Insolvency and Bankruptcy Code, 2016 | Section 160

Section 160: Onerous Property of Bankrupt - Disclaimer by Bankruptcy Trustee

Section 160 of the Insolvency and Bankruptcy Code, 2016 addresses property in a bankrupt estate that is burdensome, unprofitable, difficult to sell or capable of generating claims. It provides for disclaimer by the bankruptcy trustee, while protecting the legal interests of third parties.

At a glance: The trustee may disclaim onerous estate property by notice. The provision addresses the effect of that notice, the trustee's personal liability, creditor permissions and the rights of persons affected by the disclaimer.

Section 160 - Statutory provisions

160. (1) The bankruptcy trustee may, by giving notice to the bankrupt or any person interested in the onerous property, disclaim any onerous property which forms a part of the estate of the bankrupt.

(2) The bankruptcy trustee may give the notice under sub-section (1) notwithstanding that he has taken possession of the onerous property, endeavoured to sell it or has exercised rights of ownership in relation to it.

(3) A notice of disclaimer under sub-section (1) shall-

(a) determine, as from the date of such notice, the rights, interests and liabilities of the bankrupt in respect of the onerous property disclaimed;

(b) discharge the bankruptcy trustee from all personal liability in respect of the onerous property as from the date of appointment of the bankruptcy trustee.

(4) A notice of disclaimer under sub-section (1) shall not be given in respect of the property which has been claimed for the estate of the bankrupt under section 155 without the permission of the committee of creditors.

(5) A notice of disclaimer under sub-section (1) shall not affect the rights or liabilities of any other person, and any person who sustains a loss or damage in consequence of the operation of a disclaimer under this section shall be deemed to be a creditor of the bankrupt to the extent of the loss or damage.

Explanation.- For the purposes of this section, the term "onerous property" means-

(i) any unprofitable contract; and

(ii) any other property comprised in the estate of the bankrupt which is unsaleable or not readily saleable, or is such that it may give rise to a claim.

The statutory text above follows the supplied webpage. For any live proceeding, check the current official text, amendments, notifications and applicable commencement provisions. The reference to Section 155 in sub-section (4) is reproduced as supplied and should be independently verified against the authoritative enacted text.

Meaning of onerous property

The Explanation to Section 160 identifies two broad categories: unprofitable contracts and other estate property that is unsaleable, not readily saleable or may give rise to a claim. A contract that creates continuing expense without commensurate benefit may be onerous. Property that is difficult to dispose of or carries substantial obligations may also fall within the statutory definition.

Whether a particular asset is onerous depends on its legal obligations, likely value, associated claims and the circumstances of the bankruptcy estate. A low market price alone does not necessarily establish that a disclaimer is appropriate.

How disclaimer operates under Section 160

Section 160(1): Notice of disclaimer

The trustee may give notice to the bankrupt or any person interested in the onerous property. The provision concerns property forming part of the bankruptcy estate; it does not create a general power to disclaim property belonging to unrelated third parties.

Section 160(2): Prior dealings do not automatically bar disclaimer

The trustee may still issue a disclaimer notice after taking possession, attempting a sale or exercising rights of ownership. Those acts do not, by themselves, remove the statutory power.

Section 160(3): Effect of the notice

From the notice date, the bankrupt's rights, interests and liabilities in the disclaimed property are determined in the manner stated by the section. The provision also relieves the trustee of personal liability in respect of that property from the date of the trustee's appointment, subject to the governing law and the effect of the disclaimer.

Section 160(4): Committee of creditors permission

The supplied text requires permission of the committee of creditors before disclaiming the category of property described in this sub-section. The precise statutory cross-reference should be checked against the latest official consolidated version before relying on this provision.

Section 160(5): Third-party rights and claims

A disclaimer does not extinguish the rights or liabilities of another person. A person suffering loss or damage because of the disclaimer is treated as a creditor of the bankrupt to the extent of that loss or damage, rather than being left without a claim merely because the trustee has disclaimed the property.

Practical illustrations

Loss-making agreement: A continuing contract requires payments that exceed its expected benefit. The trustee may examine whether it is an unprofitable contract falling within the Explanation.
Difficult-to-sell asset: Estate property with substantial upkeep costs or significant legal exposure may qualify if it is unsaleable, not readily saleable or liable to generate a claim.
Person affected by disclaimer: A contractual counterparty suffering a provable loss may assert creditor status to the extent permitted by Section 160(5) and the applicable claims process.

These illustrations explain the statutory concepts; they are not determinations that a particular contract or asset may lawfully be disclaimed.

Section 154 deals with vesting of the bankrupt estate in the trustee. Section 155 describes the composition of the estate. Section 156 concerns delivery of property and records, while Section 157 addresses the trustee's acquisition of control. Section 159 concerns after-acquired property.

Official legal sources

Consult the India Code official legislation portal for the Insolvency and Bankruptcy Code, 2016, and the Insolvency and Bankruptcy Board of India legal framework for applicable rules, regulations, notifications and amendments. Verify the provisions applicable to the debtor category and the relevant proceedings before taking action.

This article is general legal information and does not replace advice on the facts of a particular bankruptcy proceeding.