TaxTMI 
TaxTMI 
2025 (7) TMI 571
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.... an order for discharge of the Applicant from the Bankruptcy Process under Section 138(1)(a) of the IBC. Adjudicating Authority having rejected the application, aggrieved by which order, this Appeal has been filed by the Appellant. 2. Brief background facts necessary to be noticed for deciding the Appeal are: (i) Personal Insolvency Resolution Process ("PIRP") commenced on an application filed by the Appellant under Section 94 of the IBC on 28.10.2020. No repayment plan having been approved, on an application filed by the Appellant, Bankruptcy Process under Section 122 was initiated vide order dated 30.09.2022. By a subsequent order dated 23.12.2022, the Adjudicating Authority directed the Bankruptcy Process commencement dated to be treated as 23.12.2022. (ii) On 16.03.2023, the Union Bank of India ("UBI") submitted its claim for Rs.71.90 crores, while relinquishing its security interest in the asset of the Appellant (50% share in the Flat bearing First Floor, H No.11, Uday Park, New Delhi). (iii) Bankruptcy Trustee made a public announcement for e- auction of 50% rights of the Appellant in the above asset. On 27.06.2023, e-auction was conducted by Res....
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....locus to file discharge application under Section 138(1)(a). The UBI filed reply to IA No.3964 of 2024. On 11.02.2025, the Adjudicating Authority rejected the application filed by the Appellant. The Adjudicating Authority accepted the submission of the UBI that granting discharge to the Appellant may result in further obstruction during the sale of the asset as the remaining 50% ownership belongs to the wife of the Appellant. The Adjudicating Authority observed that it is unnecessary to address application filed by the Appellant as it does not align with the spirit of the IBC and the application has been filed by the Applicant with the intention of disrupting and derailing the Bankruptcy Process. Aggrieved by the order rejecting the application, this Appeal has been filed. 3. We have heard Ms. Prachi Johri, learned Counsel appearing for the Appellant; Shri Milan Singh Negi, learned Counsel has appeared for Respondent No.1; and Shri Brijesh Kumar Tamber has appeared for Respondent No.2 - Union Bank of India. 4. Learned Counsel for the Appellant challenging the impugned order submits that discharge of the Appellant after expiry of one year is mandatory under Section 13....
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....(1)(a), cannot be a reason to not discharge the Appellant, which is mandate of the law. 5. Learned Counsel for Respondent No.1 submitted that Respondent No.1 had already filed an application under Section 138(1)(b) being IA No.5990 of 2023, within one year of the Bankruptcy Process, which was permitted to be withdrawn after setting aside of the auction held on 30.07.2024. In the 5th CoC Meeting held on 30.07.2024, Respondent No.1 informed the CoC that application under Section 138(1)(b) has to be filed by the Bankruptcy Trustee, as one year period has elapsed, on which the UBI, who is having 97.27% vote share, requested Respondent No.1 to defer the agenda for seeking legal opinion on the said issue, on which request, the agenda was deferred and no legal opinion has yet been submitted by the UBI to Respondent No.1, who has to act on the decision of the CoC. Hence, Respondent No.1 could not file application under Section 138(1)(a). It is, however, submitted that Respondent No.1 is bound to act in accordance with the provisions of IBC and the Rules and Regulations framed thereunder. It is submitted that Respondent No.1 is not averse to the rights of either the Bankrupt or the Credi....
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.... (3) A copy of the discharge order shall be provided to the Board, for the purpose of recording an entry in the register referred to in section 196. 139. Effect of discharge. - The discharge order under sub-section (2) of section 138 shall release the bankrupt from all the bankruptcy debts: Provided that a discharge shall not - (a) affect the functions of the bankruptcy trustee; or (b) affect the operation of the provisions of Chapter IV and V of Part III: (c) release the bankrupt from any debt incurred by means of fraud or breach of trust to which he was a party; or (d) discharge the bankrupt from any excluded debt." 9. We have noticed above that Bankruptcy Process against the Appellant commenced on 23.12.2022 and Bankruptcy Trustee has sold the 50% share of the Flat of the Appellant on 27.06.2023. After the sale of 50% asset, notice was also issued under Section 176 by Respondent No.1 on 09.07.2023 and on 31.10.2023 application was filed by the Bankruptcy Trustee under Section 138(1)(b) of the IBC. 10. On objection filed by the UBI, auction held on 27.06.2023 was set aside by the Adjudicating Authority by....
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....er of Adjudicating Authority directing for re-auction of the property. It is useful to notice paragraphs 4, 5 and 6 of the order of this Tribunal dated 30.07.2024, which are as follows: "4. Learned counsel appearing for the Bankruptcy Trustee submits that the issue regarding filing of application under Section 38(1)(a) of the Code has to be agitated before the Adjudicating Authority by the Appellant, if any and said issue is not the subject matter of the present appeal. 5. In view of the aforesaid, we are of the view that in so far as present appeal, we do not find any ground to interfere with the order directing for reauction of the property. We, however, give liberty to the Appellant to make appropriate application before the Adjudicating Authority for raising the issue of discharge of Appellant. 6. Learned counsel for the Appellant submits that although Appellant has no issue with regard to re-auction but the re-auction should be held by some other authority and he may be discharged in the meanwhile. We are unable to accept the submission of the Appellant that re-auction should be held by some other authority. It is the Bankruptcy Trustee who has to ho....
