CHAPTER V ADMINISTRATION AND DISTRIBUTION OF THE ESTATE OF THE BANKRUPTCentral

Section 165 of The Insolvency and Bankruptcy Code, 2016. in hindi

(1)The bankruptcy trustee may apply to the Adjudicating Authority for an order under this section if a bankrupt has given a preference to any person.
(2)The transaction giving preference to an associate of the bankrupt under sub-section (1) should have been entered into by the bankrupt with the associate during the period of two years ending on the date of the application for bankruptcy.
(3)Any transaction giving preference not covered under sub-section (2) should have been entered into by the bankrupt during the period of six months ending on the date of the application for bankruptcy.
(4)The transaction giving preference under sub-section (2) or under sub-section (3) should have caused the bankruptcy process to be triggered.
(5)On the application of the bankruptcy trustee under sub-section (1), the Adjudicating Authority may—
1. (a)pass an order declaring a transaction giving preference void;
2. (b)pass an order requiring any property transferred in respect of a transaction giving preference to be vested with the bankruptcy trustee as a part of the estate of the bankrupt; and
3. (c)pass any other order it thinks fit for restoring the position to what it would have been if the bankrupt had not entered into the transaction giving preference.
(6)The Adjudicating Authority shall not pass an order under sub-section (5) unless the bankrupt was influenced in his decision of giving preference to a person by a desire to produce in relation to that person an effect under clause (b) of sub-section (8).
(7)For the purpose of sub-section (6), if the person is an associate of the bankrupt, (otherwise than by reason only of being his employee), at the time when the preference was given, it shall be presumed that the bankrupt was influenced in his decision under that sub-section.
(8)For the purposes of this section, a bankrupt shall be deemed to have entered into a transaction giving preference to any person if—
1. (a)the person is the creditor or surety or guarantor for any debt of the bankrupt; and
2. (b)the bankrupt does anything or suffers anything to be done which has the effect of putting that person into a position which, in the event of the debtor becoming a bankrupt, will be better than the position he would have been in, if that thing had not been done.

Summary

It allows the bankruptcy trustee to challenge transactions where the bankrupt gave an unfair preference to any person.
A preference occurs when the bankrupt does something that puts a creditor, surety, or guarantor in a better position than they would be in under the standard distribution of the bankruptcy estate.
The look-back period is two years ending on the bankruptcy application date if the preference was given to an associate.
For any other person, the look-back period is six months ending on the date of the bankruptcy application.
The transaction must have caused the bankruptcy process to be triggered.
To void the transaction, the bankrupt must have been influenced by a desire to put the recipient in a better position, which is automatically presumed if the recipient is an associate who is not an employee.

Practical examples

1Anil owes ten lakh rupees to his sister, Priya, who is an associate. On May 1, 2025, Anil repays Priya in full, knowing he is going bankrupt. Anil files for bankruptcy on August 15, 2025, and this repayment is what triggered his collapse. The trustee can challenge this as a preference transaction under Section 165 because Priya is an associate and the look-back period is two years.

2Vikram owes money to an unrelated supplier, Amit. On April 10, 2025, Vikram transfers his inventory to Amit to clear the debt, intending to favor Amit over other creditors. Vikram files for bankruptcy on June 20, 2025. Because this transaction happened within the six-month look-back period for non-associates and triggered the bankruptcy, the trustee can apply to void it under Section 165.

FAQ

1. What is the look-back period for preference transactions given to associates under Section 165 of the Insolvency and Bankruptcy Code, 2016?

Under Section 165 of the Insolvency and Bankruptcy Code, 2016, the look-back period is two years ending on the date of the application for bankruptcy.

2. What is the look-back period for preference transactions given to non-associates under Section 165 of the Insolvency and Bankruptcy Code, 2016?

Under Section 165 of the Insolvency and Bankruptcy Code, 2016, the look-back period for non-associates is six months ending on the date of the application for bankruptcy.

3. Is there a presumption of influence for associates under Section 165 of the Insolvency and Bankruptcy Code, 2016?

Yes, under Section 165 of the Insolvency and Bankruptcy Code, 2016, if the recipient is an associate, other than an employee, it is automatically presumed that the bankrupt was influenced by a desire to favor them.

Test yourself

Q1.Under Section 165 of the Insolvency and Bankruptcy Code, 2016, what is the look-back period for preference transactions made with a person who is NOT an associate?

Q2.To challenge a preference transaction under Section 165 of the Insolvency and Bankruptcy Code, 2016, what key commercial consequence must the transaction have had?

Q3.Under Section 165 of the Insolvency and Bankruptcy Code, 2016, who is presumed to have influenced the bankrupt's decision to give a preference?

Q4.Which of the following best defines a preference transaction under Section 165 of the Insolvency and Bankruptcy Code, 2016?

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