Bankruptcy Order for Individuals and Partnership Firms: formula sheet

Key formulas

Adjudicating Authority for individuals and firms

Section 179(1): DRT with territorial jurisdiction (subject to Section 60)

Territory is the place where the debtor actually and voluntarily resides, carries on business or personally works for gain. For corporate persons the forum is the NCLT.

Scope of DRT jurisdiction

Section 179(2): suits/proceedings, claims, and questions of priorities, law or fact, by or against the debtor

Applies notwithstanding any other law for the time being in force.

Limitation during moratorium

Section 179(3): moratorium period is excluded in computing limitation

Only for suits or applications in the name and on behalf of the debtor, where a moratorium has been ordered under Part III.

Processes an insolvency professional handles

Section 208(1): fresh start, individual insolvency resolution, corporate insolvency resolution, pre-packaged resolution, individual bankruptcy, liquidation of a corporate debtor firm

For this chapter, focus on the three Part III processes: fresh start, insolvency resolution and bankruptcy.

Code of conduct of an insolvency professional

Section 208(2)(a)-(e)

Reasonable care and diligence; comply with IPA bye-laws; allow IPA inspection of records; submit copies of records of every proceeding before the Adjudicating Authority to the Board and the IPA; perform functions as specified.

Triggers for a bankruptcy application

Section 121(1): order under s.100(4) OR s.115(2) OR s.118(3)

The applicant may be a creditor (alone or jointly) or the debtor. The application goes to the Adjudicating Authority.

Time limit

Filing period = 3 months from the date of the order (Section 121(2))

Counted from the date of the Adjudicating Authority's order under the sections in s.121(1).

Firm as debtor

Any partner may file (Section 121(3))

Contrast with Section 94(2), where a partner applying for resolution process needs all or a majority of partners to file jointly.

Documents with debtor's application

Section 122(1): (a) records of IRP + (b) statement of affairs on the date of application + (c) copy of order permitting debtor to apply

Form, manner and fee are prescribed (s.122(3)).

Proposal of trustee

Debtor may propose an insolvency professional as bankruptcy trustee (Section 122(2))

It is a proposal. The trustee is appointed under Section 125.

Withdrawal

No withdrawal without leave of the Adjudicating Authority (Section 122(4))

Applies to the debtor's application.

Interim moratorium

Starts on the date of making the application; ceases on the bankruptcy commencement date (Section 124(1))

Pending actions against the debtor's property for his debts are deemed stayed; creditors cannot start new ones. For a firm, it operates against all partners as on the date of application (s.124(2)).

Who may apply (s.121(1))

Creditor (alone or jointly) or debtor → Adjudicating Authority, after an order under s.100(4), s.115(2) or s.118(3)

Without one of these orders, a bankruptcy application is not maintainable.

Time limit (s.121(2))

Filing deadline = date of the order + 3 months

Counted from the date of the order, not from the date you receive it.

Firm as debtor (s.121(3))

Application may be filed by any of its partners

One partner is enough.

Demand notice (s.95(4)(b))

Debtor fails to pay within 14 days of service of the notice of demand

Part of the section 95 application. Do not confuse it with the 10 days in sections 8 and 9, which apply to corporate debtors.

Contents of creditor's application (s.123(1))

(a) records of the resolution process + (b) copy of order permitting creditor to apply + (c) debt details as on date + (d) other prescribed information

The creditor may propose an insolvency professional as bankruptcy trustee (s.123(4)).

Secured creditor (s.123(2)-(3))

Either give up security for all creditors, or apply only for the unsecured part with its estimated value

Under the second option, the secured and unsecured parts are treated as separate debts.

Deceased debtor and withdrawal

s.123(5): file against legal representatives; s.123(7): no withdrawal without permission

Section 169 separately says proceedings against a bankrupt who dies continue as if he were alive.

Interim moratorium period (s. 96)

Starts: date of application under s. 94 or 95 | Ends: date of admission of the application

Covers all debts. Pending proceedings are deemed stayed and creditors cannot initiate new ones. For a firm, it operates against all partners as on the date of application.

Trustee confirmation timeline, proposed professional (s. 125(1)-(2))

Direction to Board: within 7 days of application | Board confirms or rejects and nominates: within 10 days of direction

The Board confirms that no disciplinary proceedings are pending against the proposed professional.

Trustee nomination timeline, none proposed (s. 125(3)-(4))

Direction to Board: within 7 days of application | Board nominates: within 10 days of direction

The confirmed or nominated trustee is appointed in the bankruptcy order.

Bankruptcy order timeline (s. 126)

Order: within 14 days of confirmation or nomination of trustee | Documents to bankrupt, creditors, trustee: within 7 days of order

Documents are a copy of the application and a copy of the order.

Validity (s. 127)

Order continues until the debtor is discharged under s. 138

No fixed end date.

Effects of order (s. 128)

Estate vests in trustee (s. 154) + divided among creditors + creditors barred from actions against property and from suits without leave

Secured creditors keep their right to realise security, but lose interest after the bankruptcy commencement date if they do not act within 30 days of that date.

Firm bankruptcy (s. 128(3))

Order against firm = order against each individual who is a partner on the date of the order

Test partner status on the date of the order.

Effect on creditors (s.128(1))

Bankruptcy order → estate vests in trustee + estate divided among creditors + no action against property / no suit without leave of Adjudicating Authority

The bar applies to creditors owed a bankruptcy debt.

Secured creditor rule (s.128(2))

Security can be realised as before; no interest after commencement date if no action within 30 days

Subject to section 123. The 30 days run from the bankruptcy commencement date.

Firm's bankruptcy (s.128(3))

Order against firm = order against each partner on the date of the order

Applies to individuals who are partners on that date.

Vesting (s.154)

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

Vesting is automatic.

