Insolvency Resolution of Individuals and Partnership Firms: formula sheet

Key formulas

Persons covered under Section 2 for Part III

Section 2(e) personal guarantors to corporate debtors; 2(f) partnership firms and proprietorship firms; 2(g) individuals other than personal guarantors

Clauses (e) to (g) were substituted with effect from 23-11-2017. Clauses (a) to (d) cover companies, LLPs and notified bodies.

Scope of Part III (Section 78)

Part III applies to fresh start, insolvency and bankruptcy of individuals and partnership firms where default ≥ ₹1,000

The Central Government may notify a higher minimum, which cannot exceed ₹1 lakh.

Minimum default for corporate debtors (Section 4)

Part II applies where minimum default = ₹1 crore

Use it to contrast with Section 78. The Central Government may notify a higher value, not more than ₹1 crore.

Adjudicating Authority for personal guarantors (Section 60)

Personal guarantors of corporate debtors → NCLT with territorial jurisdiction over the registered office of the corporate person

If the corporate debtor's process is pending before an NCLT, applications about its personal guarantor are filed before that same NCLT.

Adjudicating Authority for other individuals and firms (Section 179)

Individuals and firms → Debt Recovery Tribunal, subject to Section 60

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

Authority for individuals and firms

Individuals and firms (other than personal guarantors to corporate debtors) → DRT, Section 179(1)

Subject to Section 60. Territorial jurisdiction: place where the debtor actually and voluntarily resides, carries on business or personally works for gain.

Authority for personal guarantors

Personal guarantors of corporate debtors → NCLT, Section 60

NCLT where the corporate debtor's registered office is located. If CIRP or liquidation of the corporate debtor is pending, file before that NCLT.

Scope of DRT jurisdiction

Suits/proceedings + claims + questions of priority, law or fact → DRT, Section 179(2)

Applies notwithstanding any other law, for the individual debtor or firm.

Bar on civil courts

No civil court jurisdiction; no injunction, Section 180

Covers matters within the jurisdiction of the DRT or DRAT.

Appeal from DRT

DRAT within 30 days + up to 15 days condonation, Section 181

Condonation only if sufficient cause prevented filing in 30 days.

Appeal from NCLT

NCLAT within 30 days + up to 15 days condonation, Section 61(1)-(2)

Relevant for personal guarantors, whose matters are before the NCLT.

Limitation

Limitation Act, 1963 applies as far as may be (Section 238A); moratorium period excluded (Section 179(3))

Exclusion in Section 179(3) covers suits or applications in the debtor's name for which a moratorium order has been made under Part III.

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

Gross annual income ≤ ₹60,000

Limit is 'does not exceed', so exactly ₹60,000 qualifies.

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

Aggregate value of assets ≤ ₹20,000

Test aggregate value, not single assets.

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

Aggregate qualifying debts ≤ ₹35,000

Only qualifying debts count.

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

Not undischarged bankrupt; no dwelling unit owned; no subsisting fresh start, IRP or bankruptcy process; no fresh start order in preceding 12 months

Owning a dwelling unit disqualifies even if it is mortgaged.

Interim moratorium (Section 81(1))

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

Covers all debts; pending proceedings are deemed stayed.

RP appointment timelines (Section 82)

AA directs Board within 7 days; Board nominates RP within 10 days (debtor filed himself)

If an RP filed, the Board confirms or rejects and nominates another.

Admission (Section 84)

AA admits or rejects within 14 days of RP's report; copy to creditors within 7 days of order

Order states the qualifying debts accepted.

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)

Grounds: ineligibility due to changed finances; breach of Section 85(3) restrictions; mala fide wilful non-compliance. AA decides within 14 days

On admission of the revocation application, moratorium and process cease.

Who may apply (s.94)

Debtor who commits a default → application to Adjudicating Authority, personally or through a resolution professional

For a firm, all or a majority of partners must file jointly. Only non-excluded debts can be covered.

Bars to applying (s.94(4) and (5))

Undischarged bankrupt / fresh start / IRP under way / bankruptcy process under way; or an application under this Chapter admitted in the preceding 12 months

Remember four status bars plus one twelve-month bar.

Interim moratorium (s.96)

Starts on the date of application; ceases on the date of admission

Covers all debts. Pending proceedings are deemed stayed. Creditors cannot initiate new ones. For a firm it operates against all partners as on the date of application. Transactions notified by the Central Government are excluded.

RP report on repayment plan (s.106)

Plan plus report to the Adjudicating Authority within 21 days from the last date for submission of claims under s.102

The report says whether the plan complies with law, has a reasonable prospect of approval and implementation, and whether a creditors' meeting is needed. If no meeting is recommended, give reasons.

Date of creditors' meeting (s.106(4))

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

The RP must consider the convenience of creditors for date and venue.

Report of the meeting (s.112)

RP prepares report: plan approved or rejected, modifications, resolutions and decisions, creditors present and voting records, other information

Voting records are those of each creditor for all meetings.

Supervision (s.116)

RP appointed under s.97 or s.98 supervises implementation; may apply to the Adjudicating Authority for directions

The Adjudicating Authority may issue directions on such an application.

Completion (s.117)

Within 14 days of completion, RP sends notice of full implementation and a report of receipts and payments; extension up to a further 7 days on application

Documents go to persons bound by the plan under s.115 and to the Adjudicating Authority.

Replacement of RP (s.98)

Adjudicating Authority refers to Board within 7 days; Board recommends within 10 days

The debtor or a creditor may apply. Creditors may also apply after a meeting decision to replace the RP.

Pre-order trustee confirmation (section 125)

DRT directs Board within 7 days of application; Board confirms or nominates within 10 days

Applies where a trustee is proposed (confirm no pending disciplinary proceedings) and where none is proposed (Board nominates).

