Insolvency and Bankruptcy Code, 2016

Section 26 IBC: Avoidance Applications Not to Affect Insolvency Proceedings

Section 26 of the Insolvency and Bankruptcy Code, 2016 (IBC) ensures that proceedings concerning specified suspect transactions can be pursued without interrupting a corporate insolvency resolution process (CIRP) or liquidation. The Insolvency and Bankruptcy Code (Amendment) Act, 2026 substituted Section 26 to clarify that such proceedings can continue even after the principal insolvency process is completed.

Section 26: Current statutory provision

The filing of an application in respect of an avoidance transaction or fraudulent or wrongful trading or under section 47, shall not affect the proceedings of the corporate insolvency resolution process or the liquidation process, as the case may be.
Explanation. For the removal of doubts, it is hereby clarified that the completion of the corporate insolvency resolution process or the liquidation process shall not affect the continuation of proceedings in respect of an avoidance transaction or fraudulent or wrongful trading or under section 47, as the case may be.

Legislative update: The above substituted text is from section 16 of the Insolvency and Bankruptcy Code (Amendment) Act, 2026. For the applicable commencement notification and subsequent changes, consult the IBBI legal framework.

Meaning and legal effect

An avoidance transaction is a transaction that may be challenged under the Code because it falls within a statutory category, such as a preferential transaction (sections 43-44), an undervalued transaction (sections 45-48), or an extortionate credit transaction (sections 50-51). Fraudulent or wrongful trading is addressed under section 66. The statutory requirements, relevant periods, evidence and available remedies differ by category.

Section 47 provides a route for a creditor, member or partner to apply to the Adjudicating Authority in the circumstances specified there when the resolution professional or liquidator has not reported an undervalued transaction. Adjudicating Authority generally refers, for corporate persons, to the National Company Law Tribunal (NCLT) under section 60.

What Section 26 does and does not do

Parallel proceedings: Filing the specified application does not itself stop or suspend CIRP or liquidation.
Survival after completion: Completion of CIRP or liquidation does not by itself terminate proceedings covered by the amended section.
No automatic finding: Filing an application does not establish that a transaction is avoidable or that trading was fraudulent or wrongful. The competent authority must decide it under the applicable law.
No blanket extension: Section 26 does not itself extend the statutory CIRP timeline or displace other procedural requirements.

Section 25(2)(j): Requires the resolution professional to file an application before the Adjudicating Authority concerning an avoidance transaction or fraudulent or wrongful trading, if any. Regulation 35A: Addresses the resolution professional's identification and examination of specified transactions. Regulation 38(2)(d): Addresses how a resolution plan provides for pursuit of avoidance proceedings and distribution of proceeds. Consult the latest IBBI CIRP Regulations for operative wording and amendments.

Practical example

Suppose a resolution professional identifies a potentially preferential payment and files an application during CIRP. The committee of creditors can continue considering resolution plans while that application is pending. If CIRP later concludes, the amended Section 26 clarifies that completion alone does not prevent the pending avoidance proceeding from continuing. The eventual order depends on the facts and applicable statutory tests.

Earlier wording and 2026 change

Before substitution, Section 26 stated that the filing of an avoidance application under section 25(2)(j) by the resolution professional would not affect CIRP proceedings. The 2026 substitution expressly covers fraudulent or wrongful trading, applications under section 47, liquidation proceedings, and continuation after completion of CIRP or liquidation.

Official references

IBC (Amendment) Act, 2026 - official text | IBBI legal framework and updated regulations | Insolvency and Bankruptcy Board of India

This article provides general legal information. Application of the provisions depends on the facts, commencement dates and current rules.