Abstract
The Insolvency and Bankruptcy Code, 2016 is the extant law and an assimilated Code unifying the different legal regimes dealing with insolvencies and bankruptcies in India. The IBC is a good piece of legislation and has recently been declared constitutionally valid in its entirety by the Apex Court in ‘Swiss Ribbons Pvt. Ltd. & Am: v. Union of India & Ors’. It is a significant effort in addressing the concerns of the creditors whose interests are adversely affected due to asymmetry of information that exists between the creditors and the corporate debtors. When an entity is financially distressed, the promoters and the directors of the company are the first to get alarmed at the situation, and not the creditors. Thus, there exists a high probability that they may alienate the assets of the company to the detriment of the creditors by reducing the liquidation estate, which is against the principle of anti-deprivation rule quite popular in England. Hence, transaction avoidance laws are important for regulating such evasive behaviour of the debtors and restraining them from entering into transactions for a certain time prior or during the insolvency, which might adversely affect the rights of all the creditors or a few of them. Among various forms of avoided transactions, this paper focuses on the 'extortionate credit transactions' and highlights that the existing provision faces various challenges and issues related to interpretation and implementation. Section 50 of the IBC provides for avoiding such transactions entered into by the debtor in the two years preceding the insolvency commencement date in order to keep the asset value intact and secure the interest of all the creditors at par with the interests of the creditor involved in the said transaction. Though the term 'extortionate credit transaction' is not defined in the IBC, necessary indication is provided under the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The remedies envisaged under the IBBI Regulations are inadequate, ineffective, and too stringent in nature and create absurd legal fictions. Therefore, this paper is an attempt to holistically study the foundations of the IBC and, particularly Section 50, undertake a comparative study and recommend necessary changes in order to derive a flawless Section 50.
Recommended Citation
Tiwari, Varendyam Jahnawi
(2018)
"A Critical Analysis of Transaction Avoidance in Insolvencies with Special Reference to Extortionate Credit Transactions Under the Insolvency and Bankruptcy Code, 2016,"
National Law School Journal: Vol. 14:
Iss.
1, Article 5.
Available at:
https://repository.nls.ac.in/nlsj/vol14/iss1/5