Insolvency and Bankruptcy Code, 2016 | Part III, Chapter V

Section 155: Estate of Bankrupt - Property Included and Excluded under the IBC

Section 155 of the Insolvency and Bankruptcy Code, 2016 (IBC) identifies what forms part of a bankrupt person's estate and which assets are kept outside it. These rules define the property available for administration by the bankruptcy trustee, subject to the applicable provisions of the Code.

Key distinction: Section 155 determines the composition of the estate. Section 154 governs its vesting in the bankruptcy trustee. An asset is not included merely because it is in the bankrupt's possession.

Section 155 - Statutory provisions explained

Section 155(1): Property included in the estate

The estate of the bankrupt shall include the following three categories:

Clause (a) - Property at the bankruptcy commencement date.

All property belonging to or vested in the bankrupt at the bankruptcy commencement date forms part of the estate, subject to the exclusions in subsection (2). Under Section 79(6), the bankruptcy commencement date is the date on which the Adjudicating Authority passes a bankruptcy order under Section 126.

Clause (b) - Powers and proceedings concerning property.

The estate includes the capacity to exercise, and initiate proceedings to exercise, powers in, over or in respect of property that the bankrupt could have exercised for personal benefit at the bankruptcy commencement date or before the discharge order under Section 138. This may encompass enforceable property-related claims and rights, depending on their nature.

Clause (c) - Other property brought into the estate by Chapter V.

Property that becomes part of the estate under another provision of Chapter V is also included. For example, Section 159 provides for the trustee to claim qualifying after-acquired property by notice, subject to statutory conditions and exceptions.

Section 155(2): Property excluded from the estate

The following four categories do not form part of the estate:

Clause (a) - Excluded assets.

Assets falling within the statutory definition of excluded assets under Section 79(14), subject to applicable conditions and prescribed limits, are protected from inclusion.

Clause (b) - Property held on trust.

Property held by the bankrupt on trust for another person is excluded. Legal possession or trusteeship does not by itself make beneficially owned trust property available to the bankrupt's creditors.

Clause (c) - Employees' specified fund entitlements.

All sums due to any workman or employee from the provident fund, pension fund and gratuity fund are excluded under the express terms of the provision.

Clause (d) - Government-notified assets.

Assets notified by the Central Government in consultation with a financial sector regulator are excluded where the relevant notification applies. The existence and scope of any notification should be checked for the particular case.

Meaning of excluded assets under Section 79(14)

Section 79(14) defines excluded assets for Part III. Subject to its wording, prescribed values and other applicable requirements, the definition includes:

Unencumbered tools, books, vehicles and other equipment necessary for the bankrupt's personal use, employment, business or vocation.
Unencumbered furniture, household equipment and provisions needed for basic domestic needs of the bankrupt and immediate family.
Unencumbered personal ornaments, within prescribed value limits, that cannot be parted with according to religious usage.
An unencumbered life insurance policy or pension plan in the name of the debtor or immediate family.
An unencumbered single dwelling unit owned by the debtor, subject to the prescribed value limit.

These are not unrestricted exemptions. In particular, the statutory requirement that specified assets be unencumbered and the applicable prescribed limits must be considered before treating property as excluded.

Section 79: Defines bankrupt, bankruptcy commencement date, bankruptcy trustee and excluded assets.
Section 125: Concerns appointment of the bankruptcy trustee.
Section 138: Addresses the discharge order referred to in Section 155(1)(b).
Section 154: Provides for automatic vesting of the bankrupt estate in the trustee from the date of appointment, without conveyance, assignment or transfer.
Sections 156 and 157: Concern delivery of property and records to the trustee and the trustee's acquisition of control.
Section 159: Addresses after-acquired property and the procedure for claiming it for the estate.
Section 178: Governs the priority of payment of debts in the bankruptcy process.

Practical implications

When identifying a bankrupt estate, the trustee should determine ownership and beneficial interests at the relevant date, review the nature of any property rights, distinguish trust property from personal property, and apply the exclusions in Section 155(2). Assets obtained after the commencement date require separate examination under Section 159 rather than an assumption that every later acquisition automatically forms part of the estate.

Secured interests, documentary ownership, claims by third parties and any applicable notifications or regulations may materially affect the outcome. The precise legal position depends on the facts and the provisions brought into force for the relevant class of debtor.

Official legal references

For the complete legislative framework, see The Insolvency and Bankruptcy Code, 2016.

This article explains the statutory framework and is intended for general legal information. The applicability of Part III provisions and current notifications should be verified for the relevant debtor and proceedings.