Transactions defrauding creditors

(1) Where the corporate debtor has entered into an undervalued transaction as referred to in sub-section (2) of section 45 and the Adjudicating Authority is satisfied that such transaction was deliberately entered into by such corporate debtor - (a) for keeping assets of the corporate debtor beyond the reach of any person who is entitled to make a claim against the corporate debtor; or (b) in order to adversely affect the interests of such a person in relation to the claim, the Adjudicating Authority shall make an order- (i) restoring the position as it existed before such transaction as if the transaction had not been entered into; and (ii) protecting the interests of persons who are victims of such transactions: Provided that an order under this section - 136 Section 46 amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (Act No. 6 of 2026), sec. 27 (w.e.f. 26-05-2026): in the marginal heading “avoidable” was substituted by “undervalued”; in sub-section (1), “avoiding a transaction at undervalue” was substituted by “avoidance of an undervalued transaction”; and in clauses (i) and (ii), the relevant periods were amended to run from the initiation date to the insolvency commencement date. 137 Subs. by the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (Act No. 6 of 2026), sec. 28 (w.e.f. 26-05-2026), for section 47. Before substitution, section 47 provided for an application by a creditor, member or partner where an undervalued transaction had not been reported by the liquidator or resolution professional.

(a) shall not affect any interest in property which was acquired from a person other than the corporate debtor or a related party of the corporate debtor, as the case may be, and was acquired in good faith, for value and without notice of the relevant circumstances, or affect any interest deriving from such an interest, and 138 (b) shall not require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum unless he was a party to the transaction.