Avoidance Transactions under the IBC: The Duty to Form an Opinion, Regulation 35A and the 2026 Changes

Companies in distress sometimes shift value out before insolvency: an old debt is paid in preference to others, an asset is sold cheaply to a connected party, or a loan is taken on extortionate terms. The Insolvency and Bankruptcy Code, 2016 (“IBC”) allows such transactions to be reversed. These avoidance transactions under the IBC are subject to specific statutory requirements and timelines, and tribunals have declined relief where those steps were not taken

The Categories

A change in how the look-back is measured. Before 26 May 2026, the relevant periods were computed backwards from the insolvency commencement date, which meant the time between filing and admission fell outside the net. As amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2026, Sections 43(4), 46 and 50(1) now measure the period from the relevant number of years preceding the initiation date, ending on the insolvency commencement date. Since the initiation date is the date of filing of the application, the gap between filing and admission is now covered.

Section 5(2A) of the IBC now defines “avoidance transaction” as a transaction referred to in Sections 43, 45, 49 and 50, and Section 5(9A) of the IBC defines “fraudulent or wrongful trading” by reference to Section 66.

The Professional’s Duty to form an Opinion

Regulation 35A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 sets out a sequence: the resolution professional is to form an opinion, by the seventy-fifth day of the insolvency commencement date, on whether the corporate debtor has been subjected to any avoidance transaction covered by Sections 43, 45, 50 or 66; to make a determination by the one hundred and fifteenth day; and to apply to the Adjudicating Authority by the one hundred and thirty-fifth day where a determination is made.

In Shalabh Kumar Daga, RP of Silver Proteins Pvt. Ltd. v. Himanshu J. Domadia & Ors. (NCLT, Ahmedabad Bench, 11 March 2024), as reported, the Tribunal emphasised that forming this opinion is mandatory. It noted that the record showed only a resolution of the stakeholders’ consultation committee that an application be filed, without the professional recording that he had formed the opinion and made the determination within the prescribed periods.

Tribunals have taken differing views on whether these periods are mandatory or directory, and outcomes have turned on whether the professional could show that the underlying exercise was in fact carried out. The safer course for a professional is to record the opinion and determination with reasons, and to file within the regulation’s timeline or explain the delay.

Can Avoidance Proceedings Continue After CIRP?

A recurring question was whether an avoidance application under the IBC dies when the CIRP ends. In Tata Steel BSL Ltd. v. Venus Recruiters Pvt. Ltd. (Delhi High Court, Division Bench, 13 January 2023), the Court held that avoidance applications can be heard after the conclusion of the CIRP, that the resolution professional becomes functus officio in relation to the CIRP but not in relation to avoidance applications, and that benefits from such adjudication go to the creditors.

The 2026 amendments put this beyond doubt. The substituted Section 26 provides that filing an application in respect of an avoidance transaction, or fraudulent or wrongful trading, or under Section 47 does not affect the CIRP or liquidation, and an Explanation clarifies that completion of either process does not affect the continuation of those proceedings. Section 36(3)(f) has been aligned, and Section 35(1)(l) empowers the liquidator to continue or institute such proceedings.

Who can Apply after 26 May 2026?

Previously, only the resolution professional or liquidator could bring these applications, which left creditors without a remedy if the professional did not act. The substituted Section 47 now provides that where a preferential, undervalued or extortionate credit transaction, or fraudulent or wrongful trading, has occurred and the professional has not reported it to the Adjudicating Authority, a creditor by itself or jointly with others, a member, or a partner of the corporate debtor may apply. If the Adjudicating Authority is satisfied that the transaction occurred, it shall pass orders as if the application had been filed by the professional, and where it finds that the professional did not report the transaction despite having sufficient information or the opportunity to obtain it, it shall direct the IBBI to initiate disciplinary proceedings.

Section 25(2)(j) has been recast to require the resolution professional to file applications in respect of avoidance transactions or fraudulent or wrongful trading, and Section 66 now allows the liquidator, as well as the resolution professional, to pursue fraudulent or wrongful trading.

Practical Implications

The 2026 amendments have practical consequences for everyone involved in avoidance proceedings under the IBC. They strengthen the procedural responsibilities of insolvency professionals, give creditors a direct route where the professional has not acted, and extend the reach of the look-back period and post-CIRP proceedings.

• For insolvency professionals. The Regulation 35A steps should be documented, with the transaction review, the opinion, the determination and the application each recorded and dated. A failure to do so can defeat an otherwise good claim and can now attract a direction for disciplinary proceedings under Section 47(3).
• For creditors. Section 47 provides a direct route where the professional has not acted, individually or jointly with other creditors.
• For directors and related parties. The extended measurement of the look-back period means transactions in the months between filing and admission are now examinable, and proceedings continue even after the corporate debtor is resolved or dissolved.

FAQs

What are avoidance transactions under the IBC?

Avoidance transactions include preferential, undervalued, transactions defrauding creditors, and extortionate credit transactions under the IBC.

What changed in the IBC look-back period in 2026?

The 2026 amendments measure the relevant look-back period from the initiation date, covering the period between filing and admission.

Can creditors file avoidance applications?

Yes. Under the substituted Section 47, creditors, members or partners may apply where the insolvency professional has not reported the transaction.

Can avoidance proceedings continue after CIRP ends?

Yes. Section 26 now expressly provides that completion of CIRP or liquidation does not affect the continuation of avoidance proceedings.

Legal Information Disclaimer

This article provides general information about Indian law as it stood on 16 September 2026. It is not legal advice, and reading it does not create an advocate–client relationship. Statutes, rules and judicial interpretations change, and their application depends on the facts of each matter. Readers should consult the current official text of the laws and judgments cited and should not act on this information without advice specific to their circumstances. This article is published for legal awareness and education and is not intended to advertise or solicit professional work.

Sources / Authorities

1. Insolvency and Bankruptcy Code, 2016 — Sections 5(2A), 5(9A), 25(2)(j), 26, 35, 36, 43, 45, 46, 47, 49, 50, 66 (as amended) — IBBI – Legal Framework
2. Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026), clauses 3, 15, 16, 23, 24, 26 to 30 and 46 — Gazette text (IBBI); Notification S.O. 2625(E) dated 22 May 2026 — IBBI
3. IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 — Regulation 35A — IBBI – Regulations
4. Shalabh Kumar Daga, RP of Silver Proteins Pvt. Ltd. v. Himanshu J. Domadia & Ors., NCLT, Ahmedabad Bench, 11 March 2024 — summary, IBC Laws
5. Tata Steel BSL Ltd. v. Venus Recruiters Pvt. Ltd. & Ors., Delhi High Court, 13 January 2023 — Indian Kanoon