IBC Amendment 2026: How the New Framework Redefines Avoidance Transactions and Empowers Stakeholders
Introduction
The Insolvency and Bankruptcy Code, 2016 has undergone a significant legislative overhaul through the 2026 amendment, bringing substantial clarity and expanded enforcement mechanisms to the domain of avoidance transactions and fraudulent trading. The changes address long-standing definitional gaps, broaden the authority of insolvency professionals, and most critically, equip creditors, members, and partners with more robust tools to pursue accountability during and after insolvency proceedings. This article provides a detailed examination of the key amendments and their practical implications.
Defining "Avoidance Transaction" — The New Section 5(2A)
The Gap That Existed Before
One of the most notable structural weaknesses in the original framework of the Insolvency and Bankruptcy Code, 2016 was the absence of a formal definition of the term "avoidance transaction" within Section 5, which houses the general definitions applicable across the Code. Before the amendment, practitioners and adjudicating authorities were required to navigate directly to individual operative sections — namely Sections 43, 45, 49, and 50 — to understand what constituted such transactions. There was no unified definitional anchor within the Code's interpretive provisions.
What the Amendment Does
The 2026 amendment rectifies this by inserting Section 5(2A), which formally defines "avoidance transaction" to encompass transactions falling under the following provisions:
Section 43— Preferential transactionsSection 45— Undervalued transactionsSection 49— Transactions defrauding creditorsSection 50— Extortionate credit transactions
Significance: This definitional insertion is not merely cosmetic. It enables the term "avoidance transaction" to be used consistently and unambiguously across multiple amended provisions, including
Sections 25,26,35,36, and47, thereby improving legislative coherence throughout the Code.
Defining "Fraudulent or Wrongful Trading" — The New Section 5(9A)
The Pre-Amendment Position
While Section 66 of the Insolvency and Bankruptcy Code, 2016 addressed fraudulent and wrongful trading in substantive terms, no corresponding definition existed in Section 5. This created an interpretive inconsistency — the concept was operative but not definitionally recognised at the general provisions level, potentially leading to confusion in cross-referencing across different parts of the Code.
The Amendment's Contribution
The 2026 amendment fills this void by inserting Section 5(9A), which formally defines "fraudulent or wrongful trading" by directly incorporating the meaning assigned to the term under Section 66.
This dual definitional exercise — inserting both Section 5(2A) and Section 5(9A) — creates a unified interpretive framework that allows all downstream provisions to operate with consistent terminology and precise legal meaning.
Mandatory Reporting by the Resolution Professional — Amended Section 25(2)(j)
Earlier Position
Prior to the amendment, the Resolution Professional's authority to file applications concerning avoidance transactions was acknowledged under the Code, but the relevant provision lacked the express and consolidated mandate to address both avoidance transactions and fraudulent or wrongful trading in a single, clear obligation.
Post-Amendment Clarity
Section 25(2)(j) has now been substituted to unambiguously provide that the Resolution Professional is obligated to file an application before the Adjudicating Authority with respect to avoidance transactions or fraudulent or wrongful trading, if such instances are identified during the Corporate Insolvency Resolution Process (CIRP).
This substitution transforms what was arguably a permissive power into a clearer duty, reinforcing the Resolution Professional's role as an active guardian of the insolvency estate against suspect transactions.