Currently, the Insolvency and Bankruptcy Code (IBC) continues to evolve rapidly. As we approach the end of 2025, the interpretation of the **IBC preferential transaction look-back period** remains a hot topic. Specifically, legal professionals and Resolution Professionals (RPs) are closely watching the Supreme Court.
Recent judgments in 2025 signal a trend towards strict construction of timelines [26], [29]. For example, the *Tata Steel* ruling addressed limitation periods. Consequently, the calculation of the look-back period under Section 43 demands precision.
This post analyzes the current legal framework. Additionally, we explore the critical clarifications needed regarding the “look-back” calculation. Finally, we discuss the implications for insolvency practitioners.
Overview of the Current Legal Landscape in 2025
Specifically, the year 2025 has been pivotal for IBC jurisprudence. The Supreme Court has not yet delivered a specific judgment solely dedicated to the math of the IBC preferential transaction look-back period. However, its rulings on other timelines have been telling.
For instance, the Court affirmed the absolute time bar for appeals in Tata Steel Ltd. v. Raj Kumar Banerjee [26]. Therefore, experts infer that the Court will likely apply similar rigour to the look-back window under Section 43.
The Core Legal Question
First, the primary dispute often centers on the exact timeline. Specifically, stakeholders debate how to calculate the “period preceding the insolvency commencement date.”
Does the period include the date of insolvency commencement? Or does it end strictly the day before? Additionally, questions arise regarding transactions occurring “on the eve of insolvency.”
The Need for Judicial Clarity
Currently, NCLT orders vary on these specifics. Some tribunals adopt an inclusive approach. Conversely, others prefer an exclusive calculation method. As a result, legal certainty suffers.
Therefore, the insolvency community eagerly awaits a definitive Supreme Court ruling on this matter. Specifically, such clarity would standardize practices across all benches.
Recap: The Legal Framework of Preferential Transactions under Section 43
To understand the debate, we must first review the statute. Section 43 of the IBC governs preferential transactions [12]. Specifically, it empowers the Resolution Professional to avoid certain transactions made before insolvency.
Definition of a Preferential Transaction
First, a transaction is “preferential” if it puts a creditor in a better position. Specifically, the recipient must receive a benefit more advantageous than a liquidation distribution under Section 53 [12].
Furthermore, the transaction must relate to an antecedent debt. It must also occur during a specific timeframe relative to the insolvency commencement date.
Standard Timeframes
For example, the IBC establishes two distinct timeframes based on the relationship between parties [12].
- Related Parties: The look-back period is two years preceding the insolvency commencement date.
- Unrelated Parties: The look-back period is one year preceding the insolvency commencement date.
These periods are significantly longer than those in many other jurisdictions. Consequently, they cast a wide net for potential recovery.
The ‘Benefit vs Detriment’ Test
Courts apply a simple test to identify these transactions. Did the creditor benefit? Did the corporate debtor suffer a detriment?
Notably, fraudulent intent is not required. The NCLAT held in GVR Consulting Services that intent is irrelevant [1], [9]. The focus is solely on the effect of the transaction.
Key Clarifications: How the SC Redefined the ‘Look-Back’ Calculation
While a specific 2025 judgment on the math is awaited, legal analysis points to three key areas for clarification [6]. Moreover, the Supreme Court’s future intervention is expected to address these specific points.
Clarification on Inclusive vs. Exclusive Dates
First, the first major issue is the date calculation itself. Does “preceding” include the insolvency commencement date?
Most legal experts argue for an exclusive interpretation. Therefore, the look-back period likely ends on the day before the NCLT admits the case.
However, ambiguity persists. A clear ruling would define whether the “commencement date” is day zero or day one for calculation purposes.
Interpreting ‘On the Eve of Insolvency’
The phrase “on the eve of insolvency” is frequently used in legal arguments [32]. However, it lacks a statutory definition.
Some argue this refers to a subjective window of distress. In contrast, others view it as a reference to the statutory look-back period.
The Supreme Court needs to define this boundary. This definition would prevent tribunals from extending scrutiny arbitrarily far back in time.
Financial Year vs. Transaction Date
Another area of confusion involves the methodology of calculation. Should RPs analyze transactions by specific dates? Or should they review whole financial years?
Some tribunals look at the financial year in which the insolvency commenced. This creates discrepancies, especially if the commencement date is early in the fiscal year.
Therefore, a standardized approach is necessary. A transaction-based analysis offers more precision than a fiscal year approach.
Implications for the Resolution Professional (RP)
The evolving interpretation of the IBC preferential transaction look-back period significantly impacts the duties of the Resolution Professional. RPs act as the guardians of the corporate debtor’s estate during the CIRP.
Shift in Burden of Proof
RPs must meticulously identify potential avoidable transactions. They must file applications under Regulation 35A within strict timelines [19].
Under Section 43, the burden lies on the RP. They must prove the transaction was preferential. Consequently, thorough evidence collection is paramount.
New Due Diligence Requirements
Given the strict timelines, RPs must act swiftly. They must examine books of accounts for at least two years prior to insolvency [22].
Moreover, they must look for patterns of unusual payments. These include large transfers to specific creditors or related parties shortly before default.
Impact on Filing Avoidance Applications
The timeline for filing avoidance applications is tight. RPs must form an opinion by day 75 and make a determination by day 115 [21].
A miscalculation of the look-back period can be fatal. If an RP files outside this window, they lose the right to recover assets. Therefore, understanding the precise calculation is a professional necessity.
Strategic Defense for Creditors and Corporate Debtors
Creditors and corporate debtors must also adapt to this landscape. They need robust strategies to defend against preferential transaction claims.
Arguments Available to Creditors
For example, creditors can argue that a transaction was in the “ordinary course of business” [15]. This is a statutory exception under Section 43(3).
To succeed, they must show the transaction was standard for the industry. It must also be consistent with past dealings between the parties.
Impact on ‘Running of Interest’
Another critical aspect is the “running of interest” during the look-back period [10]. Often, creditors argue that interest paid during this period was contractual.
However, RPs may challenge excessive interest rates. They may classify the excess as a preference.
Restructuring Advice for Clients
Lawyers must advise clients carefully during restructuring. Transactions undertaken during financial distress face high scrutiny.
Therefore, documentation is vital. Parties should maintain records showing the commercial rationale for every significant payment.
Conclusion and Future Outlook
The IBC preferential transaction look-back period is a powerful tool for asset recovery. However, its precise calculation remains a complex legal puzzle. As of 2025, the Supreme Court’s jurisprudence suggests a trend towards strict adherence to statutory timelines.
While we await a specific ruling on the look-back calculation, practitioners must rely on existing principles. The benefit vs detriment test and the ordinary course of business defense remain the cornerstones of this area of law.
Legislative amendments may also be on the horizon. The Insolvency and Bankruptcy Board of India (IBBI) frequently updates regulations to address gaps [22].
Final Recommendations for Legal Practitioners
Practitioners should stay updated on every NCLT and NCLAT order. These orders provide the interim guidance that shapes daily practice.
Furthermore, using technology to track dates and analyze financial data is no longer optional. It is essential for compliance and successful litigation.
Streamline your IBC case management and track regulatory updates effortlessly with LawSathi’s AI-powered legal practice management software. Start your free trial today.
