Execution of Sale Deed Upheld Under IBC
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During the corporate insolvency resolution process (CIRP) and liquidation proceedings, transactions involving the corporate debtor’s assets are heavily scrutinized by insolvency professionals (IPs) and the Adjudicating Authority, National Company Law Tribunal (NCLT), to prevent the validity of a Sale Deed Upheld Under IBC executed either before or during the insolvency period. The core challenge in such cases is the determination of circumstances under which such a pre-insolvency or concurrent transaction can be considered a valid, bona fide transfer under the Insolvency and Bankruptcy Code, 2016 (IBC). Therefore, judicial clarity on distinguishing legitimate sales from fraudulent preferences or undervalued transactions is paramount for protecting innocent third parties and maintaining confidence in the asset market during the insolvency regime.
Background: Sale Deeds and Insolvency Proceedings
A sale deed is a legal document that transfers ownership of immovable property from the seller to a buyer, creating rights, title, and interest in favor of the purchaser. It must be executed and registered under the Registration Act, 1908 and governed by the Transfer of Property Act, 1882, with mandatory registration if the property value exceeds ₹100. Sale deeds are contested during IBC proceedings because:
- Allegations of undervaluation
- Preferential or fraudulent transfers
- Execution close to the insolvency commencement date
- Absence of possession or payment proof
Statutory Framework Under the IBC
The relevant IBC provisions for the execution of sale deeds are:
- Section 43, which addresses preferential transactions, allowing the resolution professional (RP) to file an application to avoid transactions where the corporate debtor gave undue preference to a creditor, surety, or guarantor, thereby placing them in a more beneficial position than under the distribution framework in section 53 of the IBC, provided the transaction occurred within 1 year, or 2 years for related parties, before the insolvency commencement date and is not in the ordinary course of business.
- Section 45, which deals with undervalued transactions, enables the avoidance of transfers of assets for consideration significantly less than their value, particularly when such transactions are not part of the ordinary course of business and occur during the relevant period preceding insolvency.
- Section 49, as amended by the IBC (Amendment) Bill, 2025, introduced the concept of “transactions defrauding creditors” for individuals and partnerships, mirroring the corporate provision under section 49, and allows for the avoidance of such transactions to protect the interest of creditors.
- Section 66, which pertains to fraudulent or wrongful trading, where the NCLT may hold directors knowingly involved liable to contribute to the debtor’s assets if the business was carried on with fraudulent intent or for fraudulent purposes, though the NCLT lacks power to set aside such transactions directly.
- Section 14 establishes a moratorium upon the commencement of CIRP, prohibiting the initiation or continuation of legal proceedings against the corporate debtor or the enforcement of security interests, etc. It temporarily halts certain proceedings and provides the corporate debtor “breathing space”
Tests Applied by Tribunals
Tribunals assess the genuineness of consideration and the arm’s length nature of a transaction by examining whether a price reflects fair market value and whether the parties had a relationship that could compromise independence, with transactions involving related parties being scrutinized more closely for potential bad faith. The timing of the transaction in relation to insolvency commencement is critical, as transactions within two years prior to the insolvency initiation are vulnerable to being challenged as undervalued or preferential, especially if they adversely affect the interests of creditors. They also evaluate whether a transaction puts creditors at a disadvantage by analysing if the transfer of assets or value reduces the pool available for distribution among creditors, particularly in cases involving related parties or non-arm’s length dealings. The execution of a sale deed under the IBC is upheld only if it is shown that the transaction was conducted in good faith, at fair market value, and did not prejudice the rights of other creditors, with the timing of the transaction being a key factor in determining its validity.Read more : Financial creditor can initiate CIRP against both Principal Borrower and Corporate Guarantor
Key Case Law: Execution of Sale Deed Upheld
In Anubhav Anilkumar Agarwal v. Rajendra Kumar Girdhar, the issues before the Tribunal were:
- Was the sale deed executed at arm’s length?
- Was consideration actually paid?
- Was the transfer within the “look-back period”?
- Did it harm creditors’ interests?
The Tribunal’s Findings:
- The sale deed was supported by documented consideration.
- Execution was in accordance with statutory requirements.
- The buyer was a bona fide purchaser without notice of insolvency issues.
- No evidence of undervaluation or fraudulent intent.
This case established the principle that: A sale deed will be upheld even during IBC proceedings if it is genuine, fully executed, supported by consideration, and not intended to defeat creditors.
When Can a Sale Deed Be Upheld Under the IBC?
A sale deed under the IBC may be upheld or invalidated based on several factors:
- Completed Sale vs. Incomplete Sale: A completed sale, where the title is transferred and the full consideration paid before the insolvency process begins, is generally more difficult to invalidate under the IBC. Conversely, an unregistered or partially executed sale is more vulnerable to being set aside by the RP or liquidator, as it may be considered an incomplete transfer or potentially preferential transaction.
- Bona Fide Purchaser Protection: A buyer who acts in good faith without knowledge of the seller’s impending insolvency is more likely to have their purchase upheld. The court examines whether the transaction process was transparent and at arm’s length to ensure the buyer was an innocent party.
- Market Value and Valuation Reports: The sale must be for an adequate price, preferably at a comparable market rate, to demonstrate commercial soundness. An independent valuation report can help establish the legitimacy of the transaction and prove that the corporate debtor’s assets were not sold off at an undervalue to the detriment of the creditors.
When Can a Sale Deed Be Questioned or Set Aside?
Judicial precedents state that a sale deed by question or set aside if:
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It is executed within the ;ook-back period, which is 1 year for non-related parties and 2 years for related parties.
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There is a lack of consideration or suspicious payment flow, such as cash payments, no banking trail, or immediate transfers back to the debtor or promoters.
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There are signs of fraud or preferential transfer, like transfer to related parties, underevaluation, or any attempt to siphon assets.
Implications for RPs, Liquidators, and Buyers
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- For Resolution Professionals: The primary implication is the critical need to conduct comprehensive transaction audits as a core duty of the IBC process. They must meticulously examine title deeds, payment records, and valuation reports to identify and address any preferential or undervalued transactions.
- For Liquidators: They should challenge only those transactions where evidence clearly supports underevaluation or preference to conserve estate resources and time. Liquidators must also avoid unnecessary litigation on bona fide, completed transfers to prevent delays and maximise the efficient distribution of assets to creditors.
- For Buyers: Buyers of stressed assets have the key implication is the necessity of maintaining strong documentation and ensuring rigorous due diligence and independent valuation before acquisition. They must keep payment trails transparent and verifiable to protect their purchase from future challenges by liquidators or other stakeholders.
Practical Takeaways
This case has resulted in takeaways for future cases:
- Completed, bona fide transactions are not easily set aside.
- RPs must rely on evidence, not suspicion.
- Buyers must preserve documentation to defend title.
- Courts will uphold transactions meeting commercial and legal standards.
Conclusion
The IBC aims to prevent fraudulent transfers and protect the collective interest of creditors by allowing the recovery of assets through avoidance transactions. However, the IBC does not intend to disturb legitimate commercial transactions that are conducted in good faith and with proper consideration. When a sale deed is executed transparently, supported by genuine consideration, and without the intent to defraud creditor interest, tribunals are generally inclined to uphold its validity even during insolvency proceedings. Hence, this principle ensures that the insolvency framework targets opportunistic behaviour rather than unlawful business activities.
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