IBC Section 46: Relevant period for avoidable transactions

Section 46 of Insolvency and Bankruptcy Code, 2016: Relevant period for avoidable transactions

Official Bare Act Text

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

(1) In an application for avoiding a transaction at undervalue, the liquidator or the resolution professional, as the case may be, shall demonstrate that-

(i) such transaction was made with any person within the period of one year preceding the insolvency commencement date; or

(ii) such transaction was made with a related party within the period of two years preceding the insolvency commencement date.

(2) The Adjudicating Authority may require an independent expert to assess evidence relating to the value of the transactions mentioned in this section.

Legal Commentary & Landmark Judgments: Section 46

Section 46 prescribes the statutory 'relevant period' (look-back period) for scrutinizing and challenging undervalued transactions executed by the corporate debtor under Section 45.

Two-Year Look-Back for Related Parties: The relevant period is two years preceding the insolvency commencement date where the transaction was made with a related party.
One-Year Look-Back for Non-Related Parties: The relevant period is one year preceding the insolvency commencement date where the transaction was made with any person other than a related party.
Insolvency Look-Back Trigger: Transactions falling within this look-back window where the debtor gifted assets or sold assets for significantly less than fair market value are liable to be avoided under Section 45.

Key Landmark Precedents:

Anuj Jain v. Axis Bank Ltd. (2020) 8 SCC 401: The Supreme Court analyzed the statutory look-back periods under Section 46 r/w Section 43, holding that look-back periods are objective statutory filters; transactions executed within the period must be strictly evaluated against statutory tests.
Tata Consultancy Services Ltd. v. Vishal Ghisulal Jain (2022) 2 SCC 583: Affirmed that transactions outside the Section 46 look-back period cannot be avoided as undervalued transactions unless they qualify as fraudulent transactions under Section 49 or 66.

Courtroom Practice & Strategic Litigation Guidance:

In transaction audits, examine the date of registration or transfer. If the transferee is a 'related party' under Section 5(24), the look-back period automatically expands from 1 year to 2 years preceding the insolvency commencement date under Section 46.