Transaction entered by any corporate debtor be deemed as Undervalued [ Section 45 to 49 ] - Insolvency Resolution And Liquidation For Corporate Persons - IBC

Transaction entered by any corporate debtor be deemed as Undervalued Sections 45 to 49 of the IBC deal with undervalued transactions and Transactions defrauding creditors . As per section 45, if the liquidator or the RP determines that certain transactions made during the relevant time were undervalued, then he shall make an application to the Adjudicating Authority A to declare such transaction as void and reverse the effects of the transactions. Reversal of undervalued transactions [ Section 45(1) ] If the liquidator or the resolution professional, as the case may be, on an examination of the transactions of the corporate debtor referred to in section 45(2) determines that certain transactions were made during the relevant period under section 46 , which were undervalued, he shall make an application to the Adjudicating Authority to declare such transactions as void and reverse the effect of such transaction in accordance with this Chapter. Transaction considered as undervalued [ Section 45(2) ] A transaction shall be considered undervalued where the corporate debtor - (a) makes a gift to a person; or (b) enters into a transaction with a person which involves the transfer of one or more assets by the corporate debtor for a consideration the value of which is significantly less than the value of the consideration provided by the corporate debtor, and such transaction has not taken place in the ordinary course of business of the corporate debtor. Any transaction undertaken by a corporate debtor for transferring any asset, at no or significantly less value, is an undervalued transaction. As per section 46(2) , the AA may require an independent expert to assess evidence relating to the value of the transactions Relevant period for avoidable transactions [ Section 46 ] (1) In an application for avoiding a transaction at undervalue, the liquidator or resolution professional shall determine: (i) That the transaction was entered within the period of one year preceding the insolvency commencement date; or (ii) That the transaction was made with a related party within a period of two years preceding the insolvency commencement date. (2) The adjudicating Authority may require an independent expert to assess evidence relating to the value of the transactions. Application by creditor in cases of undervalued transactions Creditor and other person may report to AA about the undervalued transactions [ Section 47(1) ] Where an undervalued transaction has taken place and the liquidator or the resolution professional as the case may be, has not reported it to the Adjudicating Authority, a creditor, member or a partner of a corporate debtor, as the case may be, may make an application to the Adjudicating Authority to declare such transactions void and reverse their effect in accordance with this Chapter. AA may pass order in the matter of undervalued transactions [ Section 47(2) ] Where the Adjudicating Authority, after examination of the application made under section 47(1), is satisfied that- (a) undervalued transactions had occurred; and (b) liquidator or the resolution professional, as the case may be, after having sufficient information or opportunity to avail information of such transactions did not report such transaction to the Adjudicating Authority, it shall pass an order- (a) restoring the position as it existed before such transactions and reversing the effects thereof in the manner as laid down in section 45 and section 48 ; (b) requiring the Board to initiate disciplinary proceedings against the liquidator or the resolution professional as the case may be. Order in cases of undervalued transactions [ Section 48 ] The order of the Adjudicating Authority under section 45(1) may provide for the following:- (a) require any property transferred as part of the transaction, to be vested in the corporate debtor; (b) release or discharge (in whole or in part) any security interest granted by the corporate debtor; (c) require any person to pay such sums, in respect of benefits received by such person, to the liquidator or the resolution professional as the case may be, as the Adjudicating Authority may direct; or (d) require the payment of such consideration for the transaction as may be determined by an independent expert. Section 49 of the IBC deals with the provisions related to an undervalued transaction undertaken by the CD under section 45 of the IBC for the purpose of defrauding any creditor. Note that this is different from section 66 of the IBC, which provides for fraudulent and wrongful trading. Transactions defrauding creditors [ Section 49 ] Where the corporate debtor has entered into an undervalued transaction as referred to in section 45(2) 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 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 he was a party to the transaction. Relevant Case Law Axis Bank Ltd. Vs. Anuj Jain - NCLAT Dated 01.08.2019 The transactions as has been made i.e. mortgage(s) in favour of the appellants as and when made against the amount payable by Jaiprakash Associates Limited, the amount is not payable by the CD. Therefore, Section 45(2)(a) is not attracted. For the same reason, section 43(2)(b) or section 45 cannot be made applicable with regard to transaction in question which are not related to any payment due from the corporate debtor.