Section 49 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 49 picks out a worse class of undervalued transaction: one entered into deliberately to keep assets out of a creditor's reach, or to hurt a creditor's claim. Where the Adjudicating Authority is satisfied of that intention, it shall restore the position and protect the victims. This article reads it as per the IBBI consolidated text of the Code amended up to 12 August 2021 and then covers the small change the Insolvency and Bankruptcy Code (Amendment) Act, 2026 makes to the proviso.
Where the corporate debtor has entered into an undervalued transaction under section 45(2) and the Adjudicating Authority is satisfied it was deliberately entered into to keep assets beyond the reach of a person entitled to claim, or to adversely affect that person's interests, it shall make an order restoring the position as if the transaction had not been entered into and protecting the victims. The order cannot touch interests acquired in good faith, for value and without notice. The 2026 Act adds related parties to the proviso.
Where section 49 sits
Section 45 covers undervalued transactions and defines them in sub-section (2): the corporate debtor makes a gift to a person, or enters into a transaction involving transfer of assets for a consideration "significantly less than the value of the consideration provided by the corporate debtor", and the transaction has not taken place in the ordinary course of business. See the live post on section 45. Sections 46 to 48 deal with the relevant period, creditor applications and orders; see the article on sections 46 to 48.
Where a transfer by a corporate debtor looks suspect, financial and legal due diligence can trace the asset, the price and the parties before any application is made. Section 49 adds a layer of intention. The first test is objective: the transaction is an undervalued transaction "as referred to in sub-section (2) of section 45". The second is the corporate debtor's intention, which the Adjudicating Authority must be satisfied about.
Sub-section (1): the two intent limbs
Section 49(1): "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" either:
| Limb | Intention |
|---|---|
| (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 |
| (b) | in order to adversely affect the interests of such a person in relation to the claim |
"Claim" is defined in section 3(6); see the first section 3 article. The two limbs are alternatives. The section uses "deliberately", so a mere undervalue without that intention remains an undervalued transaction under section 45, but is outside section 49.
The orders
If either limb is satisfied, "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" (clause i); and
- "protecting the interests of persons who are victims of such transactions" (clause ii).
The word is "shall", not "may" as in sections 44 and 48. The section does not list the detailed forms of protection; this article lists none.
Example. Six weeks before a creditor's suit is decided, Bhatia Fabrication Private Limited transfers its only unencumbered building to a firm owned by the managing director's wife, for a sum far below its value. The facts show the transfer was made to keep the building from the creditor. If the Adjudicating Authority is satisfied of that deliberate intention, it shall restore the position as if the transfer had never been made and shall protect the creditor's interests.
The proviso: good-faith acquirers
An order under the 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."
Three conditions must be met together: good faith, value and no notice of the relevant circumstances. Compare the proviso to section 44 ("good faith and for value"); section 49 adds "without notice". The last words of clause (b), "unless he was a party to the transaction", mean that a party to the transaction cannot rely on that protection.
What the Amendment Act, 2026 changes
Section 29 of the Amendment Act, 2026 (No. 6 of 2026) amends the proviso to section 49.
| As printed in the consolidated text | After the 2026 Act |
|---|---|
| Proviso (a): "...acquired from a person other than the corporate debtor and was acquired in good faith, for value and without notice..." | After the words "corporate debtor" the words "or a related party of the corporate debtor, as the case may be," are inserted |
Applying the inserted words to the printed clause, the protection in proviso (a) then covers an interest acquired from a person other than the corporate debtor or a related party of the corporate debtor. That reading is built by applying the Act's words to the printed clause; check it against the Act. "Related party" is defined in section 5(24); see the related party article. Section 5(2A), inserted by the 2026 Act, defines "avoidance transaction" as a transaction referred to in sections 43, 45, 49 and 50, and so brings section 49 into the new vocabulary of sections 25(2)(j), 26 and 47; see our post on avoidance transactions in the 2026 Act.
The Amendment Act, 2026 comes into force on the date or dates the Central Government notifies; the notification is not in the texts consulted, so check whether this change has been notified. Amendments and notifications made after 12 August 2021, other than the Amendment Act, 2026, are not in the texts consulted and should be checked.
Who should read this closely
- Creditors who suspect a transfer made to defeat their claims should keep the evidence of intention, since the section depends on the Authority being "satisfied" the transfer was deliberate.
- Buyers and recipients who dealt with the corporate debtor, or with a person connected to it, should check good faith, value and notice, and, after the 2026 Act, whether the seller was a related party.
- Liquidators and resolution professionals frame applications under sections 43 to 51 and 66; see the overview of avoidance transactions.
Need help with a suspected defrauding transaction?
Section 49 turns on proof of intention and on the position of the person who received the asset. Our financial and legal due diligence team can build the timeline of the transfer, the valuation and the connections between the parties so that an application or a defence rests on documents.
Key takeaways
- Section 49 applies to an undervalued transaction under section 45(2) that was deliberately entered into.
- Either limb is enough: keeping assets beyond the reach of a claimant, or adversely affecting a claimant's interests.
- The Adjudicating Authority shall restore the position and protect the victims.
- Interests acquired in good faith, for value and without notice are protected, as are benefit recipients on the same terms unless they were party to the transaction.
- The 2026 Act inserts related parties of the corporate debtor into proviso (a); check notification.
Read next
- Sections 50 and 51: extortionate credit transactions
- Sections 46 to 48: undervalued transactions
- Section 44: orders in preferential transactions
- Avoidance transactions under the IBC
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.