Section 26: Application in Respect of Certain Transactions or Trading Not to Affect Processes

Section 26 of the Insolvency and Bankruptcy Code, 2016 (IBC) provides that proceedings concerning avoidance transactions, fraudulent or wrongful trading, or an application under section 47 do not stop or affect the corporate insolvency resolution process (CIRP) or liquidation process. It also clarifies that completion of CIRP or liquidation does not terminate those proceedings.

Current Text of Section 26 of the IBC

Meaning and Purpose of Section 26

Section 26 separates proceedings relating to specified transactions or trading from the progress and completion of the principal insolvency process. An application concerning an avoidance transaction, fraudulent or wrongful trading, or section 47 can therefore proceed without holding up CIRP or liquidation.

The Explanation added in 2026 addresses the position after completion of the insolvency process. It expressly states that completion of CIRP or liquidation does not affect continuation of proceedings concerning an avoidance transaction, fraudulent or wrongful trading, or an application under section 47. This enables the specified proceedings to continue independently in accordance with the Code even after the relevant CIRP or liquidation process has concluded.

What Is an Avoidance Transaction?

Under the IBC, "avoidance transaction" is a general description used for transactions that may be examined and challenged under the statutory avoidance framework. Depending on the facts and the applicable provision, this framework includes preferential transactions, undervalued transactions, transactions defrauding creditors and extortionate credit transactions.

• Preferential transactions: Sections 43 and 44 deal with preferential transactions and orders that may be made in relation to them.
• Undervalued transactions: Sections 45 and 48 deal with transactions entered into for inadequate consideration and the orders that may follow.
• Transactions defrauding creditors: Section 49 addresses certain undervalued transactions deliberately entered into to keep assets beyond the reach of persons entitled to make claims or otherwise prejudice their interests.
• Extortionate credit transactions: Sections 50 and 51 deal with specified credit transactions involving exorbitant payments or terms that are unconscionable under the principles relating to contracts.

Section 47 Applications

Section 47 provides a statutory route for a creditor, member or partner of a corporate debtor to apply to the Adjudicating Authority in the circumstances specified by that section where an undervalued transaction has occurred and the resolution professional or liquidator has not reported it to the Adjudicating Authority. Section 26 now expressly states that an application under section 47 does not affect CIRP or liquidation and may continue even after completion of the relevant process.

Fraudulent or Wrongful Trading

The expression "fraudulent or wrongful trading" in the amended section 26 connects the provision with the Code's framework for liability arising from the manner in which the business of a corporate debtor has been carried on. Such proceedings are distinct from the ordinary conduct and timetable of CIRP or liquidation. Their merits, liability and relief must be determined by the Adjudicating Authority under the applicable provisions of the Code.

Effect of Section 26 on CIRP and Liquidation

• The filing of a covered application does not suspend or halt the corporate insolvency resolution process.
• The filing of a covered application does not suspend or halt the liquidation process.
• Proceedings concerning avoidance transactions, fraudulent or wrongful trading, or section 47 may continue even after CIRP has been completed.
• Those proceedings may also continue after completion of the liquidation process.
• The provision therefore prevents the specified proceedings from becoming an automatic obstacle to timely progress or completion of the main insolvency process.

Relationship with Section 25

Section 25 sets out the duties of the resolution professional. Following the 2026 amendment, section 25(2)(j) requires the resolution professional to file an application to the Adjudicating Authority in respect of an avoidance transaction or fraudulent or wrongful trading, if any. Section 26 complements that duty by providing that the filing of such proceedings does not affect CIRP or liquidation and by protecting their continuation after completion of those processes.

Adjudicating Authority under the IBC

For insolvency resolution and liquidation of corporate persons, the Adjudicating Authority under section 60 is the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located, subject to the provisions of the Code. Applications covered by section 26 are dealt with within the statutory jurisdiction prescribed by the IBC.

Related IBC Provisions

Official Legal Resources

For the authoritative legislation and amendments, refer to the IBBI Acts page. Current notifications, regulations, circulars and other legal instruments are available through the IBBI Legal Framework. The Insolvency and Bankruptcy Code (Amendment) Act, 2026 received Presidential assent on 6 April 2026, and the relevant substituted provisions were brought into force through the Central Government notification dated 25 May 2026 with effect from 26 May 2026.

Last updated: 30 September 2026. This article provides general legal information. The Code, commencement notifications, applicable regulations and judicial decisions should be checked for the facts of a particular matter.