Insolvency and Bankruptcy Code, 2016 | Part III

Section 163: Challenge Against Disclaimed Property

Section 163 of the Insolvency and Bankruptcy Code, 2016 (IBC) provides a mechanism for persons affected by a bankruptcy trustee's disclaimer of onerous property to seek relief from the Adjudicating Authority. It addresses who may apply, vesting or delivery orders, compensation and the effect of those orders.

Key point: A person with an interest in, liability concerning, or specified occupation rights in disclaimed property may be entitled to apply under Section 163. Relief is not automatic; the Adjudicating Authority considers the statutory conditions.

Section 163: Statutory provisions

The following sets out the substance of all five sub-sections of Section 163, retaining the statutory categories and safeguards.

Sub-section (1): Who can challenge a disclaimer?

An application challenging the disclaimer may be made to the Adjudicating Authority by:

any person who claims an interest in the disclaimed property;
any person who is under any liability in respect of the disclaimed property; or
where the property is a dwelling house, any person who, on the date of the bankruptcy application, occupied or was entitled to occupy that dwelling house.

Sub-section (2): Vesting or delivery of property

The Adjudicating Authority may order that the disclaimed property be vested in, or delivered to, any person covered by sub-section (1).

Sub-section (3): Special rule for persons under liability

An order in favour of an applicant under sub-section (1)(b) may be made only where the Adjudicating Authority considers it just for the purpose of compensating that person.

Sub-section (4): Assessment of loss or damage

The effect of an order under Section 163 must be taken into account when assessing loss or damage caused by the disclaimer under Section 160(5).

Sub-section (5): Effect of vesting order

An order vesting property under sub-section (2) does not need a further conveyance, assignment or transfer to complete the vesting.

Meaning and practical effect

Disclaimer is the statutory mechanism by which a bankruptcy trustee may relinquish onerous property from the bankrupt's estate, subject to the Code. Under Section 160, onerous property includes unprofitable contracts and estate property that is unsaleable, not readily saleable or may give rise to a claim.

Disclaimed property refers to property affected by the trustee's statutory disclaimer. Vesting means that an order places the property in the person identified by the Adjudicating Authority. Adjudicating Authority refers to the forum competent under the applicable provisions of Part III of the Code; the appropriate forum depends on the debtor and the statutory framework.

How a challenge works

Identify standing: establish an interest, relevant liability or qualifying dwelling-house occupation under Section 163(1).
Gather evidence: retain the trustee's disclaimer, lease or title documents, correspondence, evidence of liability and occupation records as applicable.
Apply to the competent Adjudicating Authority: explain the legal interest and seek suitable vesting, delivery or other relief within the applicable procedural framework.
Address compensation: if the applicant relies only on liability under Section 163(1)(b), explain why the proposed order is just for compensation.
Consider related claims: any order may affect assessment of loss or damage under Section 160(5).

This overview does not prescribe a universal filing deadline for Section 163. Applicable procedural rules, notices and case-specific directions should be checked before filing.

Section 160 - Onerous property of bankrupt: provides for disclaimer by the bankruptcy trustee and addresses consequences, including loss or damage. Section 161 - Notice to disclaim onerous property: addresses circumstances involving an interested person's written request for a decision. Section 162 - Disclaimer of leaseholds: requires notice to interested persons and provides a 14-day objection framework for leasehold disclaimers, with contested matters referred to the Adjudicating Authority under Section 163.

Read the Insolvency and Bankruptcy Code, 2016 together with Section 161 and Section 162.

Frequently asked questions

Can a tenant challenge a disclaimer of leasehold property?

A tenant or other interested person may be able to challenge it where they satisfy Section 163(1). The special notice and objection requirements for leasehold interests are addressed in Section 162.

Can a person occupying a dwelling house apply?

Yes, if the person occupied or was entitled to occupy the dwelling house on the date of the bankruptcy application, as specified by Section 163(1)(c).

Does a vesting order require another transfer deed?

Section 163(5) states that vesting under sub-section (2) need not be completed by a further conveyance, assignment or transfer. Separate record-updating requirements may still arise in practice.

Official legal sources

Legal information reviewed 23 October 2026. Consult the current official Act, commencement notifications, rules and applicable judicial decisions before relying on a provision in a particular proceeding.