Subhash Chandra Mishra vs Sunil Kumar, Bankrupt Trustee & Anr.

Ashok Bhushan, J.

This Appeal by a Bankrupt has been filed challenging the order dated 06.06.2025 passed by the Adjudicating Authority (National Company Law Tribunal) Jaipur Bench in IA (IBC) No.585/JPR/2024 in CP No.(IB)-27/122/JPR/2024. The application filed by bankrupt praying for various directions have been rejected by the impugned order aggrieved by which order, this Appeal has been filed.

Brief facts of the case necessary to be noticed for deciding the Appeal are:-

The Appellant- Subhash Chandra Mishra has given personal guarantee for Corporate Debtor- M/s. Niroz Insulations Pvt. Ltd. and M/s. Triveni Agrotraders Pvt. Ltd. The Appellant filed an application under Section 94(1) for initiating personal insolvency against the Appellant with respect to amount of Rs.5,35,53,097/-. The Adjudicating Authority appointed a Resolution Professional who submitted report on the basis of which order was passed admitting Section 94 application. Resolution Professional prepared list of creditors. Repayment plan was placed before the creditors which plan was rejected by the creditors. Adjudicating Authority vide order dated 05.01.2024 rejected the Resolution Plan and permitted the Applicant to file application for initiation of bankruptcy process. CP No.(IB)- 27/122/JPR/2024 was filed by the Appellant seeking initiation of bankruptcy against the Applicant/personal guarantor which application came to be allowed by the Adjudicating Authority vide order dated 06.11.2024. The Respondent No.1 was appointed as Bankruptcy Trustee. Consequential orders were also passed by the Adjudicating Authority. Bankruptcy Trustee after having been appointed directed the Bank to freeze the account of the Appellant. Appellant attempted to make transaction in his bank account which was not allowed. He sent an e-mail dated 19.11.2024 to bankruptcy trustee objecting to the freezing of the account. Appellant prayed to the bankruptcy trustee to remove debit freeze from all account. The bankruptcy trustee replied by e-mail dated 20.11.2024 that in pursuance of the order dated 06.11.2024, bankruptcy trustee has to take custody and control of all assets, properties and actionable claims belonging to the bankruptcy estate. Bankruptcy trustee further communicated that he has no authority to release funds from the account of the Appellant and if Appellant require funds for specific purpose is advised to file an application with the NCLT to seek approval. After receipt of the said e-mail from the bankruptcy trustee, Appellant filed an IA (IBC) No.585/JPR/2024 praying for reliefs which have been extracted in paragraph 1 of the impugned order to the following effect:-

Bankruptcy Trustee filed the reply to the application pleaded that the amount lying in the bank account of the bankrupt is the Estate of the Bankrupt and as per the provisions of the IBC, the bankruptcy trustee was well within its power to freeze all the assets of the applicant. It was pleaded that the amount in the bank account is not excluded assets of the bankrupt. Adjudicating Authority heard the parties and by impugned order rejected the application. Adjudicating Authority rejected the application holding that the applicant has failed to furnish any document or evidence on record to substantiate the claim that the amount held in the bankrupt’s account is ‘in trust’ of borrowed from friends and family. The Adjudicating Authority held that the relief sought by the Applicant i.e. unfreezing of the bank account and permission to utilise the deposited funds without restriction does not fall within the ambit of excluded assets under Section 79(14)(b) of the Code.

Bankrupt aggrieved by the said order has come up in this Appeal. On 11.09.2025, following order was passed by this Tribunal:-

A reply has been filed to the Appeal by the Bankruptcy Trustee. An additional-affidavit has also been filed by the Appellant on 13.11.2025. An additional affidavit dated 06.11.2025 has also been filed by the Appellant.

