CS Professional · Insolvency and Bankruptcy - Law and Practice

Fresh Start Process: formula sheet

Full chapter guide

Key formulas

Gross annual income limit: Gross annual income ≤ ₹60,000; Section 80(2)(a). The limit is on gross annual income, not monthly or net income.
Asset limit: Aggregate value of assets ≤ ₹20,000; Section 80(2)(b). Aggregate value of all assets of the debtor.
Qualifying debt limit: Aggregate qualifying debts ≤ ₹35,000; Section 80(2)(c). Only qualifying debts are counted against this limit.
Status disqualifications: Not an undischarged bankrupt; no dwelling unit; no subsisting fresh start, insolvency resolution or bankruptcy process; Section 80(2)(d), (e) and (f). A dwelling unit disqualifies even if it is encumbered.
Twelve-month bar: No previous fresh start order in the 12 months before the date of application; Section 80(2)(g). Counted back from the date of the application.
Who may apply: Debtor, personally or through a resolution professional, to the Adjudicating Authority; Section 80(2). All conditions must be met together.
Who may apply (s.80(1)-(2)): Unable to pay debt + all conditions of s.80(2) met → may apply, personally or through an RP; Conditions include income not above ₹60,000, assets not above ₹20,000, qualifying debts not above ₹35,000, no dwelling unit owned, no subsisting fresh start, insolvency or bankruptcy process, no fresh start order in the preceding 12 months.
Appointment of RP when debtor applies through an RP (s.82(1)-(2)): AA directs Board within 7 days of receipt → Board confirms the RP or rejects him and nominates another; Confirmation is sought that no disciplinary proceedings are pending against that RP.
Appointment of RP when debtor applies himself (s.82(3)-(5)): AA directs Board within 7 days → Board nominates RP within 10 days → AA appoints by order; The appointed RP is given a copy of the fresh start application (s.82(6)).
Admission or rejection (s.84(1)): AA passes order within 14 days from the date of submission of the RP's report; The order may admit or reject the application.
Contents of admission order (s.84(2)): Order states the amount accepted as qualifying debts + other amounts eligible for discharge under s.92; These figures feed into the fresh start order.
Copy to creditors (s.84(3)): Copy of order + copy of application to creditors named in the application within 7 days of the order; Seven days run from the date of the order.
Moratorium on admission (s.85): Starts on date of admission, covers all debts, ends after 180 days beginning with date of admission unless the order is revoked under s.91(2); Pending proceedings on debts are deemed stayed and creditors cannot start fresh action, subject to s.86.
Replacement of RP (s.89): Application by debtor or creditor → AA refers to Board within 7 days → Board recommends within 10 days → AA appoints; The Board recommends a professional with no disciplinary proceedings pending.
Route 1: application filed through an RP (s. 82(1)-(2)): Application → AA directs Board within 7 days → Board confirms or rejects (and nominates another RP); The AA seeks confirmation that no disciplinary proceedings are against the RP who filed. Section 82(2) states no number of days for the Board's reply.
Route 2: application filed by the debtor personally (s. 82(3)-(4)): AA directs Board within 7 days to nominate an RP → Board nominates within 10 days; Seven days is the AA's time, ten days is the Board's time.
Appointment order (s. 82(5)): AA appoints, by order, the RP recommended or nominated by the Board; The appointment is by the AA, not by the Board.
Copy of application (s. 82(6)): Appointed RP must be given a copy of the fresh start application; This is the AA's obligation once the RP is appointed.
RP's report (referred to in s. 84(1)): After appointment, the RP examines the fresh start application and submits a report to the AA; Section 84(1) refers to the RP's report. This page does not state a number of days for the RP's report in a fresh start. Section 99 (examination within ten days of appointment, report with reasons, copy to the debtor) governs applications under sections 94 or 95, not the fresh start application. Section 99(8) is the link: if the RP finds the debtor eligible for a fresh start, the RP recommends that the section 94 application be treated as an application under section 81.
Admission or rejection (s. 84(1)): AA may pass its order within 14 days of the RP's report; Order accepting the application states the qualifying debts accepted by the RP and other amounts eligible for discharge under section 92.
Interim moratorium (Section 81): Starts: date of filing of application under Section 80. Ends: date of admission or rejection.; Covers all debts. Pending proceedings are deemed stayed and creditors cannot start new ones.
Moratorium after admission (Section 85): Starts: date of admission. Ends: 180 days from admission, unless the admission order is revoked under Section 91.; The bar on creditors is subject to Section 86.
Debtor restrictions during moratorium (Section 85(3)): No directorship or management role; no disposal of assets; inform business partners; disclose before notified-value transactions; disclose different business name; no travel abroad without permission.; Six restrictions, (a) to (f). Non-compliance with them is a ground for revocation under Section 91(1)(b).
General duties of debtor (Section 88): (a) give information, attend meetings, comply with RP requests; (b) report material errors or omissions and changes in financial circumstances after the application date.; Duty (b) applies as soon as reasonably possible.
Revocation (Section 91): RP applies (Section 91(1)); grounds: ineligibility due to change in finances, non-compliance with the restrictions in Section 85(3), or mala fide wilful non-compliance. Adjudicating Authority may admit or reject within 14 days (Section 91(2)).; On admission of the revocation application, the moratorium and the fresh start process cease (Section 91(3)).
Application contents (Section 81(4)): Affidavit with debts list, interest, security, two years' financial information of debtor and immediate family, reasons, legal proceedings, and confirmation of no fresh start order in preceding twelve months.; Helps decide what the debtor must disclose at the start.
Eligibility limits (section 80(2)): Income ≤ ₹60,000; assets ≤ ₹20,000; qualifying debts ≤ ₹35,000; All three limits are 'does not exceed'. Also no dwelling unit, and no fresh start order in the preceding twelve months.
Decision on application (section 84): Admit or reject within 14 days of the RP's report; Admission order states the accepted qualifying debts and the other amounts eligible for discharge. Creditors get a copy within 7 days.
Creditor objection (section 86): Objection within 10 days of receiving the order; RP decides within 10 days of the application; Only two grounds: inclusion of a debt as qualifying, or incorrect details of it. Filed with the RP, not the tribunal.
Final list (section 92(1)): Final list to the Adjudicating Authority at least 7 days before the moratorium ends; The discharge order is passed at the end of the moratorium period.
Extent of discharge (section 92(2)-(4)): Discharge = listed qualifying debts + penalties + interest (including penal interest) + other contractual sums, from application date to discharge order date; Debts or liabilities outside this are not discharged.
Third parties (section 92(6)): Discharge does not release any other person; Guarantors and co-obligors remain liable.
Revocation (section 91): RP applies; tribunal decides within 14 days; on admission, moratorium and fresh start cease; Grounds: debtor becomes ineligible due to changed finances; non-compliance with section 85(3) restrictions; mala fide and wilful non-compliance.

