Section 49 IBC: Transactions Defrauding Creditors
Section 49 of the Insolvency and Bankruptcy Code, 2016 deals with an undervalued transaction deliberately entered into by a corporate debtor to place assets beyond the reach of a person entitled to make a claim, or to adversely affect that person's interests in relation to the claim.
Section 49 - Transactions Defrauding Creditors
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-
(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
(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 that person was a party to the transaction.
Meaning of a Transaction Defrauding Creditors
Section 49 is linked to an undervalued transaction under Section 45, but it additionally requires a deliberate purpose of putting assets beyond the reach of a person entitled to make a claim or adversely affecting that person's interests in relation to the claim. The deliberate purpose is therefore central to the operation of Section 49.
Essential Requirements of Section 49
- There must be an undervalued transaction: the transaction must fall within Section 45(2).
- The transaction must be deliberate: Section 49 is directed at the purpose behind the transaction, not merely the fact that it was undervalued.
- Purpose of putting assets beyond reach: the transaction may be caught where it was deliberately structured to keep corporate debtor assets beyond the reach of a person entitled to make a claim.
- Adverse effect on a claimant: the provision also applies where the deliberate purpose was to adversely affect the interests of such a person in relation to the claim.
Orders the Adjudicating Authority Must Make
Once the statutory conditions are satisfied, Section 49 requires the Adjudicating Authority to make an order restoring the position that existed before the transaction as though it had not been entered into and protecting the interests of persons who are victims of the transaction.
Good-Faith Protection and the 2026 Related-Party Amendment
The proviso protects qualifying interests acquired in good faith, for value and without notice of the relevant circumstances. Following the 2026 amendment, clause (a) expressly refers to property acquired from a person other than the corporate debtor or a related party of the corporate debtor, as the case may be. This amendment is relevant where an asset is first transferred to a related party and then transferred onward.
Clause (b) separately protects a person who received a benefit in good faith, for value and without notice of the relevant circumstances from being required to pay a sum, unless that person was a party to the transaction.
Section 49 and Section 45
Section 45 identifies transactions that may be treated as undervalued. Section 49 addresses the more specific situation in which such an undervalued transaction was deliberately entered into for one of the creditor-defeating purposes stated in Section 49. The provisions should therefore be read together.
Section 49 and Fraudulent or Wrongful Trading
Transactions defrauding creditors under Section 49 should be distinguished from fraudulent or wrongful trading under Section 66 of the IBC. Section 49 concerns a deliberately entered undervalued transaction satisfying the statutory purposes stated in that section, whereas Section 66 contains a separate framework governing fraudulent and wrongful trading.
Related IBC Provisions
For the wider avoidance transaction framework, see Section 43 on preferential transactions, Section 44 on orders in preferential transactions, Section 45 on undervalued transactions, Section 46 on the relevant period, Section 47 concerning applications by creditors, members or partners, Section 48 on orders in undervalued transactions, and Section 50 on extortionate credit transactions.
Official Legal Resources
For the authoritative statutory framework, amendments, commencement notifications, regulations and circulars, refer to the official Insolvency and Bankruptcy Board of India Legal Framework and the Government of India's India Code.
This article is intended as a general legal reference. The statutory text, commencement notifications, applicable regulations and binding judicial decisions should be checked for the facts and date relevant to a particular proceeding.