The Statutory Power
Section 333 permits the liquidator, with the leave of the NCLT, to disclaim any property that is onerous to the company—for example, an unprofitable lease, a contract that cannot be performed, or property that is burdened with liabilities. The disclaimer must be in writing and must be filed with the NCLT.
The Effect of Disclaimer
The disclaimer terminates the company’s rights and obligations in the property from the date of the disclaimer. The counterparty’s claim for damages becomes a provable debt in the winding up. The disclaimer does not affect the rights of third parties that are not parties to the disclaimed contract.
The NCLT’s Leave
The liquidator must obtain the NCLT’s leave before disclaiming. The NCLT may impose conditions, such as requiring the liquidator to compensate the counterparty or to preserve the property pending the resolution of the counterparty’s claim. A disclaimer without leave is invalid.
The Practical Use
The disclaimer power is most useful for long-term leases, executory contracts, and contaminated land. The liquidator should weigh the cost of the disclaimer against the benefit to the estate. A disclaimer that deprives the estate of a valuable asset is unlikely to be approved.
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