Insolvency and Bankruptcy Code, 2016 | Part III

Section 158: Restrictions on Disposition of Property

Section 158 of the Insolvency and Bankruptcy Code, 2016 (IBC) restricts transfers of a debtor's property during the period between filing a bankruptcy application and the bankruptcy commencement date. It also addresses the position of purchasers acting in good faith and excludes property held on trust for another person.

Key rule: A disposition made by the debtor during the specified period is void under Section 158(1). Section 158(2) expressly denies protection even where the recipient acted in good faith, paid value and lacked notice of the bankruptcy application.

Text of Section 158

158. (1) Any disposition of property made by the debtor, during the period between the date of filing of the application for bankruptcy and the bankruptcy commencement date shall be void.

(2) Any disposition of property made under sub-section (1) shall not give rise to any right against any person, in respect of such property, even if he has received such property before the bankruptcy commencement date in-

good faith;
for value; and
without notice of the filing of the application for bankruptcy.

(3) For the purposes of this section, the term "property" means all the property of the debtor, whether or not it is comprised in the estate of the bankrupt, but shall not include property held by the debtor in trust for any other person.

Explanation of Section 158

Section 158(1): Transfers during the intervening period are void

The restriction covers a disposition made by the debtor after the bankruptcy application is filed but before the bankruptcy commencement date. The relevant dates must be established from the application and the applicable bankruptcy order. The provision operates in relation to the debtor's property and is not limited to assets that ultimately form part of the bankrupt estate.

Section 158(2): Good faith and payment do not validate a transfer

A recipient cannot rely on having paid consideration, acted honestly or been unaware of the bankruptcy application to acquire rights through a disposition prohibited by subsection (1). These conditions do not create an exception to the statutory rule.

Section 158(3): Meaning of property and the trust exception

For this section, property covers the debtor's property whether or not it falls within the bankruptcy estate. However, property that the debtor holds on trust for someone else is expressly excluded. Whether property is genuinely held on trust depends on the underlying legal relationship and evidence.

Practical illustration

Suppose a debtor files a bankruptcy application and, before the bankruptcy commencement date, sells an asset belonging to the debtor to a buyer who pays a fair price without knowing of the filing. Section 158 generally renders that disposition void despite the buyer's good faith. If the asset was held by the debtor solely on trust for another person, the express exclusion in subsection (3) requires separate consideration.

Section 126: bankruptcy application by a creditor.
Section 122: bankruptcy application by a debtor.
Section 128: bankruptcy order and its effect.
Section 154: vesting of the bankrupt estate in the bankruptcy trustee.
Section 155: property included in and excluded from the bankrupt estate.
Section 157: acquisition of possession and control by the bankruptcy trustee.
Section 159: after-acquired property of the bankrupt.

Official legal sources

Read the Insolvency and Bankruptcy Code, 2016 on India Code and the IBBI legal framework for amendments, rules, regulations and commencement notifications. Application of Part III provisions to a particular category of debtor must be checked against relevant notifications and the latest applicable law.

For the full statute and related sections, see The Insolvency and Bankruptcy Code, 2016.

Legal information only. The operation of a provision in an individual case depends on applicable commencement notifications, amendments, facts and judicial decisions.