Section 164 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 164 lets the bankruptcy trustee apply to the Adjudicating Authority against an undervalued transaction entered into by a bankrupt during the two years ending on the filing of the application for bankruptcy. The Adjudicating Authority may declare it void, vest the property in the trustee or restore the position. Transactions with an associate within two years are deemed undervalued.
The article follows the IBBI consolidated text of the Code amended up to 12 August 2021 (the "consolidated text").
The trustee may apply against an undervalued transaction that was entered into during the two years ending on the filing of the application for bankruptcy and that caused the bankruptcy process to be triggered. A transaction with an associate in the two years before the application is deemed undervalued. The Adjudicating Authority may declare the transaction void, vest property in the trustee, or pass any other restoring order. The bankrupt can resist by proving the ordinary course of business, but not for an associate transaction.
Sub-sections (1) and (2): who may apply, and the two conditions
Who applies. "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." Only the trustee is named. The other party can be "any person".
The two conditions in sub-section (2). The undervalued transaction "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.
Both are required. The look-back runs back two years from the filing of the application, not from the bankruptcy order. The second condition links the transaction to the bankruptcy: it must have "caused bankruptcy process to be triggered". The text does not say how that causal link is to be shown. If you are assessing whether a past transaction falls within these conditions, our financial and legal due diligence team can help review the transaction history against the text.
Sub-section (3): associates
"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."
"Associate" is defined for Part III in section 79(2): it includes a person belonging to the immediate family of the debtor, a relative of the debtor or of the spouse, a person in partnership with the debtor, the debtor's employer or employee, a trustee of a trust of which the debtor is a beneficiary, and a company in which the debtor and his associates own more than fifty per cent. of the share capital or control the appointment of the board of directors. The definition has its own details; read section 79(2) for them.
Wording note. Sub-section (2)(a) speaks of two years "ending on the filing of the application", and sub-section (3) of two years "preceding the date of making of the application". The consolidated text uses different words for the two periods. They are quoted as printed and not harmonised here.
For an associate the deeming works without the other requirements being proved separately: the sub-section deems the transaction undervalued. Whether sub-section (2)(b) still has to be satisfied is not stated in sub-section (3); the text is silent and this article does not say either way.
Sub-section (4): the orders
On the trustee's application, the Adjudicating Authority "may":
| Clause | Order |
|---|---|
| (a) | Declare an undervalued transaction void |
| (b) | Require any property transferred as part of an undervalued transaction to be vested with the bankruptcy trustee as part of the estate of the bankrupt |
| (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 |
The orders are discretionary ("may"). Clause (c) is wide and aims at restoration of the pre-transaction position.
Sub-section (5): the ordinary-course defence
"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". Three features:
- It bars only the order under clause (a), the order declaring the transaction void.
- The burden is on the bankrupt: the defence applies if "it is proved by the bankrupt".
- The proviso removes the defence for associates: it "shall not be applicable to undervalued transaction entered into between a bankrupt and his associate under sub-section (3)".
Sub-section (6): what counts as undervalued
A bankrupt enters into an undervalued transaction with any person if:
| Clause | Test |
|---|---|
| (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 |
| (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 |
Clause (d) asks for a "significantly" lower value. The text sets no percentage and no method of valuation; it is silent on how significance is measured.
A worked example
In June, Ishaan Kapoor sells his only commercial plot to Ritu Jain, for far less than its value, and in the following year a creditor files an application for bankruptcy against him, leading to a bankruptcy order.
If Ritu is an "associate" under section 79(2), the sale within two years before the application is deemed undervalued under sub-section (3), and the ordinary-course defence is not available. If she is not an associate, the trustee must show that the transaction was entered into in the two years ending on the filing, caused the bankruptcy process to be triggered, and falls within sub-section (6)(d) as a sale for a consideration significantly less than the value provided; Ishaan could then try to prove that the sale was in the ordinary course of his business. The names and facts are invented.
Good-faith purchasers and the effect of an order
Section 166 limits what an order under section 164 or 165 can do against a person who acquired an interest in good faith, for value and without notice: see Section 166 in this series. A neighbouring provision, section 165, covers preference transactions: Section 165.
The 2026 insertion of section 164A
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026) inserts a new section 164A after section 164, and this article does not explain it. The live post on section 164A deals with it; another post covers undervalued transactions under section 164 and section 164A. The Amendment Act, 2026 has no clause that changes the words of section 164. It comes into force on the date or dates the Central Government notifies; the notification is not in the texts consulted, so check whether the new section has been notified.
For personal guarantors to corporate debtors, the Insolvency and Bankruptcy Board of India (Bankruptcy Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 (the copy consulted is amended up to 02-06-2026) apply alongside Part III; no rules or regulations for other individuals or for partnership firms are in the texts consulted.
Amendments and notifications made after 12 August 2021, other than the Amendment Act, 2026, are not in the texts consulted and should be checked.
Need help reviewing transactions before or after a bankruptcy?
Lenders, trustees and counterparties often need to check whether a past transfer could be challenged as undervalued. Our team can help you review the dates, the parties and the consideration through a financial and legal due diligence engagement.
Key takeaways
- Only the bankruptcy trustee may apply under section 164.
- The transaction must be within the two years ending on the filing of the application for bankruptcy and must have caused the bankruptcy process to be triggered.
- A transaction with an associate within two years is deemed undervalued.
- The Adjudicating Authority may declare the transaction void, vest property in the trustee or pass any other restoring order.
- The bankrupt may prove the ordinary course of business as a defence to a void order, but not for an associate transaction.
- Gifts, transfers for no consideration, transfers in consideration of marriage and transfers for significantly less value are undervalued.
Read next
- Section 165 of the Insolvency and Bankruptcy Code, 2016: preference transactions of a bankrupt
- Section 166 of the Insolvency and Bankruptcy Code, 2016: effect of orders on undervalued and preference transactions
- Section 164A and restricted subrogation
- Avoidance transactions under the IBC: preferential, undervalued, fraudulent and extortionate
Disclaimer: Based on the IBBI consolidated text of the Insolvency and Bankruptcy Code, 2016 amended up to 12 August 2021 and on the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026), which comes into force on the date or dates notified by the Central Government, as consulted on 2 October 2026. It explains the words of the statute only; commencement notifications, other amendments made after 12 August 2021, notified thresholds, the rules and IBBI regulations, and the way tribunals and courts apply these sections should be checked. This article is general information, not legal advice; check the official text before acting.