Bankruptcy for Individuals and Partnership Firms: formula sheet

Key formulas

Persons covered (section 2(e) to (g))

Personal guarantors to corporate debtors + partnership and proprietorship firms + other individuals

Clauses (e), (f) and (g) of section 2. Individuals in (g) exclude those in clause (e).

Minimum default (section 78)

Default ≥ ₹1,000; Central Government may notify a higher limit, not more than ₹1,00,000

The ₹1 lakh is a ceiling on the notified minimum, not the default minimum.

Adjudicating Authority (sections 79(1), 179(1))

Debt Recovery Tribunal with territorial jurisdiction

Place where the debtor actually and voluntarily resides, carries on business or personally works for gain.

Immediate family (section 79(17))

Spouse + dependent children + dependent parents

Used in the definitions of associate and excluded assets.

Qualifying debt (section 79(19))

Liquidated sum due, excluding (a) excluded debt, (b) secured debt to the extent secured, (c) debt incurred within three months before the fresh start application

The three-month exclusion applies to the fresh start process application.

Excluded debt (section 79(15))

Fines + damages for negligence, nuisance or breach + maintenance + student loan + any other prescribed debt

Five heads including the prescribed residual.

Bankruptcy commencement date (section 79(6))

Date on which the bankruptcy order is passed under section 126

Bankruptcy debt is measured as on this date.

Bankruptcy debt (section 79(5))

Debt owed on commencement date + later liability from earlier transactions before discharge + interest under section 171

Three limbs.

Forum for individuals and firms

Individuals and firms (Part III) → DRT with territorial jurisdiction (s. 179(1))

Subject to section 60.

Territorial test for DRT

Place where the individual debtor actually and voluntarily resides, or carries on business, or personally works for gain

Any one of these places can found jurisdiction.

Forum for personal guarantors to corporate debtors

Personal guarantor → NCLT where the corporate person's registered office is located (s. 60(1))

If the corporate debtor's CIRP or liquidation is pending before an NCLT, file before that NCLT (s. 60(2)).

Transfer of pending guarantor processes

Pending process in any court or tribunal → stands transferred to the Adjudicating Authority handling the corporate debtor (s. 60(3))

Applies to corporate and personal guarantors.

DRT scope

Suits, claims, priorities, questions of law or fact arising out of the individual's or firm's insolvency (s. 179(2))

Operates notwithstanding any other law.

Limitation

Moratorium period is excluded from limitation for suits or applications in the debtor's name (s. 179(3))

Section 60(6) is the corporate counterpart, for suits by or against a corporate debtor.

Minimum default for Part III

Default ≥ ₹1,000 (s. 78)

The Central Government may notify a higher minimum, not above ₹1 lakh.

Code of conduct

Section 208(2)(a) to (e)

Care and diligence, agency bye-laws, inspection, submit records, perform functions as specified.

Income limit (Section 80(2)(a))

Gross annual income ≤ ₹60,000

The limit is 'does not exceed'. Income of exactly ₹60,000 still qualifies.

Asset limit (Section 80(2)(b))

Aggregate value of assets ≤ ₹20,000

Tested on the total value of all assets.

Qualifying debt limit (Section 80(2)(c))

Aggregate qualifying debts ≤ ₹35,000

Applies to qualifying debts, not every liability.

Status conditions (Section 80(2)(d)-(g))

Not an undischarged bankrupt; owns no dwelling unit (even if encumbered); no fresh start, insolvency resolution or bankruptcy process subsisting; no fresh start order in the preceding 12 months

All conditions must be met together with the three financial limits.

Who may apply (Section 80(2))

Debtor personally or through a resolution professional

Application goes to the Adjudicating Authority.

Interim moratorium (Section 81(1))

Starts on date of filing; ceases on date of admission or rejection

Pending proceedings are stayed and creditors cannot start new ones.

Appointment of RP (Section 82)

Application through RP: AA directs Board within 7 days to confirm no disciplinary proceedings. Application by debtor personally: AA directs Board within 7 days to nominate; Board nominates within 10 days

The AA then appoints the RP by order.

Moratorium after admission (Section 85)

Commences on admission; ceases after 180 days from admission unless the admission order is revoked earlier under Section 91

Covers all debts.

Replacement of RP (Section 89)

AA refers to Board within 7 days; Board recommends within 10 days

Debtor or creditor may apply.

Revocation (Section 91)

RP applies; AA admits or rejects within 14 days

On admitting the revocation application, the moratorium and the fresh start process cease.

Applicability (section 78)

Default ≥ ₹1,000 (Central Government may notify a higher minimum, not more than ₹1,00,000)

Applies to individuals and partnership firms under Part III.

