NCLAT New Delhi Rules, Bankrupt Can File Application For Discharge After One Year, If Bankruptcy Trustee Fails To Do So
Pranav B Prem
In a significant ruling clarifying the statutory scheme under the Insolvency and Bankruptcy Code, 2016, the National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that a bankrupt individual is entitled to move the Adjudicating Authority for discharge under Section 138(1)(a) of the Code, if the Bankruptcy Trustee fails to do so after the lapse of one year from the bankruptcy commencement date.
The Tribunal, comprising Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member), and Arun Baroka (Technical Member), delivered this ruling while setting aside an order of the Adjudicating Authority (NCLT, New Delhi Bench, Court-III), which had rejected the discharge application filed by a bankrupt individual, Mr. Anil Syal, on the ground that he had no locus to seek such relief.
The case arose after Mr. Syal had initiated the personal insolvency resolution process under Section 94 of the IBC. When no repayment plan was approved, he subsequently filed an application for initiating the bankruptcy process under Section 122. The adjudicating authority treated 23.12.2022 as the bankruptcy commencement date. Following this, Union Bank of India (UBI), the principal creditor, submitted a claim of ₹71.90 crores, relinquishing its security interest in a 50% share of a residential flat jointly held by Mr. Syal.
An e-auction was conducted in June 2023 for the sale of Mr. Syal's 50% share, with Mr. Akshat Gupta emerging as the successful bidder. However, upon a challenge by UBI, the Adjudicating Authority set aside the auction, observing that only 15 days’ notice had been given instead of the mandated 30 days. A direction was issued for fresh valuation by both the Trustee and the Bank, and the average of the two valuations was to form the reserve price for a re-auction.
Meanwhile, over a year had elapsed since the commencement of the bankruptcy process. In the fifth CoC meeting held on 30.07.2024, the Bankruptcy Trustee acknowledged the expiry of the one-year period and stated that an application for discharge needed to be filed under Section 138(1)(a). However, upon UBI's request to defer the agenda pending legal advice, no action was taken.
It was in this backdrop that Mr. Syal filed his own application for discharge under Section 138(1)(a), asserting that the Trustee had failed to fulfill its statutory obligation. Both the Bankruptcy Trustee and UBI opposed the move, contending that only the Trustee had the authority to file for discharge. The Adjudicating Authority concurred with this view and dismissed the application, observing that it did not align with the spirit of the IBC and was aimed at derailing the process.
However, the NCLAT found these observations to be unfounded. It emphasized that Section 138(1)(a) of the IBC imposes a clear statutory duty on the Bankruptcy Trustee to apply for discharge once a year has passed since the bankruptcy commencement. The Appellate Tribunal rejected the argument that this obligation could be postponed due to the CoC or UBI withholding legal advice. It observed that the Trustee’s duty under the Code is independent and cannot be subject to directions or approvals from creditors.
Referring to earlier insolvency laws in India as well as international practices and the Bankruptcy Law Reforms Committee Report, the Tribunal noted that the legislative trend is toward recognizing discharge after the expiry of a statutorily fixed period, irrespective of administrative delays.
Importantly, the Tribunal held that in cases where the Bankruptcy Trustee does not act, the bankrupt individual cannot be denied the right to approach the Adjudicating Authority, especially when they are directly impacted by the continued proceedings. It noted: “The Bankrupt, who is directly affected by continuance of the bankruptcy proceedings in a case where Bankruptcy Trustee does not perform its statutory obligation of filing an application after expiry of one year, cannot be said to be a person, who has no locus to even inform the Adjudicating Authority that application has not been filed by the Bankruptcy Trustee and to pray that Bankrupt be discharged.”
The Tribunal also found that the Adjudicating Authority had erred in treating the discharge application as an attempt to disrupt the bankruptcy process. It clarified that there was no basis to conclude that the discharge would obstruct the realization of the estate, especially when the Trustee already possessed the asset and had previously conducted an auction.
Observing that the Adjudicating Authority had failed to ensure compliance with the statutory timelines prescribed under the Code, the NCLAT concluded that the impugned order was unsustainable. Accordingly, the Tribunal allowed the appeal, directing the Bankruptcy Trustee to file a discharge application under Section 138(1)(a) within 15 days, and instructed the Adjudicating Authority to decide the said application within three months.
Appearance
For the Appellant: Ms. Prachi Johri and Ms. Abhipsa Sahu, Advocates
For the Respondents: Mr. Milan Singh Negi, Mr. Nikhil Kumar Jha and Ms. Aakriti Gupta, Advocates for R-1, Mr. Brijesh Kumar Tamber and Mr. Prateek Kushwaha, Advocates for R-2/UBI.
Cause Title: Anil Syal V. Ajay Gupta & Anr.
Case No: Company Appeal (AT) (Insolvency) No. 523 of 2025 & I.A. No.1993 of 2025
Coram: Justice Ashok Bhushan [Chairperson], Barun Mitra [Technical Member], Arun Baroka [Technical Member]
