Section 157: Acquisition of Control by Bankruptcy Trustee

Section 157 of the Insolvency and Bankruptcy Code, 2016 (IBC) requires the bankruptcy trustee to take possession and control of property and records relating to the bankrupt estate. It also provides for the automatic assignment of actionable claims forming part of that estate.

Text of Section 157

Meaning and scope of Section 157

Section 157(1): Possession and control of property and records

The provision imposes a duty on the bankruptcy trustee to secure control over property and relevant documentation connected with the bankrupt estate and the bankrupt's affairs. This may involve taking custody of physical assets, financial records, account books, agreements, title documents and other records within the statutory scope.

Possession and control enable the trustee to identify assets, verify claims, preserve estate value and administer the bankruptcy process. The trustee's authority is not an unrestricted right over assets belonging to others: the extent of the estate must be determined under the Code, including the exclusions in Section 155(2).

Section 157(2): Deemed assignment of actionable claims

Where the estate includes actionable claims, Section 157(2) treats those claims as assigned to the bankruptcy trustee without requiring a separate notice of assignment. In general, an actionable claim concerns certain legally enforceable claims to unsecured debts or beneficial interests in movable property not in possession, as described in Section 3 of the Transfer of Property Act, 1882.

For example, a recoverable unsecured amount owed to the bankrupt may constitute an actionable claim. The trustee can assess and pursue recovery subject to the applicable law, evidence and any available defences. Deemed assignment does not itself establish that a disputed debt is valid or recoverable.

How Section 157 works with other IBC provisions

• Section 149 - Functions of bankruptcy trustee: sets out the trustee's principal responsibilities in administering and distributing the estate.
• Section 151 - Rights of bankruptcy trustee: permits the trustee to hold property, contract, sue and be sued, and take other acts necessary for the role.
• Section 152 - General powers: addresses dealings with estate property, receipts, claims and certain transfers.
• Section 153 - Creditors' approval: requires committee of creditors approval for specified acts, including certain proceedings and compromises.
• Section 154 - Vesting of estate: provides for vesting in the trustee from appointment without a separate conveyance, assignment or transfer.
• Section 155 - Estate of bankrupt: identifies what forms part of the estate and which assets are excluded.
• Section 156 - Delivery of property and documents: requires persons holding relevant estate property or records to deliver them to the trustee.
• Section 158 - Restrictions on disposition: regulates dispositions of property during the specified pre-bankruptcy period.

Practical implications

Following appointment, the trustee should identify estate property, request relevant records from the bankrupt and persons holding them, document custody, and examine whether debts or other actionable claims can be realised for creditors. The bankrupt, bankers, agents and other custodians should consider their delivery obligations under Section 156.

Important: Part III provisions have a commencement and application framework that differs by debtor category. The legal position for an individual or personal guarantor must be checked against applicable commencement notifications, regulations and judicial decisions; Section 157 should not be assumed to operate identically for every debtor.

Official legal sources

Read the Insolvency and Bankruptcy Code, 2016 on India Code and the IBBI legal framework for subsequent amendments, notifications and regulations. For a relevant example of subordinate legislation, see the IBBI Bankruptcy Process for Personal Guarantors to Corporate Debtors Regulations through the official legal framework portal.

Frequently asked questions

Does the trustee need a separate assignment of actionable claims?

No separate notice of assignment is required by Section 157(2) for actionable claims that form part of the bankrupt estate. Their existence and enforceability may still need to be established.

Can the trustee take assets owned by a third party?

Section 157 must be read with Section 155, which defines the estate and excludes specified property, including property held on trust for another person.

When does the estate vest in the trustee?

Under Section 154, the estate vests immediately from the date of appointment of the bankruptcy trustee, without a separate conveyance, assignment or transfer.

Further reading: The Insolvency and Bankruptcy Code, 2016.