Section 166 of IBC – Insolvency and Bankruptcy Code, 2016 : Effect of order

The Insolvency and Bankruptcy Code, 2016

Part-III Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms

Chapter-V Administration and Distribution of the Estate of the Bankrupt

Section 166: Effect of order.

*166. (1) Subject to the provision of sub-section (2), an order passed by the Adjudicating Authority under section 164 or section 165 shall not,—

(a) give rise to a right against a person interested in the property which was acquired in an undervalued transaction or a transaction giving preference, whether or not he is the person with whom the bankrupt entered into such transaction; and

(b) require any person to pay a sum to the bankruptcy trustee in respect of the benefit received from the undervalued transaction or a transaction giving preference, whether or not he is the person with whom the bankrupt entered into such transaction.

(2) The provision of sub-section (1) shall apply only if the interest was acquired or the benefit was received—

(a) in good faith;

(b) for value;

(c) without notice that the bankrupt entered into the transaction at an undervalue or for giving preference;

(d) without notice that the bankrupt has filed an application for bankruptcy or a bankruptcy order has been passed; and

(e) by any person who at the time of acquiring the interest or receiving the benefit was not an associate of the bankrupt.

(3) Any sum required to be paid to the bankruptcy trustee under sub-section (1) shall be included in the estate of the bankrupt.


*Only in so far as they relate to personal guarantors to corporate debtors, came into force w.e.f. 01.12.2019.

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