Section 59: Voidable transaction

1) Where any company has become insolvent, the following transactions shall be void:

(a) Preferential transactions carried on in advance of six months immediately preceding the commencement of the insolvency proceedings or within the period of six months after the commencement of the proceedings,

(b) Preferential transactions carried on with the associated persons of the company in advance of one year immediately preceding the commencement of the insolvency proceedings or within the period of one year after the commencement of the proceedings,

 Explanation: For the purposes of Clause s (a) and (b), the expression  “preferential transactions” shall mean any transactions done or entered into with a provision for payment of an amount that exceeds the payment which any creditor of the company other than a secured creditor would have been entitled to get if the creditor had made a claim against the company at the time of its liquidation.

(c) Any under-valued transactions have been carried on in advance of one year immediately preceding the commencement of the insolvency proceedings or within the period of one year after the commencement of the proceedings, and the company has become insolvent as a consequence of such transaction or other under-valued transactions carried on after the commencement of the insolvency proceedings,

Explanation: For the purposes of this Clause, the expression “under-valued transactions” shall mean any transactions in relation to which the company has received a value that is lower than the prevailing market value or has not received any value at all for any consideration given by the company to the other party to the transactions.

(d) All fraudulent transactions carried on in advance of two years immediately preceding the commencement of the insolvency proceedings or within the period of two years after the commencement of the proceedings,

Explanation: For the purposes of this Clause, the expression “fraudulent transactions” shall mean any transactions carried on, in relation to any assets of the company, with an ulterior motive to cheat the creditors of the company or delay making payments to them or prejudice the rights of the creditors.

2) The liquidator shall make an application to the Court to have the transactions referred to in sub-section (1) declared void.

3) While making an application pursuant to Sub-section (2), the liquidator shall prove that the company was insolvent when such transactions were carried on, or the company has become insolvent by reason of such transactions.

4) Where any associated person of the company is found involved in the proceeding carried out in relation to void any voidable transactions, it shall be presumed that the company was insolvent when such transactions were carried on or the company has become insolvent by reason of such transactions.