Adjudicating Authority (section 179)

Debt Recovery Tribunal with territorial jurisdiction

Place where the debtor resides, carries on business or personally works for gain.

Report of resolution professional (section 106(1))

Within 21 days from the last date of submission of claims under section 102

Plan under section 105 is submitted with the report to the Adjudicating Authority.

Contents of the report (section 106(2))

Plan complies with law; reasonable prospect of approval and implementation; need for a creditors' meeting

If no meeting is recommended, reasons must be given.

Date of creditors' meeting (section 106(4))

Not less than 14 days and not more than 28 days from submission of the report

Professional must consider convenience of creditors for date and venue.

Approval of repayment plan (section 111)

More than three-fourth in value of creditors present in person or by proxy and voting

Counted on those present and voting, not all creditors. Applies to modifications too.

Report of the meeting (section 112)

Approved or rejected, modifications, resolutions and decisions, creditors present, voting records

Prepared by the resolution professional.

Supervision (section 116)

Resolution professional supervises implementation; may apply to Adjudicating Authority for directions

Authority may issue directions on that application.

Completion (section 117)

Notice and report within 14 days of completion; extension up to 7 days on application

Sent to persons bound by the plan and the Adjudicating Authority. Report summarises receipts and payments and extent of implementation.

Trustee proposed in application

AA directs Board within 7 days → Board confirms or rejects and nominates within 10 days

Section 125(1) and (2). The Board checks that no disciplinary proceedings are pending against the proposed professional.

No trustee proposed

AA directs Board within 7 days → Board nominates within 10 days

Section 125(3) and (4).

Appointment

Trustee confirmed or nominated is appointed by the AA in the bankruptcy order under section 126

Section 125(5).

Administration

Trustee administers and distributes the estate in accordance with Chapter V

Section 136.

Resignation grounds

Intends to cease practising as IP, or conflict of interest or change of personal circumstances

Section 146(1). These are the only two grounds listed.

Replacement after resignation

AA directs Board within 7 days of accepting resignation → Board recommends within 10 days → AA appoints within 14 days

Section 146(2) to (4). New trustee gives notice of appointment to the committee of creditors and the bankrupt within 7 days (section 146(7)).

Release of trustee

Replacement: from date of AA order appointing the new trustee. Completion: from date the committee of creditors approves the report under section 137

Section 148(1) and (3). A released trustee must still share information and cooperate (section 148(2)).

Vesting of estate

Estate vests in bankruptcy trustee from date of appointment, without conveyance, assignment or transfer

Section 154. Section 128(1)(a) links it to the bankruptcy order under section 126.

Effect on creditors

No action against property and no suit or proceeding, except with leave of the Adjudicating Authority

Section 128(1)(c). Applies to a creditor claiming a bankruptcy debt. Secured creditors are dealt with in section 128(2).

Secured creditor's 30-day rule

No action to realise security within 30 days of bankruptcy commencement date ⇒ no interest after that date

Proviso to section 128(2). The security itself is not lost.

Undervalued transaction: look-back

Two years ending on the filing of the application for bankruptcy, and it caused the bankruptcy process to be triggered

Section 164(2). Transaction with an associate in the two years before the application is deemed undervalued (section 164(3)).

What is undervalued

Gift; no consideration received; consideration of marriage; or consideration significantly less in value than that provided by the bankrupt

Section 164(6).

Orders on undervalued transaction

Declare void; vest property in trustee; any other order to restore the position

Section 164(4). Ordinary-course defence under section 164(5) is open to the bankrupt but not for associate transactions.

Extortionate credit transaction

Credit on exorbitant terms or unconscionable under contract law; entered in two years ending on bankruptcy commencement date

Section 167(2) and (5). Debt by a regulated financial service provider in compliance with law is excluded (section 167(6)).

Completion

Trustee convenes committee of creditors, gives report; committee approves within 7 days and decides on release under section 148

Section 137.

When trustee applies for discharge (s.138(1))

Apply on expiry of 1 year from bankruptcy commencement date, OR within 7 days of committee of creditors approving completion of administration under s.137, if that approval comes earlier

Two triggers. The second applies only where approval is obtained before the one-year period ends.

Duty of the Adjudicating Authority (s.138(2))

Adjudicating Authority shall pass a discharge order on the trustee's application

The wording is mandatory. A copy goes to the Board for the register under section 196.

Effect of discharge (s.139)

Release from all bankruptcy debt, except: trustee's functions, Chapters IV and V of Part III, fraud or breach of trust debts, excluded debts

Learn the four exceptions as a list.