Quick revision

Section 80: the debtor may apply personally or through a resolution professional.
Gross annual income must not exceed ₹60,000.
Assets must not exceed ₹20,000 and qualifying debts must not exceed ₹35,000.
The debtor must not own a dwelling unit, whether encumbered or not.
He must not be an undischarged bankrupt or be in a fresh start, insolvency resolution or bankruptcy process.
No previous fresh start order in the preceding twelve months.
Section 81: an interim moratorium runs from filing until admission or rejection.
Section 81(4): the application carries an affidavit, with a list of debts, creditors, security, and two years of financial information of the debtor and immediate family.
Section 82: the Adjudicating Authority directs the Board within seven days; the Board nominates a resolution professional within ten days if the debtor applied himself.
Section 84: the Adjudicating Authority admits or rejects within fourteen days of the resolution professional's report, and creditors get a copy within seven days.
Section 85: the moratorium starts on admission and ends after one hundred and eighty days unless the admission order is revoked.
Section 91: revocation grounds are ineligibility, breach of section 85(3) restrictions, or mala fide conduct; the Adjudicating Authority decides within fourteen days.

Common mistakes

Treating the conditions as alternatives, so meeting one is enough. Fix: Remember the conditions are cumulative. Every one of (a) to (g) must be met.
Saying a mortgaged house does not count as a dwelling unit. Fix: Section 80(2)(e) applies irrespective of whether the unit is encumbered or not.
Treating section 94 as the fresh start provision. Fix: Section 94 is for insolvency resolution by a debtor. Fresh start provisions are in Chapter II, from section 80 onwards. Sections 80 to 85 cover eligibility, application, appointment of the RP, admission and the effect of admission.
Counting the fourteen days from the date of the application. Fix: Under section 84(1), the fourteen days run from the date the RP submits his report.
Saying the Board appoints the RP. Fix: Write that the Board recommends or nominates and the Adjudicating Authority appoints by order under section 82(5).
Mixing up the seven-day and ten-day periods. Fix: Seven days is the AA's time to direct the Board. Ten days is the Board's time to nominate where the debtor filed personally.
Saying the moratorium starts only on admission. Fix: Remember two stages: interim from filing to admission or rejection, then full from admission.
Stating the moratorium lasts 180 days in all cases. Fix: Say that the moratorium ends at the end of 180 days beginning with the date of admission (Section 85(4)). It ceases earlier only if the Adjudicating Authority passes an order admitting the resolution professional's revocation application under Section 91(3).
Saying the creditor can object to the discharge order or on any ground. Fix: Section 86 allows objection to the RP, within ten days of the section 84 order, only on wrongful inclusion or incorrect details of a qualifying debt.
Treating discharge as wiping out all the debtor's debts. Fix: Section 92(4) says debts not on the list and liabilities beyond sub-section (3) are not discharged.

Exam tips

Write the section number and the three figures in your first line. Examiners look for them.
In case-based questions, test every clause and name the fact you used. A bare conclusion loses marks.
State that the conditions are cumulative and that a mortgaged dwelling unit still disqualifies.
Close with the applicant's options: personal application or through a resolution professional, to the Adjudicating Authority.
Answer in the paper's pattern: provision, facts, conclusion. Name the section, apply it to the figures, then state admit or reject.
Learn the time limits as a set: 7 days, 10 days, 14 days from report, 7 days from order, 180 days moratorium.
If the question gives financial figures, test every section 80(2) limit one by one and show the working.
Do not mix up the Board's role (confirm or nominate) with the Adjudicating Authority's role (direct and appoint).