Preferential Transactions: Look-back Period Case Studies

A preference is a payment or transfer that lets one creditor jump the queue shortly before insolvency. Intent does not matter; the effect does. Questions test whether each element is present, which dates fall within the look-back after the 2026 Amendment, whether the ordinary course or new value exceptions apply, and what orders the NCLT can make, including against third parties.

1. The Law in Brief

• Section 43(2). A deemed preference is a transfer of the debtor's property or an interest in it for the benefit of a creditor, surety or guarantor, on account of an antecedent debt, which puts that person in a better position than it would have in a liquidation under section 53.
• Relevant time, section 43(4). Two years for related parties, one year for others; after the 2026 Amendment, the period starts that long before the initiation date (the date of filing) and runs until the insolvency commencement date.
• Exclusions, section 43(3). Transfers in the ordinary course of business of the debtor and the transferee (Anuj Jain, 2020), and security for new value used to acquire property, registered with an information utility within thirty days.
• Survival. Under section 26 as substituted in 2026, avoidance proceedings are not affected by the end of the CIRP or liquidation.

Figure 1: The five-step inquiry from Anuj Jain

2. Which Payments Fall within the Look-back Period?

• Issue. Which payments fall within the look-back period under section 43(4) as amended in 2026.
• Law. For related parties, the period is two years before the initiation date; for others, one year before it. After 2026, it runs until the insolvency commencement date, so transfers made while the application was pending are included. A holding company is a related party under section 5(24)
• Application. The initiation date is 1 March 2026. For unrelated persons the window opens on 1 March 2025; for related parties on 1 March 2024; both close on 1 June 2026. Payment (i) on 1 February 2025 is before the one-year window. Payment (ii) on 15 April 2025 is inside it. Payment (iii) to the holding company on 1 June 2024 is inside the two-year window. Payment (iv) on 1 May 2026, after filing but before admission, is inside the window under the 2026 rule.
• Conclusion. Payments (ii), (iii) and (iv) fall within the relevant time and may be avoided if the other elements are met and no exception applies. Payment (i) is outside section 43, though it may be examined under section 49 if a deliberate intent to defeat creditors is shown. Under the pre-2026 rule, counting back from admission, payment (iv) would have been in the window but payment (ii) would have been outside it, since 15 April 2025 is more than one year before 1 June 2026.

Figure 2: The look-back windows

3. When Is a Payment in the Ordinary Course of Business?

• Issue. Whether the payments fall within the ordinary course of business exception in section 43(3)(a)
• Law. Section 43(3)(a) excludes a transfer made in the ordinary course of the business or financial affairs of the corporate debtor or the transferee. In Anuj Jain v Axis Bank (2020), the Supreme Court read or as and, so that the transfer must be in the ordinary course for both the debtor and the transferee.
• Application. The monthly payments to the supplier followed the established pattern of both parties' business. The prepayment to LM Finance was made well before it was due, at a time of distress and while others went unpaid, which is not in the ordinary course of JK Ltd's financial affairs.
• Conclusion. The payments to the supplier are excluded. The prepayment to LM Finance is a preference within one year, and the NCLT may order it to repay the amount to JK Ltd.

4. Is Security for an Old Debt a Preference?

• Issue. Whether creating security for an existing debt, or for a loan used to acquire the secured asset, is a preference.
• Law. Giving security to an unsecured creditor for an antecedent debt improves its position over a liquidation, where it would rank as unsecured, and is a transfer of an interest in property. Section 43(3)(b) excludes a security interest in property acquired by the debtor to the extent it secures new value given under a security agreement describing the property, used to acquire it, and registered with an information utility within thirty days after the debtor received possession.
• Application. PQ Bank's charge secures an old overdraft and converts it from unsecured to secured within the one-year window. RS Bank's charge secures fresh money used to buy the machine, under an agreement describing it, registered within twenty days.
• Conclusion. PQ Bank's charge is a preference, and the NCLT may order it released, leaving PQ Bank as an unsecured creditor. RS Bank's charge falls within the new value exception and stands.

5. Can an Asset Be Recovered from a Good Faith Buyer?

• Issue. The orders the NCLT can make under section 44, and the protection of a third party that bought in good faith.
• Law. Section 44 empowers the NCLT to order property to be vested back in the debtor, release security, require any person to pay sums in respect of benefits received, and make other orders to restore the position. An order does not affect an interest acquired from a person other than the corporate debtor in good faith and for value, unless that person was a party to the transaction or a creditor of the debtor at the time.
• Application. The transfer to VW Ltd, a related party creditor, in settlement of an antecedent debt and within the relevant time, is a preference. XY Ltd bought from VW Ltd, not from TU Ltd, in good faith and for value, and was neither a party to the preference nor a creditor of TU Ltd.
• Conclusion. The warehouse cannot be recovered from XY Ltd. The NCLT should order VW Ltd to pay TU Ltd the value it received, with VW Ltd's loan revived as an unsecured claim in the CIRP.

6. Frequently Asked Questions

By when must the resolution professional act on avoidance transactions?

Under Regulation 35A, he forms an opinion by the 75th day, makes a determination by the 115th day and applies to the NCLT by the 135th day from commencement.

Does an avoidance application lapse when the plan is approved?

No. Section 26 as substituted in 2026 provides that completion of the CIRP or liquidation does not affect such proceedings; the plan provides how recoveries are dealt with.

7. Related Topics

• Topic 48: Preferential Transactions. Sections 43 and 44.
• Topic 47: Avoidance Transactions. Definitions and look-back.
• Topic 122: Undervalued Transactions and Section 49 Fraud. Sections 45 to 49.