IBC Section 160: Onerous property of bankrupt

Section 160 of Insolvency and Bankruptcy Code, 2016: Onerous property of bankrupt

Official Bare Act Text

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

(1) The bankruptcy trustee may, by giving notice to the bankrupt or any person interested in the onerous property, disclaim any onerous property which forms a part of the estate of the bankrupt.

(2) The bankruptcy trustee may give the notice under sub-section (1) notwithstanding that he has taken possession of the onerous property, endeavoured to sell it or has exercised rights of ownership in relation to it.

(3) A notice of disclaimer under sub-section (1) shall-

(a) determine, as from the date of such notice, the rights, interests and liabilities of the bankrupt in respect of the onerous property disclaimed;

(b) discharge the bankruptcy trustee from all personal liability in respect of the onerous property as from the date of appointment of the bankruptcy trustee.

(4) A notice of disclaimer under sub-section (1) shall not be given in respect of the property which has been claimed for the estate of the bankrupt under section 155 without the permission of the committee of creditors.

(5) A notice of disclaimer under sub-section (1) shall not affect the rights or liabilities of any other person, and any person who sustains a loss or damage in consequence of the operation of a disclaimer under this section shall be deemed to be a creditor of the bankrupt to the extent of the loss or damage.

Explanation.-For the purposes of this section, the term 'onerous property" means-

(i) any unprofitable contract; and

(ii) any other property comprised in the estate of the bankrupt which is unsaleable or not readily saleable, or is such that it may give rise to a claim.

Legal Commentary & Landmark Judgments: Section 160

Section 160 defines what constitutes Onerous Property for the purposes of disclaimer under the bankrupt's estate administration.

Unprofitable Contracts: Any contract where the cost of performance or continuation substantially exceeds the prospective financial benefit to the bankruptcy estate.
Property Burdened with Covenants: Real estate, leaseholds, or chattels subject to heavy continuous statutory dues, environmental remediation liabilities, or unserviceable mortgages.
Unsaleable or Illiquid Assets: Any property that cannot be readily sold by reason of binding covenants requiring the possessor to perform costly ongoing obligations.

Key Landmark Precedents:

Tata Consultancy Services Ltd. v. Vishal Ghisulal Jain (2022) 2 SCC 583: The Supreme Court noted that contracts imposing onerous non-compensatory obligations on distressed estates can be lawfully resolved under statutory insolvency rules.
Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17: Affirmed that economic efficiency requires excising deadweight liabilities from insolvent asset portfolios.

Courtroom Practice & Strategic Litigation Guidance:

In classifying property as onerous, trustees should commission an independent chartered accountant or surveyor to certify that operational costs outstrip net realisable value, creating an unassailable evidentiary record.