(1) Where the corporate debtor has been a party to an extortionate credit transaction involving the receipt of financial or operational debt during the period within two years period starting from two years1. Substituted vide Insolvency and Bankruptcy Code (Amendment) Act, 2026 notification dated 06.04.2026, effective from 26.05.2026. To view the notification, Click Here preceding the initiation date and ending on preceding the insolvency commencement date, the liquidator or the resolution professional as the case may be, may make an application for avoidance of such transaction to the Adjudicating Authority if the terms of such transaction required exorbitant payments to be made by the corporate debtor.
(2) The Board may specify the circumstancesRefer regulation 5 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 . To view the regulations,Click Here in which a transactions which shall be covered under sub-section (1).
Explanation.—For the purpose of this section, it is clarified that any debt extended by any person providing financial services which is in compliance with any law for the time being in force in relation to such debt shall in no event be considered as an extortionate credit transaction.Refer Insolvency and Bankruptcy Board of India (Pre-packaged Insolvency Resolution Process) Regulations, 2021. To view the regulation,Click Here
2.18.5. Insolvency and Bankruptcy Board of India (Pre-packaged Insolvency Resolution Process) Regulations, 2021
5. Extortionate credit transaction.Inserted vide Insolvency and Bankruptcy Board of India (Pre-packaged Insolvency Resolution Process) Regulations, 2021 dated 09.04.2021. To view the notification, Click Here.A transaction shall be considered extortionate under sub-section (2) of section 50 where the terms-
(a) require the corporate debtor to make exorbitant payments in respect of the credit provided; or
(b) are unconscionable under the principles of law relating to contracts.
2.4.5:Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
5. Extortionate credit transaction.
A transaction shall be considered extortionate under section 50(2) where the terms:
(1) require the corporate debtor to make exorbitant payments in respect of the credit provided; or
(2) are unconscionable under the principles of law relating to contracts.