Section 164: Undervalued Transactions
Section 164 of the Insolvency and Bankruptcy Code, 2016 deals with undervalued transactions involving a bankrupt. It permits the bankruptcy trustee to approach the Adjudicating Authority in specified circumstances and empowers the Authority to void the transaction, restore transferred property to the bankruptcy estate, or make other restorative orders.
Text of Section 164
(1) The bankruptcy trustee may apply to the Adjudicating Authority for an order under this section in respect of an undervalued transaction between a bankrupt and any person.
(2) The undervalued transaction referred to in sub-section (1) should have-
(a) been entered into during the period of two years ending on the filing of the application for bankruptcy; and
(b) caused bankruptcy process to be triggered.
(3) A transaction between a bankrupt and his associate entered into during the period of two years preceding the date of making of the application for bankruptcy shall be deemed to be an undervalued transaction under this section.
(4) On the application of the bankruptcy trustee under sub-section (1), the Adjudicating Authority may-
(a) pass an order declaring an undervalued transaction void;
(b) pass an order requiring any property transferred as a part of an undervalued transaction to be vested with the bankruptcy trustee as a part of the estate of the bankrupt; and
(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 undervalued transaction.
(5) The order under clause (a) of sub-section (4) shall not be passed if it is proved by the bankrupt that the transaction was undertaken in the ordinary course of business of the bankrupt:
Provided that the provisions of this sub-section shall not be applicable to undervalued transaction entered into between a bankrupt and his associate under sub-section (3) of this section.
(6) For the purposes of this section, a bankrupt enters into an undervalued transaction with any person if-
(a) he makes a gift to that person;
(b) no consideration has been received by that person from the bankrupt;
(c) it is in consideration of marriage; or
(d) it is for a consideration, the value of which in money or money's worth is significantly less than the value in money or money's worth of the consideration provided by the bankrupt.
Meaning of an Undervalued Transaction
For Section 164, the statutory definition covers gifts, transactions where no consideration has been received in the manner stated in the provision, transactions in consideration of marriage, and transactions where the consideration received is significantly lower in money or money's worth than the consideration provided by the bankrupt.
Two-Year Look-Back Period
Section 164(2) applies to an undervalued transaction entered into during the two-year period ending on the filing of the bankruptcy application where the transaction caused the bankruptcy process to be triggered. Section 164(3) separately provides a deeming rule for transactions between the bankrupt and an associate during the two years preceding the bankruptcy application.
Transactions with an Associate
A transaction between the bankrupt and an associate within the statutory two-year period is deemed to be an undervalued transaction under Section 164. The ordinary-course protection in Section 164(5) expressly does not apply to an undervalued transaction between the bankrupt and an associate falling under Section 164(3).
Powers of the Adjudicating Authority
On an application by the bankruptcy trustee, the Adjudicating Authority may declare the undervalued transaction void, require transferred property to vest with the bankruptcy trustee as part of the bankrupt's estate, or make another order it considers appropriate to restore the position to what it would have been had the transaction not occurred.
Ordinary Course of Business
Section 164(5) restricts an order declaring the transaction void where the bankrupt proves that the transaction was undertaken in the ordinary course of the bankrupt's business. This protection does not extend to the associate transactions covered by Section 164(3).
Section 164 and Corporate Insolvency
Section 164 forms part of the Code's bankruptcy provisions and concerns transactions of a bankrupt. It should not be confused with Sections 45 and 46, which contain the separate framework for undervalued transactions involving a corporate debtor in the corporate insolvency and liquidation context.
Related Provisions
Section 164 is followed by Section 165 - Preference transactions, Section 166 - Effect of order and Section 167 - Extortionate credit transactions.
Official Legal Resources
For authoritative statutory material and current legal updates, refer to India Code and the IBBI Legal Framework.
Page reviewed: 30 September 2026.