IBC Section 145: Replacement of bankruptcy trustee

Section 145 of Insolvency and Bankruptcy Code, 2016: Replacement of bankruptcy trustee

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

(1) Where Committee of creditors is of the opinion that at any time during the bankruptcy process, a bankruptcy trustee appointed under section 125 is required to be replaced, it may replace him with another bankruptcy trustee in the manner provided under this section.

(2) The Committee of creditors may, at a meeting, by a vote of seventy-five per cent. of voting share, propose to replace the bankruptcy trustee appointed under section 125 with another bankruptcy trustee.

(3) The Committee of creditors may apply to the Adjudicating Authority for the replacement of the bankruptcy trustee.

(4) The Adjudicating Authority shall within seven days of the receipt of the application under subsection (3) direct the Board to recommend for replacement of bankruptcy trustee.

(5) The Board shall, within ten days of the direction of the Adjudicating Authority under sub-section (4), recommend a bankruptcy trustee for replacement against whom no disciplinary proceedings are pending.

(6) The Adjudicating Authority shall, by an order, appoint the bankruptcy trustee as recommended by the Board under sub-section (5) within fourteen days of receiving such recommendation.

(7) The earlier bankruptcy trustee shall deliver possession of the estate of the bankrupt to the bankruptcy trustee appointed under sub-section (6), on the date of his appointment.

(8) The Adjudicating Authority may give directions to the earlier bankruptcy trustee-

(a) to share all information with the new bankruptcy trustee in respect of the bankruptcy process; and

(b) to co-operate with the new bankruptcy trustee in such matters as may be required.

(9) The earlier bankruptcy trustee replaced under this section shall be released in accordance with the provisions of section 148.

(10) The bankruptcy trustee appointed under this section shall give a notice of his appointment to the bankrupt within seven days of his appointment.

Legal Commentary & Landmark Judgments: Section 145

Section 145 prescribes the procedure and grounds for the replacement of a Bankruptcy Trustee by the Adjudicating Authority on application by the creditors.

Application for Replacement: The committee of creditors may pass a resolution with a majority of sixty-six percent of voting share to replace the bankruptcy trustee and apply to the Adjudicating Authority.
Grounds for Replacement: May be initiated on grounds of conflict of interest, misconduct, failure to perform duties, or breakdown of communication with stakeholders.
Appointment of Successor Trustee: The Adjudicating Authority calls for a replacement nomination from the IBBI and formally appoints the new bankruptcy trustee within fourteen days.

Key Landmark Precedents:

ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta (2019) 2 SCC 1: The Supreme Court affirmed that the replacement of an insolvency practitioner is a statutory prerogative of the creditors' assembly exercising its commercial discretion.
Dilip B. Jiwrajka v. Union of India (2024) 5 SCC 436: Held that regulatory checks under the Code ensure that successor trustees are swiftly inducted without stalling ongoing liquidation administration.

Courtroom Practice & Strategic Litigation Guidance:

Creditors seeking replacement of a trustee under Section 145 must strictly comply with the 66% voting threshold and document specific administrative deficiencies in the requisition notice to avoid procedural dismissals.