Learned Counsel for the Appellant challenging the order impugned submits that the amount lying in the bank account of the Appellant were amount which amount was sent by Appellant’s daughter and other members of the family and friends which amount cannot be said to be part of the bankruptcy estate. Learned Counsel for the Appellant relying on Section 79(14)(b) submits that provisions as are necessary for satisfying the basic domestic needs of the bankrupt and his immediate family are excluded assets. Bankruptcy trustee thus, has to make provision for satisfying the basic domestic needs of the bankrupt under which requirement bankruptcy trustee was not entitled to freeze the account of the Appellant. Further, Appellant has filed relevant materials to indicate that the Appellant need expenses for his medical treatment with regard to which relevant prescription and materials were submitted before bankruptcy trustee. In spite of the order of this Tribunal in this Appeal passed on 11.09.2025, bankruptcy trustee has not permitted any withdrawal from the amount lying in the bank account of the Appellant. It is submitted that the bankruptcy trustee is under obligation to ensure that all necessary domestic needs of the Appellant are fulfilled. Learned Counsel for the Appellant has placed reliance on the judgment of the Hon’ble Supreme Court in “P. Veerasamy vs. Official Assignee High Court, Madras- (1999) 2 SCC 505”.

The submissions made by the Counsel for the Appellant has refuted by the learned counsel for the Bankruptcy Trustee who submits that as per Section 155 (1), the estate of the bankrupt shall include all property belonging to or vested in the bankrupt at the bankruptcy commencement date. The amount lying in the account of the Appellant are also covered in the bankruptcy estate. It is submitted that the submission of the Appellant that under Section 79(14)(b) of the Code, the amount lying in the account is excluded is not correct. The amount lying in the bank account of the Appellant cannot be termed to be “provisions” as has been argued by the Appellant. The provision at best relate to items lying in the household of the bankrupt such as grains, vegetables or similar items which are non-current assets. It is submitted that under Section 128 of the Code, estate of the bankrupt shall be divided among his creditors. Thus, no amount can be withdrawn by the bankrupt. The case of the Appellant that money lying the bank account is being held in trust for any other person is unsubstantiated and baseless. All the entries of money received relates to prior to the Bankruptcy Commencement Date i.e. 06.11.2024, hence, the said money has rightly been taken into custody/ control by the Respondent for distribution to the creditors. Adjudicating Authority by the impugned order has rightly dismissed the application. The judgment relied by the Appellant in “P. Veerasamy vs. Official Assignee High Court, Madras” (supra) is not applicable. The said judgment relates to the provisions of the Presidency Towns Insolvency Act, 1909. Under the IBC Code, there is no provisions exist, which allows the Bankruptcy Trustee to pay money to the bankrupt from the money lying the bank account of the bankrupt.

We have considered the submissions of the Counsel for the parties and perused the record.

Before we proceed to enter into respective submissions of the parties, certain provisions of the IBC relating to bankruptcy need to be noticed. Bankruptcy order is contemplated under Section 126 of the IBC. In the present case bankruptcy order was passed on 06.11.2024. Section 128 of the IBC provides for ‘effect of bankruptcy order’ which is as follows:-

Section 136 of the IBC provides for ‘administration and distribution of estate of bankrupt’. Section 136 is as follows:-

Chapter 5 of Part III deals with ‘administration and distribution of estate of bankrupt’. Section 154 deals with ‘vesting of estate of bankrupt in bankruptcy trustee’. Section 154 is as follows:-

Section 155 deals with ‘estate of bankrupt’. Section 155 is as follows:-

One more relevant provision to be noticed is Section 159 which deals with ‘after-acquired property of bankrupt’. Section 159 is as follows:-

IB Code 2016 has repealed ‘The Presidency-Towns Insolvency Act, 1909’ and ‘The Provincial Insolvency Act, 1920’. The above two acts were thus governing the insolvency and bankruptcy prior to enactment of IBC. We also need to notice certain provisions of ‘The Presidency-Towns Insolvency Act, 1909’ and ‘The Provincial Insolvency Act, 1920’. ‘The Presidency-Towns Insolvency Act, 1909’ contained a provision in Section 75 which is as follows:-

Section 75(2) empowers the Court from time to time, make such allowance as it thinks just to the insolvent out of his property, for the support of the insolvent and his family. In ‘The Provincial Insolvency Act, 1920’, Section 66 also contained provision ‘management by and allowance to insolvent’. Section 66 of the Act is as follows:-

Section 75(2) of ‘The Presidency-Towns Insolvency Act, 1909’ and Section 66(2) of ‘The Provincial Insolvency Act, 1920’ empowers the Court to make such allowance as it may think just to the insolvent out of his property.