Creditor list (s.132)

List within 14 days from bankruptcy commencement date

Based on the application, statement of affairs and claims received under section 130(2).

Bankrupt's notice duty (s.150)

Notice within 7 days of acquisition or devolution of property, or increase in income

The other duties continue after discharge, but not this notice duty.

Completion (s.137)

Committee of creditors approves trustee's report within 7 days of receipt

It also decides whether the trustee should be released under section 148.

Surplus (s.176(5))

Surplus after full payment with interest and expenses → bankrupt

For a deceased bankrupt, surplus goes to legal representatives (s.170(4)).

Discharge application timing (section 138(1))

Trustee applies: (a) on expiry of 1 year from bankruptcy commencement date; or (b) within 7 days of committee of creditors' approval of completion of administration under section 137, if approval comes before 1 year

The applicant is the bankruptcy trustee. Do not say the bankrupt applies.

Duty of the Adjudicating Authority (section 138(2))

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

The wording is mandatory ('shall').

Copy of order (section 138(3))

Copy of discharge order → the Board → entry in the register under section 196

Same record-keeping step appears in other orders under this Part.

Effect of discharge (section 139)

Release from all bankruptcy debt, except: fraud or breach of trust debt; excluded debt; and discharge does not affect trustee's functions or Chapters IV and V

Learn the four carve-outs in the proviso.

Excluded debt (section 79(15))

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

These survive discharge.

Restrictions on bankrupt (section 141(1))

No directorship or role in promotion, formation or management of a company; no charge on estate or fresh debt without trustee's sanction; inform business partners; inform parties to prescribed-value transactions; no legal action on bankruptcy debts without Adjudicating Authority's sanction; no overseas travel without its permission

Restrictions cease on recall or modification under section 142, or on discharge.

Bankruptcy debt (section 79(5))

Debt owed on the commencement date + debt arising later but before discharge from pre-commencement transactions + interest forming part of the debt under section 171

This is what discharge releases.

Quick revision

• The Code applies to personal guarantors to corporate debtors, partnership and proprietorship firms, and other individuals (section 2).
• Part III applies where default is at least ₹1,000; the Central Government may notify a higher minimum, not above ₹1 lakh (section 78).
• The Adjudicating Authority for individuals and firms is the Debt Recovery Tribunal with territorial jurisdiction (section 179).
• The bankruptcy commencement date is the date the bankruptcy order is passed.
• On a bankruptcy order, the estate vests in the bankruptcy trustee and is divided among creditors (section 128).
• After the order, a creditor cannot act against the bankrupt's property or start proceedings without the Adjudicating Authority's leave.
• A secured creditor may still realise its security; it loses post-commencement interest if it takes no action within thirty days of the commencement date.
• A bankruptcy order against a firm operates as an order against each partner on the date of the order.
• Excluded assets include necessary tools and household items, a single dwelling unit of prescribed value, and unencumbered life insurance or pension plans.
• The trustee applies for discharge after one year from commencement, or within seven days of creditors' approval of completed administration if that comes earlier (section 138).
• The Adjudicating Authority passes the discharge order on the trustee's application; a copy goes to the Board for the register.
• The estate of a deceased bankrupt is administered under the same rules; funeral and testamentary expenses rank equally with secured creditors, and any surplus goes to legal representatives (section 170).

Common mistakes

• Naming the NCLT as the Adjudicating Authority for an individual or partnership firm. Fix: Check the debtor first. Under Section 179(1), individuals and firms go to the DRT. Corporate persons go to the NCLT.
• Ignoring territorial jurisdiction and saying any DRT can hear the case. Fix: Quote the test: the DRT with jurisdiction over the place where the debtor actually and voluntarily resides, carries on business or personally works for gain.
• Saying a debtor can apply for bankruptcy directly without any earlier process. Fix: Always cite the Section 121(1) triggers. The application follows an order in the insolvency resolution process.
• Counting the three months from the date of default or the date of the IRP application. Fix: Section 121(2) counts from the date of the Adjudicating Authority's order under the sections in Section 121(1).
• Citing section 169 as the statutory demand notice provision. Fix: Section 169 is about continuance of proceedings on the death of a bankrupt. The fourteen-day demand notice appears in section 95(4)(b).
• Using the ten-day notice period of sections 8 and 9 for individuals. Fix: Sections 8 and 9 concern operational creditors and corporate debtors. For section 95, the period is fourteen days from service of the demand notice.
• Saying the interim moratorium starts on admission of the application. Fix: Remember section 96: it starts on the date of the application and ceases on the date of admission.
• Saying the Adjudicating Authority for individuals and firms is the NCLT. Fix: Under section 179, it is the DRT with territorial jurisdiction over the place where the debtor resides, carries on business or works for gain.
• Saying secured creditors are also barred from enforcing security. Fix: Always add section 128(2): they may realise security as before, subject to section 123.
• Forgetting the 30-day condition. Fix: State that interest stops after the commencement date if no action to realise security is taken within thirty days.

Exam tips

• Write the forum in your first line: DRT for individuals and firms, NCLT for corporate persons. Examiners often test this contrast.
• Always add the territorial jurisdiction test from Section 179(1) when asked which DRT applies.
• Use the provision, analysis, conclusion format. Quote the section number with each point.
• When the facts mention a suit, claim or priority dispute, cite Section 179(2). When they mention a moratorium and time-barred claims, cite Section 179(3).
• For a question on insolvency professionals, list the Section 208(2) code of conduct points in order.
• Begin every answer with the Section 121(1) trigger. Examiners reward the link to the earlier order.
• Write the three-month limit and say it runs from the order. Many students lose the mark by omitting the starting point.
• List the three Section 122(1) documents as a numbered list. It is easy marks.