forensic Audits in CIRP: How Resolution Professionals Identify PUFE Transactions

How transaction audits help resolution professionals find preferential, undervalued, fraudulent and extortionate transactions, and the 2026 IBC changes.

Insolvency5 Sept 2026

Fraudulent and Wrongful Trading under Section 66 IBC: What Directors Need to Know

Section 66 IBC can make directors personally contribute to an insolvent company's assets. The tests, the 2026 changes and how directors can protect themselves.

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