Now coming back to the facts and submissions of the parties, as noted above. Following are the questions which arise for consideration in this Appeal:-

The questions which have been noticed above are all inter-connected, hence, are being taken together.

The Appellant in his Appeal has brought on record the statement of account from AU Small Finance Bank which account is in the name of the Appellant in the concerned branch. The first question is considered as to whether the said amount lying in the account is part of the assets of bankrupt and whether the amount can be held to be covered by excluded assets within the meaning of Section 79(14)(b) of the Code.

Bankruptcy order was passed against the Appellant on 06.11.2024. Section 128 deals with ‘effect of bankruptcy order’. By virtue of Section 128 on the passing of the bankruptcy order, the estate of the bankrupt shall vest in the bankruptcy trustee. Section 154 provides that the estate of the bankrupt shall vest in the bankruptcy trustee immediately from the date of his appointment. Bankruptcy trustee is appointed by the same order dated 06.11.2024 by which bankruptcy commenced. Section 155 deals with the ‘estate of the bankrupt’. Sub-section (1) of Section 155 provides that the estate of the bankrupt includes all property belonging to or vested in the bankrupt at the bankruptcy commencement date. The expression of ‘property’ is defined in Section 3(27) which contains a very vide definition. Amount lying in the bank account of the Appellant is clearly property of the Appellant which amount shall stand vested in the bankruptcy trustee on passing of the bankruptcy order. When estate vests in the bankruptcy trustee on passing of the bankruptcy order, it is the bankruptcy trustee who is to administer the estate, hence, the direction of the bankruptcy trustee to debit freeze of the account cannot be said to be outside scope of the bankruptcy trustee. Learned Counsel for the Appellant has placed reliance on Section 79(14) which defines ‘excluded assets’. Section 79(14) is as follows:-

Learned Counsel for the Appellant has placed reliance on Section 79(14)(b) especially the expression “provisions as are necessary for satisfying the basic domestic needs of the bankrupt and his immediate family”. Learned Counsel for the Appellant sought to contend that the amount which was lying in the account of the bankrupt are necessary for satisfying the basic domestic needs of the bankrupt and his immediate family, hence, the said account to be included in the ‘excluded assets’. Section 155(2) provides that the estate of the bankrupt shall not include excluded assets and property held by the bankrupt on trust for any other person, thus, the estate of the bankrupt does not include the excluded assets.

Now we need to consider the expression occurring in sub-clause (b) of Section 79(14), as noted above. Sub clause (b) uses several expressions which include unencumbered furniture, household equipment and provisions as are necessary for satisfying the basic domestic needs of the bankrupt and his immediate family. Similarly, in sub-clause (a) ‘excluded assets’ include unencumbered tools, books, vehicles and other equipment as are necessary to the debtor or bankrupt for his personal use or for the purpose of his employment, business or vocation. The word used in sub-clause (b) has to be interpreted ejusdem generis. When we look into the word ‘provisions’ as occurring in sub-clause (b), the said word has to take colour from other expressions used in same sub-section (b) i.e. unencumbered furniture, household equipment. The expression ‘provisions’ as are necessary for satisfying the basic domestic needs of the bankrupt and his immediate family. This can be explained by taking an example in one dwelling unit which is as per the Regulation namely— Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtor) Rules, 2019. One unencumbered single dwelling unit owned by the debtor is excluded assets as per Section 79(14)(b) read with Rule 5 of 2019 Rules. The provisions which are lying in the dwelling unit which are necessary for satisfying the basic domestic needs of the bankrupt and his immediate family are included in the excluded assets thus, provisions like food grains, vegetables and other edibles have to be treated to be ‘excluded assets’. However, the submission of the Appellant that the said expression also covered the amount lying in the account of the bankrupt cannot be accepted. All property of the bankrupt being included in the bankruptcy estates which clearly include any amount lying the bank account. Section 79(14)(b) cannot be read to mean that the said expression of provision shall also cover the amount lying in the bank account. Thus, the submission of the Appellant based on Section 79(14)(b) to claim that the amount lying in the account of bankrupt as excluded asset cannot be accepted.

