Section 45 of IBC : Section 45: Avoidance Of Undervalued Transactions

Explanation using Example

Imagine a company, XYZ Pvt Ltd, is going through insolvency proceedings. Six months before the insolvency process started, the company sold a piece of land worth $1 million to its CEO's brother for just $100,000. This transaction was not a normal part of the company's business operations.

The resolution professional, upon reviewing the company's transactions, identifies this particular sale as suspicious. According to Section 45 of the Insolvency and Bankruptcy Code, 2016, the resolution professional deems this transaction undervalued because the land was sold for significantly less than its value and it was not in the ordinary course of business.

The resolution professional then files an application with the Adjudicating Authority (National Company Law Tribunal) to have the transaction declared void. If the Authority agrees, the sale of the land is reversed, aiming to restore the company's assets for the benefit of its creditors.