According to the National Company Law Tribunal (NCLT), only the Bankruptcy Trustee may petition the Adjudicating Authority for the discharge of a bankrupt person under Section 138(1) of the Insolvency and Bankruptcy Code, 2016 (IBC). According to the Tribunal, the bankruptcy trustee’s failure to make such an application does not give the bankrupt the right to do so on their own.
On October 28, 2022, the Adjudicating Authority acknowledged that Mr. Anil Syal, the Debtor/Personal Guarantor/Applicant, had submitted an application under Section 94(1) of the IBC. The Adjudicating Authority selected Mr. Ajay Gupta (Respondent No. 1) as the “Bankruptcy Trustee” and started the bankruptcy procedure on September 30, 2022. The Bankruptcy Trustee declared that Mr. Syal’s fifty percent stake in a property in New Delhi’s Uday Park will go up for public auction. After winning the bid, Mr. Akshat Gupta was given the Sale Certificate. Union Bank of India received 100% of the final dividend from the Bankruptcy Trustee (Respondent No. 2).
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On July 4, 2024, the Adjudicating Authority canceled the undervalued sales and mandated a new auction. The selling certificate was invalidated, and the highest bidder received a refund of the selling proceeds. Mr. Syal filed an appeal seeking discharge, arguing that the bankruptcy term had elapsed. On July 30, 2024, the NCLAT authorized the appellant to discuss the discharge issue with the adjudicating body. Therefore, in compliance with S 138(1)(a), the applicant filed the application.
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According to the applicant, the IBC and its implementing rules and regulations make no mention of the Bankruptcy Trustee requiring a vote of creditors in order to file an application under Section 138(1)(a) of the IBC. Furthermore, he argued that if the bankrupt person is released from the bankruptcy procedure, no party will be harmed in any way. He argued that the bankrupt individual must be discharged by mandatory discharge under Section 138(1)(a) of the IBC after a year of the bankruptcy proceedings.
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Respondent No. 1 (Bankruptcy Trustee) argued that although the Bankruptcy Trustee had not been able to make the application under Section 138(1)(a) of the IBC, the Bankrupt would still be able to file the application on his own.
Union Bank of India, Respondent No. 2, argued that the application could not be maintained because Section 138 requires the Bankruptcy Trustee to go to the Adjudicating Authority in order to seek the Bankrupt’s discharge. Additionally, it was argued that if the applicant/bankrupt is released, the bankrupt will once more cause problems when the bank sells the asset because his wife, who also has collusion with the bankrupt, owns the remaining 50%.
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In accordance with section 138(1), the Bankruptcy Trustee should apply for the Bankrupt’s discharge before the Adjudicating Authority, according to the New Delhi bench made up of Bachu Venkat Balaram Das (Judicial Member) and Atul Chaturvedi (Technical Member); however, the Bankrupt filed for a discharge application. The Bankrupt has no locus or authority to file or maintain such an application, hence the Tribunal decided that failure to file the application would not permit the Bankrupt to file it himself.
The Tribunal stated that the “Effect of Discharge” is covered in Section 139, which describes the consequences of a bankruptcy discharge order granted under Section 138. The tribunal ruled that the applicant or bankrupt should not be released from the bankruptcy process since doing so would impair the ability of the bankruptcy trustee to carry out their duties.
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