IBC Section 26: Application for avoidance of transactions not to affect proceedings

Section 26 of Insolvency and Bankruptcy Code, 2016: Application for avoidance of transactions not to affect proceedings

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

The filing of an avoidance application under clause (j) of sub-section (2) of section 25 by the resolution professional shall not affect the proceedings of the corporate insolvency resolution process.

Legal Commentary & Landmark Judgments: Section 26

Section 26 provides that the filing of an avoidance application by the Resolution Professional for preferential, undervalued, or fraudulent transactions shall not affect the ongoing Corporate Insolvency Resolution Process.

Independence of CIRP from Avoidance Litigation: The filing of an avoidance application under Chapter III by the resolution professional shall not affect the progress of the corporate insolvency resolution process.
Prevention of Resolution Hold-Ups: CIRP timelines, CoC approvals, and resolution plan voting proceed unimpeded without waiting for final adjudication of avoidance petitions.
Post-Resolution Continuity: Avoidance applications continue to be prosecuted even after approval of the resolution plan or liquidation order.

Key Landmark Precedents:

Tata Consultancy Services Ltd. v. Vishal Ghisulal Jain (2022) 2 SCC 583: The Supreme Court noted that Section 26 deliberately decouples avoidance applications from the main CIRP clock to prevent delinquent promoters from delaying corporate revival.
Anuj Jain v. Axis Bank Ltd. (2020) 8 SCC 401: Affirmed that avoidance proceedings under Section 43/45/66 run on parallel procedural tracks under Section 26 without paralyzing the resolution plan submission process.

Courtroom Practice & Strategic Litigation Guidance:

When representing a Resolution Applicant, do not condition the resolution plan on the outcome of pending avoidance applications. Under Section 26, the plan can be approved, with avoidance recoveries allocated as per the negotiated terms of the resolution plan.