We have noticed the provisions of Section 159 of the IBC which deals with ‘after-acquired property of bankrupt’. Bankruptcy commencement date being 06.11.2024, any property acquired subsequent to that shall not be automatically part of the bankruptcy estate which is clear from Section 159. When we look into the bank account of the Appellant in AU Small Finance Bank which statement of account is filed as Annexure A-5 to the Appeal, it is clear that there are certain credit entries after 06.11.2024, one credit entry of 10,000 on 15.11.2024 another credit entry of 10,000 on 15.11.2024. Any amount which has been received by the bankrupt subsequent to bankruptcy commencement date shall not be automatically part of the bankruptcy estate unless a notice is issued under sub-section (1) of Section 159. Present is not a case that any notice has been given by bankruptcy trustee for the amount which has been received in the bank account subsequent to 06.11.2024. Thus, Appellant was clearly entitled for release of the aforesaid amount from the account of the Appellant which was acquired subsequent to bankruptcy commencement order.

Learned Counsel for the Appellant has also contended that various amounts received in the account were from daughter of the Appellant and other relatives which cannot be part of the bankruptcy and those amounts were amount which was given to the Appellant to be kept in trust. There are no material on record with respect to any amount which according to the Appellant was to be kept in trust. There being no material on the record, we are of the view that the present is not a case for applicability of Section 155(2)(b) and Appellant having not established that any amount was held by the bankrupt on trust for any other person no direction could have been passed for release of such amount.

Learned Counsel for the Appellant has relied on judgment of the Hon’ble Supreme Court in “P. Veerasamy vs. Official Assignee High Court, Madras” (supra) which need to be noticed. The above judgment of the Hon’ble Supreme Court arose out of the proceeding under the Presidency Towns Insolvency Act, 1909. The Appellant before the Hon’ble Supreme Court was declared as bankrupt under the Act and he filed an application before the insolvency court for permitting the Appellant to restart his kerosene business under license as agent of the Tamil Nadu Civil Supplies Department which application was rejected. The Division Bench also affirmed the Appeal against which order the matter was taken in the Hon’ble Supreme Court. Reliance was placed on Section 75 and other provisions of the Presidency Towns Insolvency Act, 1909. In the above context, the Hon’ble Supreme Court had occasion to consider common law principles and Section 75 of the Act. In paragraphs 35, 36 and 37 of the judgment, following was laid down:-

The Hon’ble Supreme Court also in the above case has held that the Court has to take a humanistic view towards honest insolvents, the court must also guard against undue exploitation of the above principles and provisions of law. In paragraph 38 of the judgment, following was held:-

The above judgment of the Hon’ble Supreme Court was delivered in reference to Section 75 of ‘The Presidency-Towns Insolvency Act, 1909’. In the IBC Code, there is no provision akin to Section 75 of ‘The Presidency-Towns Insolvency Act, 1909’ or Section 66 of ‘The Provincial Insolvency Act, 1920’. The IBC does not contain any provision for granting any allowance to the bankrupt. Counsel for the Respondent has relied on Section 128 (1)(b) where the estate of the bankrupt shall be divided among the creditors. The submission which has been pressed by the Counsel for the Appellant is that even though there is no expressed provision for granting any allowance to the bankrupt, the bankruptcy trustee who is administering the assets of the corporate debtor does not lack jurisdiction to release any amount to the bankrupt for medical needs as in the present case. The scheme of the IBC indicates that the bankruptcy trustee is entrusted with the administration and distribution of the estate of the bankrupt. The word ‘administration’ which occurring in Section 136 of the IBC provides that bankruptcy trustee shall conduct the administration and distribution of the estate of the bankrupt. Thus, the said provision entrust the administration of the estate of the bankrupt on bankruptcy trustee. It is true that the estate of the bankruptcy trustee is essentially for distribution of the estate of bankrupt in accordance with provision of Chapter V of Part III and the assets are to be distributed amongst the creditors as provided under Section 128(1)(b). The entire estates of the bankrupt having been taken under by the bankruptcy trustee which estate are essentially for distribution amongst the creditors. The question for which there is no clear answer in the IBC is as to whether the bankrupt can be allowed utilisation of any part of the assets for any genuine purpose including the medical need. In this context, we need to refer the correspondence between the bankrupt and the bankruptcy trustee which has been brought on the record. On 19.11.2024 bankrupt has written an e-mail to the bankruptcy trustee which is brought on record as Annexure A3 to the following effect:-