Excluded debts (s.79(15))

Court or tribunal fines; damages for negligence, nuisance or breach of legal obligation; maintenance; student loan; other prescribed debt

These survive discharge.

Fresh start discharge (s.92)

Final list of qualifying debts to Adjudicating Authority at least 7 days before the moratorium ends; discharge order at end of moratorium

Also discharges penalties, interest and other contractual sums on qualifying debts from the application date to the order date. It does not discharge other persons (s.92(6)).

Bankrupt's notice duty (s.150)

Notify trustee within 7 days of acquiring or inheriting property or an increase in income

Duties other than this notice continue after discharge.

Ending of restrictions (ss.140(3), 141(2))

Disqualifications and restrictions cease if the bankruptcy order is modified or recalled under s.142, or on discharge under s.138

Both routes end them.

Quick revision

• Part III applies to individuals and partnership firms where default is at least ₹1,000; a notified higher minimum cannot exceed ₹1 lakh (section 78).
• The Adjudicating Authority is the Debt Recovery Tribunal with territorial jurisdiction (section 179 and section 79(1)).
• The DRT can decide suits, claims and questions of priority or law and fact related to the debtor's insolvency (section 179(2)).
• Moratorium time is excluded when computing limitation for suits by the debtor (section 179(3)).
• Immediate family means spouse, dependent children and dependent parents.
• Qualifying debt excludes excluded debt, the secured portion of a debt, and debt incurred within three months before the fresh start application.
• Fresh start limits: income ₹60,000, assets ₹20,000, qualifying debts ₹35,000; debtor must not own a dwelling unit, secured or not.
• A fresh start applicant must not have had a fresh start order in the preceding twelve months.
• For resolution, a firm's partners must apply jointly: all or a majority of them (section 94(2)).
• An undischarged bankrupt, or a debtor in fresh start, resolution or bankruptcy, cannot apply for resolution (section 94(4)).
• The DRT has fourteen days from the resolution professional's report to admit or reject a fresh start application, and creditors get a copy of the order within seven days (section 84).
• The bankruptcy trustee administers and distributes the estate under Chapter V (section 136).

Common mistakes

• Saying that the NCLT is the Adjudicating Authority for individuals and firms. Fix: For Part III, the DRT is the Adjudicating Authority under sections 79(1) and 179(1). The NCLT is for corporate persons.
• Stating that the minimum default is ₹1 lakh. Fix: The minimum is ₹1,000. ₹1 lakh is the highest figure the Central Government may notify as the minimum.
• Saying the DRT hears every individual case, including personal guarantors to corporate debtors. Fix: Always test for personal guarantor status first. Such guarantors go to the NCLT.
• Choosing the DRT by the creditor's location. Fix: Use the debtor's residence, place of business or place of working for gain.
• Treating the limits as 'less than' rather than 'not exceeding'. Fix: The Code says the figure 'does not exceed' the limit. A figure equal to the limit still qualifies.
• Ignoring the dwelling unit condition. Fix: Section 80(2)(e) bars a debtor who owns a dwelling unit, whether encumbered or not. A mortgaged house does not help.
• Treating the majority as three-fourth of all creditors. Fix: Write: more than three-fourth in value of creditors present in person or by proxy and voting.
• Saying three-fourth or at least 75%. Fix: Section 111 says more than three-fourth, so exactly 75% does not pass.
• Mixing up who nominates the trustee and who appoints. Fix: The Board confirms, rejects or nominates. The Adjudicating Authority appoints, in the bankruptcy order.
• Swapping the 7-day and 10-day periods, or applying them to every step. Fix: In section 125 and in section 146(2) and (3), the Adjudicating Authority's direction is 7 days and the Board's response is 10 days. After a resignation, the Adjudicating Authority's appointment of the recommended trustee takes up to 14 days (section 146(4)). The 7-day notice in section 146(7) is given by the newly appointed trustee, not by the Adjudicating Authority.

Exam tips

• Open your answer with the section 2 clause that brings the debtor within the Code. It earns marks quickly.
• Quote section 79 definitions in the Code's own words, such as immediate family, qualifying debt and excluded debt. Examiners look for exact terms.
• In case questions, write in this order: provision, application to the facts, conclusion.
• Write the ₹1,000 and ₹1 lakh figures carefully and say which is the minimum and which is the ceiling.
• Do not quote notification dates or section numbers you are unsure of. State the rule in plain words.
• Open every forum answer by classifying the debtor. The marks lie in noticing the personal guarantor exception.
• Quote 'subject to section 60' when citing section 179(1).
• In long case questions, tie the professional's role to the process and cite section 208(2) conduct duties.