Section 45: Avoidance of Undervalued Transactions under IBC 2016
Section 45 of the Insolvency and Bankruptcy Code, 2016 deals with undervalued transactions entered into by a corporate debtor. It requires the resolution professional or liquidator, where the statutory conditions are satisfied, to apply to the Adjudicating Authority to have the transaction declared void and its effect reversed in accordance with the avoidance transaction provisions of the Code.
Section 45(1): Application to avoid an undervalued transaction
If the liquidator or resolution professional, on examining the transactions of the corporate debtor referred to in Section 43(2), determines that certain transactions made during the relevant period under Section 46 were undervalued, the liquidator or resolution professional shall apply to the Adjudicating Authority to declare those transactions void and reverse their effect in accordance with the relevant Chapter of the Code.
For corporate persons, the Adjudicating Authority under the IBC is the National Company Law Tribunal having jurisdiction in accordance with the Code.
Section 45(2): What is an undervalued transaction?
A transaction is considered undervalued under Section 45 where the corporate debtor falls within either of the statutory categories below and the transaction has not taken place in the ordinary course of the corporate debtor's business.
1. Gift made by the corporate debtor
Under Section 45(2)(a), an undervalued transaction includes a transaction where the corporate debtor makes a gift to a person.
2. Transfer of assets for significantly lower consideration
Under Section 45(2)(b), a transaction is undervalued where the corporate debtor enters into a transaction involving the transfer of one or more assets for consideration whose value is significantly less than the value of the consideration provided by the corporate debtor.
Ordinary course of business requirement
The statutory definition also requires that the transaction must not have taken place in the ordinary course of business of the corporate debtor. This condition is therefore material when deciding whether a gift or below-value asset transfer falls within Section 45.
Relevant period under Section 46
Section 45 does not operate without the relevant-period requirement. The transaction must fall within the period prescribed by Section 46 of the IBC. Section 46 should therefore be checked in its current form when examining the date of an alleged undervalued transaction.
Consequences of an undervalued transaction
Where the requirements of Section 45 are met, the resolution professional or liquidator seeks an order declaring the transaction void and reversing its effect. The specific restorative powers available to the Adjudicating Authority are addressed in Section 48.
Difference from preferential transactions
An undervalued transaction under Section 45 is distinct from a preferential transaction under Section 43. Section 43 is concerned with transfers that place a creditor, surety or guarantor in a more beneficial position in relation to an antecedent liability, subject to the statutory requirements and exclusions. Section 45 focuses on gifts and asset transfers for significantly less consideration outside the ordinary course of business.
Related avoidance provisions
The IBC contains a connected framework for examining transactions entered into before or during insolvency. Relevant provisions include Section 43 - preferential transactions, Section 44 - orders in preferential transactions, Section 46 - relevant period for undervalued transactions, Section 47 - application by creditor, Section 48 - orders in undervalued transactions, Section 49 - transactions defrauding creditors and Section 50 - extortionate credit transactions.
Official legal resources
For the current statutory and regulatory framework, refer to the IBBI Acts page and the IBBI Legal Framework database. The official IBBI material includes the Insolvency and Bankruptcy Code (Amendment) Act, 2026, commencement notifications and updated regulations.
Legal note: This article provides a general explanation of Section 45. For a particular transaction, the applicable version of the Code, the relevant period under Section 46, commencement provisions, regulations and binding judicial decisions should be examined.