Sections 160 and 161 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 160 lets the bankruptcy trustee give a notice disclaiming onerous property that forms part of the estate: an unprofitable contract, or other property that is unsaleable, not readily saleable or likely to give rise to a claim. Section 161 deals with the case where an interested person asks the trustee to decide and the trustee does not decide within seven days.
The article follows the IBBI consolidated text of the Code amended up to 12 August 2021 (the "consolidated text").
The trustee may disclaim onerous property by giving notice to the bankrupt or any person interested, even after he has taken possession, tried to sell it or exercised ownership rights. The notice ends the bankrupt's rights, interests and liabilities in that property from the notice date and discharges the trustee from personal liability for it. Anyone who suffers loss because of the disclaimer is deemed a creditor to the extent of the loss. If an interested person asks the trustee to decide and he does not do so within seven days, no notice is needed under section 161.
Section 160: the power to disclaim
Sub-section (1). The 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". Disclaimer is the trustee's choice ("may"), and the property must form part of the estate (see section 155, covered in Sections 155 and 156).
The Explanation: what is "onerous property". For section 160, onerous property means (i) any unprofitable contract, and (ii) any other property comprised in the estate which is unsaleable or not readily saleable, or is such that it may give rise to a claim. The two limbs overlap in places; the second is not limited to contracts.
Sub-section (2). The notice may be given "notwithstanding that he has taken possession of the onerous property, endeavoured to sell it or has exercised rights of ownership in relation to it". Taking control of an asset does not by itself take away the option to disclaim it.
Sub-section (3): what the notice does.
| Clause | Effect |
|---|---|
| (a) | Determines, as from the date of the notice, the rights, interests and liabilities of the bankrupt in respect of the onerous property disclaimed |
| (b) | Discharges the bankruptcy trustee from all personal liability in respect of the onerous property as from the date of appointment of the bankruptcy trustee |
The two dates differ. Clause (a) runs from the date of the notice. Clause (b) runs "as from the date of appointment of the bankruptcy trustee", so the trustee's personal protection looks back to his appointment. If you are weighing whether a trustee should disclaim a contract or an asset, a legal consultation can help you set out the facts against these words.
Sub-section (4): the committee's permission. A notice "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". The text refers to property "claimed ... under section 155"; section 155 defines the estate, while the claiming of after-acquired property is in section 159. The reference is quoted as printed. After-acquired property is the subject of the live post on section 159.
Sub-section (5): third parties. A disclaimer "shall not affect the rights or liabilities of any other person". A person who sustains loss or damage in consequence of the disclaimer "shall be deemed to be a creditor of the bankrupt to the extent of the loss or damage". So the counterparty to an unprofitable contract does not lose his claim; he proves for his loss, in the way the Code treats creditors (for proof of debt, see the live post on proof of debt under sections 171 to 173).
Section 161: when notice is not necessary
Sub-section (1). "No notice of disclaimer under section 160 shall be necessary if" both of the following are true:
- 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
- a decision under clause (a) has not been taken by the bankruptcy trustee within seven days of receipt of the notice.
Drafting note. Clause (a) speaks of an "application" in writing, and clause (b) counts seven days from "receipt of the notice". The word "notice" in clause (b) is not defined as the written application, and the clause refers to "a decision under clause (a)" although clause (a) is the application. These are printing and drafting features of the consolidated text and are quoted as printed. The reader should check the official text.
Sub-section (2). "Any onerous property which cannot be disclaimed under sub-section (1) shall be deemed to be part of the estate of the bankrupt." Read with sub-section (1), the property that was not disclaimed stays in the estate.
The Explanation. For section 161, onerous property "is said to be disclaimed where notice in relation to that property has been given by the bankruptcy trustee under section 160".
The sequence in practice
| Step | Provision | What happens |
|---|---|---|
| 1 | s.160(1) | Trustee gives notice disclaiming onerous property in the estate |
| 2 | s.160(4) | If the property was claimed under section 155, committee's permission is needed first |
| 3 | s.160(3) | On the notice, the bankrupt's rights, interests and liabilities in the property end from the notice date; trustee's personal liability is discharged |
| 4 | s.160(5) | A person who suffers loss is deemed a creditor to the extent of the loss |
| 5 | s.161(1) | If an interested person has asked in writing for a decision and none is taken within seven days, no notice is needed |
| 6 | s.161(2) | Property that cannot be disclaimed is deemed part of the estate |
Leasehold interests have a special regime in section 162, covered in Sections 162 and 163.
A worked example
Rajesh Pillai is bankrupt. His estate includes a contract to buy raw material at fixed prices, which is now unprofitable, and a plot that cannot readily be sold. The trustee, Smita Rao, gives notice disclaiming the supply contract under section 160(1). From the notice date Rajesh's rights, interests and liabilities under that contract are determined, and Smita is discharged from personal liability for it. The supplier, who suffers loss because of the disclaimer, is deemed a creditor of Rajesh to the extent of the loss.
A separate interested person, who holds a licence over the plot, applies in writing to Smita to decide whether the plot should be disclaimed. Smita takes no decision within seven days. Under section 161(1) no notice of disclaimer is then necessary, and under section 161(2) the property which cannot be disclaimed under sub-section (1) is deemed part of the estate. The names and facts are invented.
Law around these sections
The Amendment Act, 2026 (No. 6 of 2026) has no clause that amends sections 160 or 161. It comes into force on the date or dates the Central Government notifies; the notification is not in the texts consulted, so check whether any change to a related provision has been notified.
For personal guarantors to corporate debtors, the Insolvency and Bankruptcy Board of India (Bankruptcy Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 (the copy consulted is amended up to 02-06-2026) apply alongside Part III; no rules or regulations for other individuals or for partnership firms are in the texts consulted.
Amendments and notifications made after 12 August 2021, other than the Amendment Act, 2026, are not in the texts consulted and should be checked.
Need help with an onerous contract or asset in a bankruptcy?
Trustees, counterparties and lenders dealing with an unprofitable contract or an unsaleable asset in a bankrupt's estate should check the notice, the seven-day window and the committee's role before acting. Our team can help you read the sections against the facts through a legal consultation.
Key takeaways
- Onerous property means an unprofitable contract or other estate property that is unsaleable, not readily saleable or likely to give rise to a claim.
- The trustee disclaims by notice, even after taking possession, trying to sell or exercising ownership rights.
- The notice determines the bankrupt's rights, interests and liabilities from the notice date and discharges the trustee from personal liability.
- A person who suffers loss is deemed a creditor to the extent of the loss.
- Under section 161, an interested person's written request followed by seven days of no decision removes the need for notice.
Read next
- Sections 162 and 163: disclaimer of leaseholds and challenge against disclaimed property
- Sections 157 and 158: acquisition of control and restrictions on disposition
- Onerous property and the disclaimer under sections 160 to 163
- After-acquired property under section 159
Disclaimer: Based on the IBBI consolidated text of the Insolvency and Bankruptcy Code, 2016 amended up to 12 August 2021 and on the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026), which comes into force on the date or dates notified by the Central Government, as consulted on 2 October 2026. It explains the words of the statute only; commencement notifications, other amendments made after 12 August 2021, notified thresholds, the rules and IBBI regulations, and the way tribunals and courts apply these sections should be checked. This article is general information, not legal advice; check the official text before acting.