IBC Section 146: Resignation by bankruptcy trustee

Section 146 of Insolvency and Bankruptcy Code, 2016: Resignation by bankruptcy trustee

Official Bare Act Text

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

(1) A bankruptcy trustee may resign if-

(a) he intends to cease practising as an insolvency professional; or

(b) there is conflict of interest or change of personal circumstances which preclude the further discharge of his duties as a bankruptcy trustee.

(2) The Adjudicating Authority shall, within seven days of the acceptance of the resignation of the bankruptcy trustee, direct the Board for his replacement.

(3) The Board shall, within ten days of the direction of the Adjudicating Authority under sub-section (2) recommend another bankruptcy trustee as a replacement.

(4) The Adjudicating Authority shall appoint the bankruptcy trustee recommended by the Board under sub-section (3) within fourteen days of receiving the recommendation.

(5) The replaced bankruptcy trustee shall deliver possession of the estate of the bankrupt to the bankruptcy trustee appointed under sub-section (4), on the date of his appointment.

(6) The Adjudicating Authority may give directions to the bankruptcy trustee who has resigned-

(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.

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

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

Legal Commentary & Landmark Judgments: Section 146

Section 146 regulates the formal resignation of a Bankruptcy Trustee and the statutory conditions governing the acceptance of such resignation.

Application to Resign: A bankruptcy trustee may resign only on valid personal grounds (such as illness or conflict of interest) by moving an application before the Adjudicating Authority.
Notice to Creditors: Must give prior written notice to the bankrupt, the committee of creditors, and the IBBI outlining the reasons for tendering resignation.
Order of Acceptance: The resignation takes effect only upon the Adjudicating Authority passing a formal order accepting it and appointing a successor trustee.

Key Landmark Precedents:

Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17: The Supreme Court held that the insolvency process cannot be left in administrative limbo; a trustee cannot abandon duties unilaterally without judicial leave.
Dilip B. Jiwrajka v. Union of India (2024) 5 SCC 436: Affirmed that judicial supervision over trustee departures ensures unbroken stewardship of the bankrupt's assets.

Courtroom Practice & Strategic Litigation Guidance:

A resigning trustee must remain in office and continue statutory custodian functions until the successor trustee formally takes charge under an order of the Adjudicating Authority, executing a comprehensive handover report.