Antecedent Transactions Under The Companies Act And IBC: A Comparative Analysis Of Avoidance Mechanisms
- IJLLR Journal
- Jun 26
- 2 min read
Shreekumar Venkatasubramanian, Research Scholar, Vels University, Chennai
Introduction
The Insolvency and Bankruptcy Code (IBC), 2016 was introduced the concept of avoidance or antecedent transactions which was kept in line with the global practice in the realm of insolvency laws. In IBC, a series of transactions can be undone or avoided, the Resolution Professional or the liquidator who oversees the management can during the insolvency process simply making an application to the Adjudicating Authority. The paper will tries explaining the laws in India regarding the avoidance transaction and the economic rationale and explore jurisprudence evolved behind the same via landmark judgements.
Avoidance transactions include transactions like Preferential, Undervalued, Fraudulent, and extortionate transactions which are stated under Sections 43 to 51 of the Code. Each transaction is of different nature and the impact each transaction creates is almost the same as they all deplete the assets of the corporate debtor. Recently, various records were released by IBBI or the Insolvency and Bankruptcy Board of India which showed a total of Rs. 2.2 lakh crores worth of applications for avoidance transactions has been received by them recently.
The concept can simply be understood with help of a simple example. If a company A is under insolvency process, the company will generally have creditors whose dues are not yet paid against A. The promoter of the company A, just before starting the insolvency process sell assets of the company A at lower price then what it is worth. For instance, it can be a building owned by A whose real value is Rs. 1 crore but promoter sells it for only Rs. 50 lakhs and is sold to a known person by the promoter. The effect such transaction creates is that the creditors loaned money to A for it to purchase the building is left with just Rs. 50 lakhs to distribute among themselves. In such scenario, Rs. 1 crore should be realised by the creditor. To negative the effect of such kind of undervalued or avoidance transaction, the liquidator files an application with Adjudicating Authority which will reverse such a transaction.
