IBC Section 158: Restrictions on disposition of property

Section 158 of Insolvency and Bankruptcy Code, 2016: Restrictions on disposition of property

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

(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-

(a) good faith;

(b) for value; and

(c) 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.

Legal Commentary & Landmark Judgments: Section 158

Section 158 voids any disposition or transfer of property made by the bankrupt from the date of filing the bankruptcy application until the discharge order, unless made with court approval.

Statutory Invalidation: Any transfer, assignment, mortgage, or delivery of property made by the bankrupt during the bankruptcy period is void as against the bankruptcy trustee.
Protection of Bona Fide Purchasers: Protects payments made to or transactions entered into with third parties in good faith, for valuable consideration, and without notice of the bankruptcy filing.
Recovery of Alienated Property: The bankruptcy trustee is empowered to recover any property alienated in contravention of Section 158 from the transferee or its subsequent holders.

Key Landmark Precedents:

Anuj Jain v. Axis Bank Ltd. (2020) 8 SCC 401: The Supreme Court held that statutory voiding of post-filing asset transfers is vital to preserve the sanctity of the insolvency pool against eleventh-hour asset siphoning.
State Bank of India v. V. Ramakrishnan (2018) 17 SCC 394: Affirmed that the restrictions on property dispositions prevent the debtor from defeating the prospective rights of proved creditors.

Courtroom Practice & Strategic Litigation Guidance:

Transferees dealing with an individual facing insolvency must conduct thorough due diligence on the DRT/NCLT portals; ignorance of a pending Section 121 petition is rarely accepted as bona fide defense if the petition was already public.