IBC Section 161: Notice to disclaim onerous property

Section 161 of Insolvency and Bankruptcy Code, 2016: Notice to disclaim onerous property

Official Bare Act Text

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

(1) No notice of disclaimer under section 160 shall be necessary if-

(a) a person interested in the onerous property has applied in writing to the bankruptcy trustee or his predecessor requiring him to decide whether the onerous property should be disclaimed or not; and

(b) a decision under clause

(a) has not been taken by the bankruptcy trustee within seven days of receipt of the notice.

(2) Any onerous property which cannot be disclaimed under sub-section (1) shall be deemed to be part of the estate of the bankrupt.

Explanation.-For the purposes of this section, an onerous property is said to be disclaimed where notice in relation to that property has been given by the bankruptcy trustee under section 160.

Legal Commentary & Landmark Judgments: Section 161

Section 161 governs the statutory procedure and limitations applicable when the Bankruptcy Trustee issues a Notice of Disclaimer.

Service of Disclaimer Notice: The trustee must serve the notice of disclaimer on every person who has an interest in the property or who is subject to any liability under the disclaimed contract.
Time Limits for Third-Party Response: An interested party may require the trustee by written notice to decide within twenty-eight days whether he will disclaim the property or not.
Loss of Disclaimer Right: If the trustee fails to disclaim within twenty-eight days after receipt of the requisition notice, he loses the right to disclaim, and the contract is adopted.

Key Landmark Precedents:

Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta (2021) 7 SCC 209: The Supreme Court stressed that statutory timelines governing contractual adoptions and disclaimers must be adhered to with absolute precision.
Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC 407: Observed that strict timelines under the Code prevent commercial counter-parties from remaining in prolonged operational uncertainty.

Courtroom Practice & Strategic Litigation Guidance:

Landlords and contractual counterparties should serve a formal Section 161 requisition on the trustee immediately upon bankruptcy admission to force a decision within 28 days, thereby avoiding indefinite suspension of their property rights.