Bankrupt Individual Cannot Seek Discharge U/S 138(1) Of IBC: NCLT New Delhi

Brief Facts:

Mr. Anil Syal (Debtor/Personal Guarantor/ Applicant) had filed an application under Section 94(1) of the IBC, which the Adjudicating Authority admitted on 28.10.2022. On 30.09.2022, the Adjudicating Authority commenced the bankruptcy process and appointed Mr. Ajay Gupta (Respondent No. 1) as “Bankruptcy Trustee”.

On 02.06.2023, the Bankruptcy Trustee announced a public auction for Mr. Syal's 50% rights in a property at Uday Park, New Delhi. Mr. Akshat Gupta won the bid and received the Sale Certificate. The Bankruptcy Trustee disbursed 100% of the Final dividend to Union Bank of India (Respondent No. 2).

On 04.07.2024, the Adjudicating Authority set aside the undervalued sales and directed a fresh auction. The sale proceeds were to be refunded to the highest bidder and the Sale Certificate was cancelled.

Mr. Syal filed an appeal seeking discharge on the ground that the bankruptcy period expired. On 30.07.2024, the NCLAT granted liberty to the Appellant to raise the discharge issue before the Adjudicating Authority. The Applicant thus filed the application under section 138(1)(a).

Submissions:

The Applicant submitted that the IBC and the Rules and Regulation thereunder nowhere stated that the Bankruptcy Trustee needs a vote of the creditors for filing an application under Section 138(1)(a) of IBC. He further submitted that no party will suffer any prejudice whatsoever, if the Bankrupt individual is discharged from the bankruptcy process. He contended that under Section 138(1)(a) of IBC, after 1 year of bankruptcy process, the bankrupt person is to be mandatorily discharged.

Respondent No. 1 (Bankruptcy Trustee) submitted that the Bankruptcy Trustee had not been in a position to file the application under Section 138(1)(a) of IBC, however, such non-filing of the application would not authorise the Bankrupt to file such application himself.

Respondent No. 2 (Union Bank of India) submitted that the Application was not maintainable as Section 138 provides that the Bankruptcy Trustee should apply to seek discharge of the Bankrupt before the Adjudicating Authority. It was also submitted that if the Applicant/Bankrupt would be discharged then the Bankrupt will again create hindrance at the time of sale of the asset by the Bank as the other 50% is owned by his wife who is also in connivance with the bankrupt.

Observations:

The Tribunal noted that in terms of section 138(1), the Bankruptcy Trustee should apply for the discharge of the Bankrupt before the Adjudicating Authority; however, it was the Bankrupt who had filed for a discharge application. The Tribunal held that non-filing of the application would not authorize the Bankrupt to file such an application himself when the Bankrupt has no locus or authority to either file or maintain such an application.

The Tribunal observed that Section 139 addresses the “Effect of Discharge”, detailing the ramifications of a bankruptcy discharge order issued under Section 138. The exception to Section 139 states that the discharge order issued under Section 138(2) shall not affect the functions of the Bankruptcy Trustee. The Tribunal held that discharging the Applicant/Bankrupt will hinder the functioning of the Bankruptcy Trustee.

The Tribunal directed that the Applicant/Bankrupt not be discharged from the Bankruptcy Process. It dismissed the application.

Case Title: Mr. Anil Syal vs. Mr. Ajay Gupta & Anr.

Case Number: IA-3964/2024 In IB-589(PB)/2020

Counsel for Applicant: Ms. Prachi Johri, Mr. Abhipsa Sahu, Advs.

Counsel for Respondent/BT: Mr. Milan Singh Negi, Mr. Nikhil Kumar Jha, Ms. Aakriti Gupta, Advs.

Counsel for UBI: Mr. Brijesh Kumar Tamber, Mr. Prateek kushwaha, Mr. Vaibhav Krishan Dayma, Advs.

Date of Order: 11.02.2025

Click Here To Read/Download The Order