Part II, Chapter III — Avoidance and Fraudulent Transactions

Reviewed by CA Nikhil Gupta and Kajri Singh · Last reviewed 18 July 2026

Preferential, undervalued, extortionate and fraudulent transactions the RP/liquidator can claw back.

Preferential transactions (Section 43)

A transfer to a related party in the 2 years before the insolvency commencement date (1 year for unrelated parties) that puts that creditor in a better position than it would have been in a Section 53 liquidation is a preferential transaction, avoidable by NCLT order on the RP/liquidator's application.

Undervalued transactions (Section 45)

A transaction at significantly less than fair value in the look-back period (2 years related party, 1 year otherwise) is avoidable, unless made in the ordinary course of business.

Extortionate credit transactions (Section 50)

Credit transactions in the 2 years before the insolvency commencement date requiring grossly exorbitant payments, or otherwise unconscionable under principles of law relating to money-lending, can be reopened by NCLT.

Fraudulent trading/wrongful trading (Section 66)

If business was carried on with intent to defraud creditors, NCLT may order any person knowingly party to it (including former directors, in a wrongful-trading variant) to make such contribution to the assets as it thinks fit — this is the Code's route to pierce through to individuals responsible for asset-stripping ahead of insolvency, distinct from the criminal-liability provisions elsewhere in company law.

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