Sections 162 and 163 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 162 adds a safeguard to the trustee's power to disclaim: a leasehold interest can be disclaimed only after notice has been served on every interested person and either no objection has been filed within fourteen days or the Adjudicating Authority has directed that the disclaimer takes effect. Section 163 says who may challenge a disclaimer and what the Adjudicating Authority may order.
The article follows the IBBI consolidated text of the Code amended up to 12 August 2021 (the "consolidated text").
The trustee cannot disclaim a leasehold interest unless a notice has been served on every interested person and either no objection is filed within fourteen days, or the Adjudicating Authority has directed under section 163 that the disclaimer takes effect. Persons with an interest in, or liability for, the disclaimed property, and in the case of a dwelling house its occupiers, may apply to challenge the disclaimer. The Adjudicating Authority may order vesting or delivery of the property.
Section 162: leaseholds
Sub-section (1). The bankruptcy trustee "shall not be entitled to disclaim any leasehold interest, unless a notice of disclaimer has been served on every interested person and –". Two alternatives then follow.
| Clause | Condition |
|---|---|
| (a) | No application objecting to the disclaimer by the interested person has been filed with respect to the leasehold interest, within fourteen days of the date on which notice was served |
| (b) | Where an application objecting to the disclaimer has been filed by the interested person, the Adjudicating Authority has directed under section 163 that the disclaimer shall take effect |
Read together, the notice must go to "every interested person"; if nobody objects in fourteen days from service, the trustee may proceed; if someone does object, the disclaimer needs a direction from the Adjudicating Authority under section 163. The text is silent on who counts as an "interested person" for a leasehold, and on the form of the notice, so this article adds neither. The general power to disclaim onerous property, including the rule that no notice is needed in one situation, is in sections 160 and 161: see Sections 160 and 161 of this series. If you hold a lease on property that a trustee proposes to disclaim, our legal dispute resolution team can look at the timing and the options with you.
Sub-section (2). Where the Adjudicating Authority gives a direction under clause (b) of sub-section (1), "it may also make order with respect to fixtures, improvements by tenant and other matters arising out of the lease as it may think fit". The discretion is wide: fixtures, improvements by a tenant and "other matters arising out of the lease".
Section 163: challenge against disclaimed property
Sub-section (1): who can apply. "An application challenging the disclaimer may be made by the following persons under this section to the Adjudicating Authority".
| Clause | Applicant |
|---|---|
| (a) | Any person who claims an interest in the disclaimed property |
| (b) | Any person who is under any liability in respect of the disclaimed property |
| (c) | Where the disclaimed property is a dwelling house, any person who on the date of application for bankruptcy was in occupation of or entitled to occupy that dwelling house |
Clause (c) looks to a fixed date: "the date of application for bankruptcy". The occupier is judged by the position on that date, not on the date of the disclaimer.
Sub-section (2): the order. On an application, the Adjudicating Authority "may" make an order "for the vesting of the disclaimed property in, or for its delivery to any of the persons mentioned in sub-section (1)". The persons mentioned are the three kinds of applicant above.
Sub-section (3): limit on orders for those under liability. The Adjudicating Authority "shall not make an order in favour of a person who has made an application under clause (b) of sub-section (1) except where it appears to the Adjudicating Authority that it would be just to do so for the purpose of compensating the person". So a person who applied only because he is under a liability regarding the property gets an order in his favour only if it would be just to do so "for the purpose of compensating" him.
Sub-section (4): link to loss under section 160(5). "The effect of an order under this section shall be taken into account while assessing loss or damage sustained by any person in consequence of the disclaimer under sub-section (5) of section 160." Section 160(5) deems a person who sustains loss as a result of a disclaimer to be a creditor of the bankrupt to the extent of the loss. An order under section 163 therefore feeds into that assessment.
Sub-section (5): no further paperwork. "An order under sub-section (2) vesting property in any person need not be completed by any consequence, assignment or transfer."
Printing note. The words "any consequence, assignment or transfer" are printed as such in the consolidated text. Section 154(2) uses "conveyance, assignment or transfer" for vesting in the trustee. Sub-section (5) is quoted as printed and not corrected.
The route in outline
| Stage | Provision | Detail |
|---|---|---|
| Notice | s.162(1) | Served on every interested person |
| Window | s.162(1)(a) | Fourteen days from the date on which notice was served |
| Objection | s.162(1)(b), s.163(1) | An application is made to the Adjudicating Authority |
| Direction | s.162(1)(b), s.163(2) | Disclaimer takes effect only if the Adjudicating Authority so directs |
| Ancillary orders | s.162(2) | Fixtures, improvements by tenant and other matters arising out of the lease |
| Vesting or delivery | s.163(2), (5) | To a person mentioned in s.163(1); no conveyance needed |
A worked example
Trustee Arun Gill serves a notice of disclaimer on the landlord, the sub-tenant and the bankrupt, Seema Kapoor, in respect of a leasehold shop that is a drain on the estate. The sub-tenant, who claims an interest in the shop, files an application objecting within fourteen days of the date on which notice was served. Under section 162(1)(b), the disclaimer can take effect only if the Adjudicating Authority directs under section 163 that it shall. When it so directs, under section 162(2) it may also make an order on fixtures and improvements the sub-tenant had made. If instead Seema's elderly mother, who was living in a flat held on lease on the date of the bankruptcy application, wishes to challenge the disclaimer of that flat, she may apply under section 163(1)(c) as a person in occupation of a dwelling house on that date. The names and facts are invented.
How these sections relate to the Adjudicating Authority
In Part III the Adjudicating Authority is the Debt Recovery Tribunal, per section 79(1) and section 179. The jurisdiction sections are covered in Sections 179 and 180 of this series. The live post on onerous property and the disclaimer under sections 160 to 163 also treats these provisions.
Law around these sections
The Amendment Act, 2026 (No. 6 of 2026) has no clause that amends sections 162 or 163. 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 a leasehold disclaimed in a bankruptcy?
Landlords, tenants and occupiers who receive a notice of disclaimer have a short objection window, and the later orders depend on it. If you are in that position, or advise a trustee, our team can help you plan the next step through our legal dispute resolution service.
Key takeaways
- A leasehold interest cannot be disclaimed unless notice has been served on every interested person.
- The condition is either no objection within fourteen days of service, or a direction of the Adjudicating Authority under section 163.
- Section 163(1) lets persons claiming an interest, persons under a liability and, for a dwelling house, occupants on the date of application for bankruptcy apply to challenge.
- The Adjudicating Authority may order vesting or delivery of the property, subject to the limit in section 163(3).
- A vesting order under section 163(2) needs no further conveyance, assignment or transfer.
Read next
- Section 164 of the Insolvency and Bankruptcy Code, 2016: undervalued transactions of a bankrupt
- Sections 160 and 161: onerous property of the bankrupt and notice to disclaim
- Onerous property and the disclaimer under sections 160 to 163
- Individual insolvency under the IBC: Part III
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.