Time to pass bankruptcy order (section 126(1))

Order within 14 days of confirmation or nomination of trustee

The clock runs from the confirmation or nomination, not from the application.

Supply of documents (section 126(2))

Copy of application and order to bankrupt, creditors and trustee within 7 days of the order

The DRT does this, not the trustee.

Effect of order (section 128(1))

Estate vests in trustee + estate divided among creditors + creditors barred from action against property and from suits without leave

The suit bar is lifted only with the DRT's leave and on its terms.

Secured creditor proviso (section 128(2))

No interest after commencement date if no action to realise security within 30 days

Secured creditors keep the right to realise security, subject to section 123.

Bankrupt's notice duty (section 150)

Notice of new property, devolved property or higher income within 7 days

After discharge, the other duties continue but this notice duty does not.

Trustee replacement on resignation (section 146)

DRT directs Board within 7 days of accepting resignation; Board recommends within 10 days; DRT appoints within 14 days

New trustee notifies the committee of creditors and the bankrupt within 7 days of appointment.

Adjudicating Authority for firms

Individuals and firms → Debt Recovery Tribunal with territorial jurisdiction (s. 179(1))

Not the NCLT. Territorial link is the debtor's residence, business or place of work for gain.

Debtor's application for a firm

Partner may apply for the firm only if all or a majority of partners file jointly (s. 94(2))

One partner alone cannot apply on behalf of the firm.

Bars on debtor's application

Not undischarged bankrupt, fresh start, IRP or bankruptcy process; no admitted application in last 12 months (s. 94(4), (5))

Also only for debts that are not excluded debts (s. 94(3)).

Creditor's options for partnership debt

Apply against one or more partners, or against the firm (s. 95(2))

Creditor may apply alone, jointly, or through a resolution professional (s. 95(1)).

Joint proceedings

First application against a partner → later applications against other partners go to the same DRT, which may consolidate (s. 95(3))

Applies to partners of the same firm.

Creditor's proof of default

Failure to pay within 14 days of service of demand notice, with evidence (s. 95(4))

Copy of application must be given to the debtor (s. 95(5)).

Limitation during moratorium

Moratorium period excluded in computing limitation for debtor's suits or applications (s. 179(3))

Applies despite the Limitation Act, 1963.

Quick revision

• Part III applies to individuals and partnership firms where the default is at least ₹1,000; the Central Government can raise this, up to ₹1 lakh.
• The DRT is the Adjudicating Authority for individuals and firms under section 179, subject to section 60.
• Under section 60, the NCLT handles insolvency of corporate persons and personal guarantors of corporate debtors.
• The DRT has jurisdiction over suits, claims and questions of priority linked to the debtor's insolvency.
• Moratorium periods are excluded when computing limitation for suits by the debtor under section 179(3).
• Fresh start limits: income up to ₹60,000, assets up to ₹20,000, qualifying debts up to ₹35,000.
• A fresh start applicant must not own a dwelling unit, whether encumbered or not.
• No earlier fresh start order in the preceding twelve months, and no subsisting fresh start, resolution or bankruptcy process.
• Qualifying debt excludes excluded debt, the secured part of a debt and debt incurred in the three months before the application.
• Immediate family means spouse, dependent children and dependent parents.
• Bankruptcy commencement date is the date the bankruptcy order is passed under section 126.
• Insolvency professionals must act with reasonable care and diligence and let the agency inspect their records (section 208(2)).

Common mistakes

• Applying the ₹1 crore corporate threshold to individuals. Fix: Link Part II to Section 4 and Part III to Section 78. Part III starts at ₹1,000 and any higher notified limit cannot exceed ₹1 lakh.
• Saying Part III covers only individuals. Fix: Section 78 names individuals and partnership firms. Section 2(f) also names proprietorship firms.
• Saying the DRT hears every individual insolvency matter, including those of personal guarantors. Fix: Always check first whether the individual is a personal guarantor to a corporate debtor. If yes, the NCLT is the forum.
• Fixing DRT jurisdiction by the creditor's location or the place where the debt arose. Fix: Use the debtor's location: where the debtor actually and voluntarily resides, carries on business or personally works for gain.
• Treating a mortgaged house as not counting. Fix: Section 80(2)(e) disqualifies owning a dwelling unit irrespective of whether it is encumbered.
• Rejecting a debtor whose income is exactly ₹60,000. Fix: Equal to the limit is allowed; only above it disqualifies.
• Saying the interim moratorium starts on admission. Fix: Under section 96 it starts on the date of the application and ceases on the date of admission.
• Ignoring the twelve-month bar. Fix: Always check if an application under this Chapter was admitted in the preceding twelve months.
• Saying the NCLT passes the bankruptcy order for an individual. Fix: For individuals and firms in Part III, the Adjudicating Authority is the Debt Recovery Tribunal.
• Counting the 14 days for the order from the date of the application. Fix: Section 126(1) counts from receiving the confirmation or nomination of the trustee under section 125.

Exam tips

• Start every case answer by naming the Section 2 clause that covers the debtor. Examiners reward this opening.
• Write the structure provision, analysis, conclusion. Quote the ₹1,000 and ₹1 lakh figures exactly.
• Keep a contrast line ready: Section 4 for corporate debtors at ₹1 crore, Section 78 for individuals and firms at ₹1,000.
• When a personal guarantor appears, always mention Section 60 and the NCLT before discussing the DRT.
• Do not spend time on procedural steps of fresh start or bankruptcy here. Those belong to other topics.
• Begin every answer with the classification of the debtor. It decides the forum and earns the first marks.
• Quote Section 179 together with Section 60 in the same answer. Examiners look for the 'subject to Section 60' link.
• Give the full appeal path with sections and time limits: DRAT under Section 181, NCLAT under Section 61.