Section 43: Preferential Transactions and Relevant Time under IBC 2016
Section 43 of the Insolvency and Bankruptcy Code, 2016 deals with preferential transactions by a corporate debtor and identifies the relevant time within which such transactions may be examined for avoidance. The provision works with Section 44, which provides for orders that may be passed in respect of a preferential transaction.
Section 43(1): Application for avoidance of preferential transactions
Where the liquidator or the resolution professional, as the case may be, is of the opinion that the corporate debtor has at a relevant time given a preference in transactions and in the manner described in Section 43(2) to persons covered by Section 43(4), an application is to be made to the Adjudicating Authority for avoidance of the preferential transactions and for one or more orders referred to in Section 44.
For corporate persons, the Adjudicating Authority under the Code is the National Company Law Tribunal having territorial jurisdiction in accordance with the applicable provisions of the IBC.
Section 43(2): When a corporate debtor is deemed to give a preference
A preference arises for the purpose of Section 43 when both statutory elements are satisfied:
(a) There is a transfer of property, or an interest in property, of the corporate debtor for the benefit of a creditor, surety or guarantor on account of an antecedent financial debt, operational debt or other liability owed by the corporate debtor; and
(b) the transfer has the effect of putting that creditor, surety or guarantor in a more beneficial position than it would have occupied if the corporate debtor's assets were distributed in accordance with Section 53.
Accordingly, Section 43 focuses not merely on the existence of a transfer, but also on its connection with an antecedent liability and the comparative benefit produced by the transfer.
Section 43(3): Transfers excluded from preference
Section 43(3) excludes specified transfers from the operation of Section 43(2).
Ordinary course transactions
A transfer made in the ordinary course of the business or financial affairs of the corporate debtor or the transferee is excluded.
Security interest securing new value
A transfer creating a security interest in property acquired by the corporate debtor is excluded to the statutory extent where the security interest secures new value, satisfies the requirements concerning the security agreement and acquisition of the property, and is registered with an information utility within the period prescribed by Section 43.
The proviso makes clear that the fact that a transfer was made pursuant to an order of a court does not by itself prevent the transfer from being treated as a preference.
Meaning of new value
The Explanation to Section 43(3) defines new value to include money or its worth in goods, services or new credit, or the release by the transferee of property previously transferred to it in a transaction that is neither void nor voidable by the liquidator or resolution professional under the Code, including proceeds of such property. It excludes a financial debt or operational debt substituted for an existing financial debt or operational debt.
Section 43(4): Relevant time after the 2026 amendment
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 changed the statutory wording governing the look-back period. A preference is deemed to have been given at a relevant time where:
Related party: the preference is given to a related party, other than by reason only of being an employee, during the period starting from two years preceding the initiation date and ending on the insolvency commencement date.
Person other than a related party: the preference is given to a person other than a related party during the period starting from one year preceding the initiation date and ending on the insolvency commencement date.
How Section 43 operates with Section 44
Section 43 identifies preferential transactions and their relevant time. Where the statutory requirements are met, the avoidance application may lead to relief under Section 44 - Orders in case of preferential transactions. The provisions should therefore be read together when considering the consequences of a preference.
Related avoidance provisions
The IBC separately addresses other forms of avoidable or improper transactions. These include Section 45 - avoidance of undervalued transactions, Section 46 - relevant period for undervalued transactions, Section 47 - application by creditor in cases of undervalued transactions, Section 49 - transactions defrauding creditors and Section 50 - extortionate credit transactions.
Official legal resources
For the current statutory and regulatory framework, refer to the IBBI Acts page, the updated IBBI liquidation regulations, and the IBBI circulars. The official materials should be checked for later amendments, notifications and commencement provisions before relying on the text in a live proceeding.
Legal note: This article explains Section 43 for general legal information. Applicability to a particular transaction depends on the facts, the relevant commencement provisions, the applicable version of the Code and regulations, and judicial interpretation.