The bankruptcy trustee has sent his response by e-mail dated 20.11.2024 in following manner:-

Bankruptcy Trustee has indicated in the said response that as per the NCLT order and the IBC, he does not have authority to release the funds from the account and if bankrupt requires access to funds for specific purposes, he is advised to file an application with the NCLT to seek approval. The above communication by bankruptcy trustee clearly means that bankruptcy trustee communicated to the bankrupt that for any release of the amount he has to approach the NCLT. In the present case, the application was filed by the bankrupt before the Adjudicating Authority giving rise to this appeal. The prayers in the above application as extracted in paragraph 1 of the order only confined to defreezing of the account of the bankrupt. It was further prayed that the said account is essential for maintaining the livelihood of the applicant and the family. In the present appeal, the Appellant has filed additional affidavit bringing on record subsequent communication communicating requirement of Rs.2,50,000/- to discharge past and upcoming liabilities and medical requirements. In the Affidavit, Appellant has also brought on record medical prescriptions and medical bills. However, the said claim was rejected by the bankruptcy trustee. The Appellant further contended that the bankruptcy trustee is charging Rs.45,000 per month per matter as bankruptcy trustee fee and spending almost Rs.75,000/- on litigation but has not considered the request of the bankruptcy trustee to release any amount as prayed by bankruptcy trustee.

The bankruptcy trustee, thus, has taken stand for release of any funds for specific purpose, Bankrupt can approach the NCLT. The bankruptcy trustee being administering the estates of the bankrupt and the NCLT being control of the entire bankruptcy process is fully entitled to consider any application filed by the bankrupt for release of any amount for any specific purpose which is proved by bankruptcy trustee. The Hon’ble Supreme Court in “P. Veerasamy vs. Official Assignee High Court, Madras” (supra), as noted above, has categorically held that the Court has to take a humanistic view towards honest insolvents and the court must also guard against undue exploitation of the above principles and provisions of law. The estate of the bankrupt being under the administration of the bankruptcy trustee and the bankruptcy trustee himself having taken the stand for specific purpose, bankrupt should approach the NCLT for filing an application. We are of the view that it is open for the Appellant to make appropriate application before the NCLT seeking any direction for release of any amount from the estate of the bankruptcy estate which NCLT can consider and decide in accordance with law. Application which has given rise to this Appeal having contained only prayer for defreezing account which prayer was rightly rejected by NCLT, we do not find any ground to interfere with the impugned order.

We have already noticed the provisions of Section 159 of the IBC which deals with ‘after-acquired property of bankrupt’. We have noticed above that after the bankruptcy commencement date in the account of the Appellant there has been further acquisition i.e. by means of two credit entries of Rs.10,000/- each. In the judgment of Hon’ble Supreme Court in “P. Veerasamy vs. Official Assignee High Court, Madras” (supra), one of the questions which was considered was ‘are ‘personal earnings’ of the insolvent earned after adjudication exempt from vesting under the common law relating to insolvency?’. The above question was considered and answered by the Hon’ble Supreme Court from paragraphs 31 to 35. It was held that the earnings of the insolvent after adjudication does not automatically vest in the assignee but are subject to the order that are passed by the court under sub-section (2) of Section 60. We have already extracted paragraph 35 of the judgment above. We have noticed above Section 159 of the IBC which clearly provides that assets acquired after bankruptcy commencement date can be claimed by the bankruptcy trustee by giving a notice. The scheme of Section 159 thus, clearly indicates that the assets acquired subsequent to bankruptcy commencement order shall notautomatically vest with the bankruptcy trustee. Thus, the amount which has been received in the account of the Corporate Debtor subsequent to 06.11.2024 which has not been claimed by the bankruptcy trustee by giving a notice under Section 159 has to be released in favour of the Appellant.

In view of the foregoing discussions and our conclusion, we dispose of the Appeal in following manner:-

Parties shall bear their own costs.