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.... The representative of the UBI took note of the same and requested the bankruptcy trustee to defer this agenda to the next meeting till than they will also discuss with their legal advisor. The bankruptcy trustee took note of the same." 13. The case of the Bankruptcy Trustee before the Adjudicating Authority and before this Tribunal is that although the Bankruptcy Trustee has flagged the issue by filing an application under Section 138(1)(a), since one year period has elapsed, but the UBI has not given any legal opinion as mentioned in the Meeting, nor has given a green signal to the Bankruptcy Trustee to file an application. 14. Section 138 of the IBC has fallen for consideration in the present case. We need to notice the legislative scheme under Section 138 of the IBC. We may first notice the statutory scheme regarding discharge of a 'bankrupt' as was contained in The Presidency-Towns Insolvency Act, 1909 and The Provincial Insolvency Act, 1920. The Presidency-Towns Insolvency Act, 1909 deals with 'Discharge of insolvent' under Section 38 of the Act. Section 38 of the Act provides as follows: "38. Discharge of insolvent.-- (1) An insolvent may, at any tim....
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....in statutory provisions pertaining to discharge of insolvent in foreign jurisdiction. Insolvency Act, 1986 as applicable in the United Kingdom, is contained in Section 279 of the statute. Section 279 is as follows: "279.-(1) Subject as follows, bankrupt is discharged from bankruptcy- (a) in the case of an individual who was adjudged bankrupt on petition under section 264(1)(d) or who had been an undischarged bankrupt at any time in the period of 15 years ending with the commencement of the bankruptcy, by an order of the court under the section next following, and (b) in any other case, by the expiration of the relevant period under this section. (2) That period is as follows- (a) where certificate for the summary administration of the bankrupt's estate has been issued and is not revoked before the bankrupt's discharge, the period of years beginning with the commencement of the bankruptcy, and (b) in any other case, the period of years beginning with the commencement of the bankruptcy. (3) Where the court is satisfied on the application of the official receiver that an undischarged bankrupt in relation to whom subsection....
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....nk fit to impose, including conditions with respect to - (i) any income which may be subsequently due to the bankrupt after his discharge; or (ii) any property devolving upon the bankrupt, or acquired by him, after his discharge, As may be specified in the order." 21. The above statutes of foreign jurisdiction as noted above indicate that shift in law with regard to grant of discharge is after expiration of time fixed in the statute. The legislative scheme under Sections 138 and 139 also clearly contemplates consideration of discharge on expiry of one year from the bankruptcy commencement date. We may also notice the Report of the Bankruptcy Law Reforms Committee, November 2015, which while dealing with 'discharge' in paragraph 6.6 stated as follows: "6.6 Discharge Discharge relates to the relief offered to the debtor. The world has adopted one of two measures - an "earned" start where the duration of the repayment plan lasts for between three to seven years. This is the system prevalent in most European countries. The other is that of a "fresh" start where debt relief is granted with a year. In the US, fresh start Box 6.21: Drafti....
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.... to apply to the Adjudicating Authority for a discharge on the expiry of one yar from the bankruptcy commencement date. The expression used in Section 138(1) is "The bankruptcy trustee shall apply to Adjudicating Authority for a discharge order". Thus, the above provision cast an obligation on the Bankruptcy Trustee to apply for discharge on the expiry of the one year from the bankruptcy commencement date or in alternative within seven days of the approval of the Committee of Creditors of the completion of administration of the estate of bankrupt under Section 137. As noted above, in the present case, Bankruptcy Trustee has applied under Section 138(1)(b) for discharge, after 50% share of the Appellant were auctioned of the flat in question, which action having been set aside by the Adjudicating Authority, the application became infructuous and was permitted to be withdrawn. 24. Learned Counsel appearing for the Bankruptcy Trustee brought into the notice of the CoC (of which more than 97% vote shares are held by UBI) that as per Section 138(1)(a), the Bankruptcy Trustee has to file an application for discharge. However, on the request of the UBI, the said Agenda was deferred, to....
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....se clearly indicate that the Bankruptcy Trustee failed to file application within one year from commencement of the bankruptcy process. Further, it is also noted that this Tribunal vide its order dated 30.07.2024 while deciding the Appeal filed by the Appellant, gave liberty to the Appellant in following words: "5. ... We, however, give liberty to the Appellant to make appropriate application before the Adjudicating Authority for raising the issue of discharge of Appellant". 26. 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 Adjudicating Authority in the impugned order in paragraph 35 has made following observations: "35. In view of the above, this Adjudicating Authority believes it is unnecessary to address the present application, as it does not align with the spirit of the Insolvency and Bankruptcy Code....