Section 45 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.
Where a preference moves value to the wrong creditor, an undervalue moves value out of the estate altogether. Section 45 reverses it; Section 49 adds a stronger remedy where the transfer was designed to defeat creditors.
The two gateways
A transaction is deemed undervalued if:
- the corporate debtor makes a gift to a person; or
- the corporate debtor enters into a transaction transferring one or more assets for a consideration significantly less than the value of the consideration provided by the corporate debtor, and this transaction does not occur in the ordinary course of business of the corporate debtor.
The relevant timeframes
| Counterparty | Period preceding the insolvency commencement date |
|---|---|
| Related parties | Two years |
| Non-related parties | One year |
These are the same windows as for a preference, which makes practical sense — a transaction audit examines one period and tests what it finds against both sections.
Who can bring the application
- The resolution professional or liquidator is responsible for identifying undervalued transactions and may apply to the Adjudicating Authority to declare them void under section 45(1).
- Creditors, members or partners of the corporate debtor may also identify such transactions and apply, where they have not been reported by the resolution professional or liquidator.
Section 45 is unusual in giving creditors, members and partners a route to apply directly — but only where the professional has not reported the transaction.
It exists because the professional is the only person with access to the books, and a professional who overlooks or declines to pursue an undervalue would otherwise leave nobody able to act. Read with the 2026 Amendment's new disciplinary consequences under the revised section 235A framework, the pressure on a professional to report what the records disclose now runs in two directions at once.
The independent expert — Section 46(2)
The Adjudicating Authority may require an independent expert to assess the value of a transaction. The assessment ensures that identified undervalued transactions are accurately evaluated before any action is taken to reverse them.
This matters because "significantly less" is a valuation judgement, often about an asset sold years earlier, sometimes to a party with an obvious interest in the price. An expert appointed by the tribunal rather than by either side puts a defensible figure on it.
Section 49 — undervalued transactions defrauding creditors
Where a transaction within section 45(2) was deliberately entered into by the corporate debtor:
- for keeping assets of the corporate debtor beyond the reach of creditors; or
- in order to adversely affect the interests of such creditors,
the Adjudicating Authority shall make an order restoring the position as it existed before such transaction, as if the transaction had not been entered into, and protecting the interests of persons who are victims of such transactions.
Two words carry the difference from section 45. "Deliberately" imports intention, so the enquiry moves from the arithmetic of the consideration to the purpose behind the transfer. And "shall" makes the order mandatory once the Adjudicating Authority is satisfied — section 45 gives a power, section 49 gives a duty.
What the transactions look like in practice
| Transaction | Characterisation |
|---|---|
| Purchase of assets at a very high value to keep the corporate debtor's funds away from creditors | Undervalue; also section 49 |
| Settlement of dues of associate concerns at far less than the amount due | Assignment of an asset below its actual value; also section 49 |
| Write-off of sundry debtors or advances without justification, reasons or collection efforts | May be a gift under section 45; also section 49 |
| Buying shares of an associate for far more than their inherent value | Undervalue; also section 49 |
| Buying dead assets of the family or associate concerns to move money away from creditors | Undervalue; also section 49 |
Note which way the money moves
Three of those five examples involve the corporate debtor paying too much rather than selling too cheaply. That is the point most often missed when applying section 45 from the wording alone. An overpriced purchase from a connected party removes value from the estate exactly as an underpriced sale does — cash goes out, and what comes back is worth less than what was given.
Common mistakes
- Looking only for undervalued sales and missing overpriced purchases.
- Ignoring unexplained write-offs, which may amount to gifts.
- Pleading section 49 without evidence of a deliberate purpose to defeat creditors.
- Assuming only the professional can apply, where the transaction has not been reported.