NEWSLETTER

On expiry of one year of Bankruptcy commencement date, Bankruptcy Trustee has to file an application for discharge | Adjudicating Authority is not powerless to issue directions to Bankruptcy Trustee to file an application within the timeline | Bankrupt has locus to seek discharge if Bankruptcy Trustee fails to file application after one year – Anil Syal Vs. Ajay Gupta and Anr. – NCLAT New Delhi

Facts of the Case:

· The Personal Insolvency Resolution Process (PIRP) began on 28.10.2020 on the Appellant’s application under Section 94 of the Insolvency and Bankruptcy Code (IBC). Since no repayment plan was approved, bankruptcy proceedings under Section 122 were initiated on 30.09.2022, but later treated as commenced on 23.12.2022. An e-auction was conducted on 27.06.2023, where Akshat Gupta was declared the successful bidder. A Sale Certificate was issued on 05.07.2023. Union Bank of India (UBI) challenged the e-auction, and the Adjudicating Authority set it aside on 04.07.2024 citing inadequate notice (15 days). A fresh valuation and auction were ordered. The 5th CoC meeting on 30.07.2024 discussed discharge, but UBI sought deferral to seek legal advice. Bankruptcy Trustee withdrew their discharge application under Section 138(1)(b) on 06.08.2024 as infructuous. The Appellant filed an application under Section 138(1)(a) for discharge, which was rejected on 11.02.2025, citing possible sale complications due to the Appellant’s wife owning the other 50% of the property.

· The Appellant appealed the rejection.

Decision of the Appellate Tribunal:

A. Interpretation of Section 138 of IBC:

· Section 138(1) mandates the Bankruptcy Trustee to apply for discharge after one year from the bankruptcy commencement date or within 7 days of CoC approval of estate administration completion. This creates a statutory obligation on the Trustee.

B. Bankrupt’s Right to Seek Discharge:

· If the Trustee fails to act, the Bankrupt has the right (locus) to approach the Adjudicating Authority directly. The two-year delay makes the Trustee’s inaction and the Authority’s rejection unjustified and contrary to the IBC’s intent.

C. Application in the Present Case:

· The Trustee filed for discharge under Section 138(1)(b) but later withdrew it after the e-auction was nullified. The Trustee failed to fulfill their duty under Section 138(1)(a), and UBI’s opposition lacks merit as discharge is not contingent on successful asset sale. The Trustee and UBI cannot avoid statutory timelines or object to discharge based on incomplete asset realization.