IBC Section 153: Approval of creditors for certain acts

Section 153 of Insolvency and Bankruptcy Code, 2016: Approval of creditors for certain acts

Official Bare Act Text

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

The bankruptcy trustee for the purposes of this Chapter may after procuring the approval of the committee of creditors,-

(a) carry on any business of the bankrupt as far as may be necessary for winding it up beneficially;

(b) bring, institute or defend any legal action or proceedings relating to the property comprised in the estate of the bankrupt;

(c) accept as consideration for the sale of any property a sum of money due at a future time subject to certain stipulations such as security;

(d) mortgage or pledge any property for the purpose of raising money for the payment of the debts of the bankrupt;

(e) where any right, option or other power forms part of the estate of the bankrupt, make payments or incur liabilities with a view to obtaining, for the benefit of the creditors, any property which is the subject of such right, option or power;

(f) refer to arbitration or compromise on such terms as may be agreed, any debts subsisting or supposed to subsist between the bankrupt and any person who may have incurred any liability to the bankrupt;

(g) make compromise or other arrangement as may be considered expedient, with the creditors;

(h) make compromise or other arrangement as he may deem expedient with respect to any claim arising out of or incidental to the bankrupt's estate;

(i) appoint the bankrupt to-

(A) supervise the management of the estate of the bankrupt or any part of it;

(B) carry on his business for the benefit of his creditors;

(C) assist the bankruptcy trustee in administering the estate of the bankrupt.

Legal Commentary & Landmark Judgments: Section 153

Section 153 mandates the Bankruptcy Trustee to obtain the prior approval of the Committee of Creditors for specific high-value or risk-sensitive administrative acts.

Statutory Approvals Required: The trustee cannot carry on the business of the bankrupt, institute or defend lawsuits, bring or defend appeals, or mortgage estate property without committee approval.
Compromises and Arbitrations: Prior approval is mandatory before referring any dispute to arbitration or compromising any debts, claims, and liabilities arising out of the estate.
Sixty-Six Percent Voting Threshold: Approvals under Section 153 require a resolution passed by a voting majority of sixty-six percent of the creditors present and voting.

Key Landmark Precedents:

Committee of Creditors of Essar Steel v. Satish Kumar Gupta (2020) 8 SCC 531: The Supreme Court affirmed that major commercial decisions and litigation compromises during insolvency must remain under the collective control of the creditors' committee.
K. Sashidhar v. Indian Overseas Bank (2019) 12 SCC 150: Held that the commercial wisdom of the creditors' assembly in granting or withholding operational approvals is paramount.

Courtroom Practice & Strategic Litigation Guidance:

Trustees must never execute out-of-court settlements or compromise agreements with third-party debtors without tabling a specific Section 153 resolution before the creditors' committee, as unapproved compromises are voidable.