NCLT ruled that a bankrupt individual cannot seek their own discharge under Section 138(1) of IBC.
The NCLT New Delhi Bench, comprising Judicial Member Bachu Venkat Balaram Das and Technical Member Atul Chaturvedi, ruled that only the Bankruptcy Trustee has the locus standi to seek discharge of the bankrupt. The Tribunal emphasized that the failure of the Trustee to file such an application does not confer any right upon the bankrupt individual to do so.
The National Company Law Tribunal (NCLT) has ruled that a bankrupt individual does not have the right to seek their own discharge under Section 138(1) of the Insolvency and Bankruptcy Code, 2016 (IBC). The authority to file such an application lies exclusively with the Bankruptcy Trustee, and the bankrupt cannot assume this role merely because the Trustee has not initiated the process. The Tribunal emphasized that allowing the bankrupt to file for discharge would undermine the Trustee’s ability to manage the bankruptcy process effectively.
Background and Facts
In the case at hand, the Adjudicating Authority admitted an application under Section 94(1) of the IBC filed by Mr. Anil Syal, a Debtor/Personal Guarantor. Consequently, on September 30, 2022, Mr. Ajay Gupta was appointed as the Bankruptcy Trustee, and the bankruptcy process was initiated. Among the assets in question was Mr. Syal’s 50% ownership in a property located in Uday Park, New Delhi, which was put up for public auction. The highest bidder, Mr. Akshat Gupta, was issued a Sale Certificate, and Union Bank of India, being the creditor, received the final dividend. However, on July 4, 2024, the Adjudicating Authority set aside the sale, citing undervaluation, and ordered a fresh auction. The Sale Certificate was invalidated, and the highest bidder was refunded.
Following these developments, Mr. Syal sought his discharge from bankruptcy, arguing that the statutory period for bankruptcy had lapsed. The NCLAT permitted him to raise the issue before the Adjudicating Authority. Accordingly, he filed an application under Section 138(1)(a) of the IBC, contending that the IBC does not mandate a vote of creditors for a discharge application and that no stakeholder would suffer harm if he were discharged. He further argued that after one year of bankruptcy proceedings, he was entitled to mandatory discharge under Section 138(1)(a).
Tribunal’s Analysis and Ruling
The Bankruptcy Trustee (Respondent No. 1) acknowledged that he had not filed an application under Section 138(1)(a) but maintained that the Bankrupt (Mr. Syal) did not have the right to file one himself. Union Bank of India (Respondent No. 2) argued that Section 138 explicitly requires the Bankruptcy Trustee—not the Bankrupt—to apply for discharge. The bank also raised concerns that discharging the bankrupt individual could lead to further complications in asset recovery, especially since Mr. Syal’s wife, allegedly colluding with him, owned the remaining 50% of the disputed property.
The NCLT New Delhi Bench, comprising Judicial Member Bachu Venkat Balaram Das and Technical Member Atul Chaturvedi, ruled that only the Bankruptcy Trustee has the locus standi to seek discharge of the bankrupt. The Tribunal emphasized that the failure of the Trustee to file such an application does not confer any right upon the bankrupt individual to do so. Additionally, the Tribunal referenced Section 139 of the IBC, which outlines the legal consequences of a bankruptcy discharge, reaffirming that granting such a discharge without the Trustee’s intervention would compromise the administration of the bankruptcy estate.
Conclusion
By denying the bankrupt individual the right to seek their own discharge, the Tribunal has reinforced the principle that the bankruptcy process must be administered in an orderly and regulated manner. The decision upholds the exclusive authority of the Bankruptcy Trustee in such matters, preventing potential misuse of discharge provisions by individuals seeking to evade their financial obligations.
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