Supreme Court while confirming the amendment to the Insolvency and Bankruptcy Code allowed the creditors to proceed, to recover the debt, against the personal guarantors Off defaulting companies. This ruling has caused an uproar among the promoter. The Insolvency and Bankruptcy Rule, 2019 that came into effect from December 1st, 2019 states that lenders can go ahead with the proceedings for recovery against the personal guarantors to the corporate debtors who are undergoing corporate insolvency resolution process. This amendment was upheld in the case of Lalit Kumar Jain versus Union of India, 2021. Since most of the guarantors are family, this has left personal guarantors in a tight spot. It is the burden of creditors to prove that the transactions or transfer to trust is done with mala fide intention and the transactions are under PUFE that is preferential, undervalued, fraudulent, and extortionate. Look back period is not for fraudulent transactions but only for a transaction under PUE.

There are four types of vulnerable transactions, that are preferential, undervalued, fraudulent, and extortionate, both in the Insolvency and Bankruptcy court, 2016. They are commonly referred to as avoidable transactions or PUFE transactions. These are covered under Sections 43, 45(2), 66(1), and 50 of the Insolvency and Bankruptcy Code. The recent COVID-19 pandemic has given a big blow to many businesses and they may not have sufficient financial power to survive the pandemic or the crisis which causes distressed asset sale transactions, that is why it is important to have knowledge of the sellers' insolvency and prevent distress companies from harming the creditor’s. Resolution professionals need to identify search avoidable transactions and educating authority must be reported for an appropriately. Look back is not from the date on which section 43 came into effect but from the insolvency commencement date.

Section 43 of Insolvency and Bankruptcy Code, 2016 deals with preferential transactions, Preferential transaction is set to have occurred when the transaction or transfer of property has benefited the surety/ creditor/ guarantor, or Operational debt, or an antecedent financial debt or other liabilities that are owed by the corporate debtor. If The transaction or transfer of property puts the creditor in a more beneficial position than that he should have been, in the event of distribution of assets being made under Section 53. If the transaction or transfer is done within relevant two years for the related party, and one year for other parties preceding the date of commencement of insolvency. In case the transaction of our transfer of property has been made in the ordinary course of business or has created a new opportunity or value for the corporate debtor, then the transaction will not be considered as a preferential transaction. It is important that the requirements under section 43 (4) and section 43 (2) are fulfilled. And the transaction does not fall under exceptions given in section 43(3).

Section 45 of Insolvency and Bankruptcy Code, 2016 deals with undervalued transactions. A transaction or transfer of property is considered to be undervalued when a corporate debtor makes a gift to a person or when the corporate debtor enters into a transaction that involves the transfer of the assets that have significantly less consideration than the actual value of the consideration provided by the corporate debtor, If the transaction is made in the ordinary course of business then the section 45 will not apply so, it is important to see where such transactions have taken place in the ordinary course of business of the corporate debtor or not.

Section 66(1) of IBC 2016 deals with fraudulent transactions, and it imposes liability on the party that was carrying their business with intention of dishonesty and fraud. Only RP can apply in case of wrongful and fraudulent trading. And section 66(2) deals with wrongful trading. There is no defined look-back period so the involved party can be held liable for transactions before liquidation.

Section 50 of the IBC 2016 deals with extortionate transactions. The term “extortionate” is not defined in the section itself but IBBI has the power to define it. Extortionate transaction addresses receipt of credit by the corporate debtor and does not address the transfer of assets by the corporate debtor like other avoidable transactions. When the corporate debtor has to make exorbitant payments to the credit, tt is said to be an extortionate transaction, or when the terms are unconscionable under the principles of law.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws being force In India, for the time being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Consulting & Governance shall not be responsible for any errors caused due to human error or otherwise.