Avoidance Transactions Under IBC (PUFE)
Five heads, three look-back periods and a 130-day deadline. Here's how to tell which payments can be reversed.
PUFE is shorthand for the transactions a resolution professional or liquidator can ask the NCLT to reverse: preferential, undervalued, fraudulent (transactions defrauding creditors) and extortionate. They sit in sections 43 to 51 of the Code. Section 66 adds fraudulent and wrongful trading, which makes the people responsible contribute to the company's assets rather than unwinding a single deal.
Each has its own test and its own look-back period, and the RP has a fixed timetable to act on them. The 2026 amendment moved the start of the look-back and made these proceedings outlive the CIRP. The exam tests the law as at 4 February 2025, so both versions are below.
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The Five Heads at a Glance
Look-back periods as at the exam cut-off, counted back from the insolvency commencement date (the date of admission).
Preferential
Section
43-44
Test
Transfer for an antecedent debt that puts a creditor, surety or guarantor in a better position than under section 53; ordinary-course transfers excluded
Look-back
2 years for a related party (other than only as an employee); 1 year for others
Undervalued
Section
45-46, 48
Test
Gift, or transfer for consideration significantly less than value, outside the ordinary course of business
Look-back
2 years for a related party; 1 year for others
Defrauding creditors
Section
49
Test
An undervalued transaction entered into deliberately to put assets beyond creditors' reach or to prejudice their claims
Look-back
None
Extortionate credit
Section
50-51
Test
Credit terms requiring exorbitant payments; credit from a financial service provider compliant with law is never extortionate
Look-back
2 years
Fraudulent or wrongful trading
Section
66
Test
Business carried on to defraud creditors; or a director who knew or ought to have known insolvency was unavoidable and did not minimise creditors' loss
Look-back
None stated
| Head | Section | Test | Look-back |
|---|---|---|---|
| Preferential | 43-44 | Transfer for an antecedent debt that puts a creditor, surety or guarantor in a better position than under section 53; ordinary-course transfers excluded | 2 years for a related party (other than only as an employee); 1 year for others |
| Undervalued | 45-46, 48 | Gift, or transfer for consideration significantly less than value, outside the ordinary course of business | 2 years for a related party; 1 year for others |
| Defrauding creditors | 49 | An undervalued transaction entered into deliberately to put assets beyond creditors' reach or to prejudice their claims | None |
| Extortionate credit | 50-51 | Credit terms requiring exorbitant payments; credit from a financial service provider compliant with law is never extortionate | 2 years |
| Fraudulent or wrongful trading | 66 | Business carried on to defraud creditors; or a director who knew or ought to have known insolvency was unavoidable and did not minimise creditors' loss | None stated |
The RP's Timetable (Regulation 35A)
Counted from the insolvency commencement date. Unchanged since before the exam cut-off.
- 1
By day 75: form an opinion
Whether the corporate debtor has been subjected to any transaction under sections 43, 45, 50 or 66.
- 2
By day 115: make a determination
Where the opinion is that such transactions exist.
- 3
By day 130: apply to the NCLT
For appropriate relief, such as vesting property back in the company, releasing security or ordering repayment (ss. 44, 48, 51).
Testing a Preferential Transaction
In Anuj Jain v. Axis Bank (2020), the Jaypee Infratech case, the Supreme Court set out the questions to ask in order: was there a transfer for the benefit of a creditor, surety or guarantor; was it for an antecedent debt; did it leave that person better off than under section 53; did it fall within the look-back for related or unrelated parties; and is it outside the exclusions in section 43(3). All must point the same way. Intention is irrelevant: once the conditions are met, the preference is deemed.
A worked example. A company's CIRP application was filed on 10 January 2025 and admitted on 1 April 2025. It repaid ₹2 crore to its promoter's firm on 1 June 2023 and ₹50 lakh to an unrelated bank on 15 February 2024. Under the exam's law the related-party payment is within two years before 1 April 2025, and the unrelated payment, more than one year before, falls outside. Under the 2026 rule, the period runs from one year before the initiation date (10 January 2024) to 1 April 2025, so the unrelated payment would now be caught.
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What Changed From 26 May 2026
None of this is in the exam's version of the law.
Start of the look-back (ss. 43, 46, 50)
At the exam cut-off
Counted back from the insolvency commencement date
Now
Runs from the stated period before the initiation date (filing) up to the insolvency commencement date; with several applications, the first one's filing date (proviso to s. 5(11))
Creditor's own application (s. 47)
At the exam cut-off
Only for undervalued transactions the RP or liquidator did not report
Now
For preferential, undervalued and extortionate transactions and fraudulent or wrongful trading
Life after the process
At the exam cut-off
Old section 26: filing by the RP does not affect the CIRP. The Code was silent on what happens once the CIRP ends
Now
Filing does not affect the CIRP or liquidation, and their completion does not end these proceedings (new s. 26); the CoC decides how pending proceedings are pursued at dissolution (new s. 54(1A))
Section 66
At the exam cut-off
Application by the RP
Now
Liquidator may also apply
| Point | At the exam cut-off | Now |
|---|---|---|
| Start of the look-back (ss. 43, 46, 50) | Counted back from the insolvency commencement date | Runs from the stated period before the initiation date (filing) up to the insolvency commencement date; with several applications, the first one's filing date (proviso to s. 5(11)) |
| Creditor's own application (s. 47) | Only for undervalued transactions the RP or liquidator did not report | For preferential, undervalued and extortionate transactions and fraudulent or wrongful trading |
| Life after the process | Old section 26: filing by the RP does not affect the CIRP. The Code was silent on what happens once the CIRP ends | Filing does not affect the CIRP or liquidation, and their completion does not end these proceedings (new s. 26); the CoC decides how pending proceedings are pursued at dissolution (new s. 54(1A)) |
| Section 66 | Application by the RP | Liquidator may also apply |
How the Limited Insolvency Examination Tests This
Avoidance questions sit inside the CIRP and liquidation case studies. You get a list of payments with dates and counterparties and must say which can be challenged. The usual mistakes: counting the look-back from the filing date instead of admission (the exam's law), treating a payment in the ordinary course of business as preferential, applying a look-back to section 49, and forgetting that a related party paid as an employee only gets the one-year period.
FAQs
What are PUFE transactions under IBC?expand_more
Preferential (s. 43), undervalued (s. 45), fraudulent, meaning transactions defrauding creditors (s. 49), and extortionate credit transactions (s. 50). The RP or liquidator can apply to the NCLT to reverse them.
What is the look-back period for preferential transactions?expand_more
As at 4 February 2025, two years before the insolvency commencement date for a related party and one year for anyone else. Since 26 May 2026 the period is counted from that many years before the initiation date up to the insolvency commencement date.
By when must the RP file an avoidance application?expand_more
Regulation 35A of the CIRP Regulations: opinion by the 75th day, determination by the 115th day, and application to the NCLT by the 130th day of the insolvency commencement date.
What is wrongful trading under section 66?expand_more
A director or partner who, before the insolvency commencement date, knew or ought to have known there was no reasonable prospect of avoiding a CIRP, and did not exercise due diligence to minimise creditors' potential loss, can be ordered to contribute to the company's assets.
Next steps
- Liquidation Processarrow_forward
- Section 29Aarrow_forward
- CIRP Timelinesarrow_forward
- IRP vs RParrow_forward
65 questions, case-study format, negative marking.