LIMITATIONS ON POWERS OF ADMINISTRATION PRACTITIONERCentral

Section 8 of The Bilateral Netting of Qualified Financial Contracts Act, 2020

The administration practitioner shall not render or seek to render ineffective,--

(a)any transfer, substitution or exchange of cash, collateral or any other interests under or in connection with a netting agreement between the insolvent party and the non-insolvent party to a qualified financial contract; or
(b)any payment or delivery obligation incurred by the insolvent party and owing to the non-insolvent party under or in connection with a netting agreement on the grounds of it constituting a preference including a fraudulent preference or a transfer for undervalue, including during a suspect period by the insolvent party to the non-insolvent party. Explanation.--For the purposes of this clause, "suspect period" means the relevant period referred to in sub-section (4) of section 43 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) in respect of "preferential transaction" and in sub-section (1) of section 46 of the said Code in respect of "undervalued transaction".

Summary

An administration practitioner, such as a liquidator, receiver, or trustee, cannot block or cancel transfers of cash or collateral made under a netting agreement.
The practitioner cannot invalidate payment or delivery obligations owed under a netting agreement.
These transactions are protected even if they are claimed to be a preference, a fraudulent preference, or a transfer for undervalue.
This protection applies even if the transaction occurred during a suspect period.
The suspect period is defined by referencing specific sections of the Insolvency and Bankruptcy Code, 2016.

Practical examples

1On May 10, 2026, Zenith Bank goes into insolvency, and Mr. Rajesh Kumar is appointed as the administration practitioner. Zenith Bank had previously exchanged 40,000,000 rupees in cash for government bonds as collateral under a netting agreement with Peak Capital. Under Section 8(a), Mr. Rajesh Kumar is prohibited from canceling this exchange of collateral.

2On June 15, 2026, Apex Finance is placed under liquidation. A suspect period of one year applies to its past transactions. During this period, Apex Finance paid 15,000,000 rupees to Horizon Trust under a netting agreement. The liquidator, Ms. Sunita Sharma, wants to claw back the payment as a fraudulent preference. Under Section 8(b), she is legally barred from doing so.

FAQ

1. What grounds are prohibited for challenging payment obligations under Section 8(b)?

They cannot be challenged on the grounds that they constitute a preference, a fraudulent preference, or a transfer for undervalue.

2. Which external law defines the suspect period in Section 8?

The Insolvency and Bankruptcy Code, 2016 (31 of 2016).

3. What specific section of the Insolvency and Bankruptcy Code, 2016 governs undervalued transactions under Section 8?

Sub-section (1) of section 46 of the Code.

4. What specific section of the Insolvency and Bankruptcy Code, 2016 governs preferential transactions under Section 8?

Sub-section (4) of section 43 of the Code.

Test yourself

Q1.Under Section 8, which of the following is an administration practitioner prohibited from rendering ineffective?

Q2.Under Section 8(b), payment obligations cannot be rendered ineffective on the grounds that they constitute:

Q3.Which Act is referenced in Section 8 to define the suspect period?

Q4.Under Section 8, the suspect period for a preferential transaction is linked to which specific provision of the Insolvency and Bankruptcy Code, 2016?

Q5.Under Section 8, the suspect period for an undervalued transaction is linked to which specific provision of the Insolvency and Bankruptcy Code, 2016?

Q6.To which parties do the protections against the administration practitioner in Section 8 apply?

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