Insolvency and Bankruptcy - Law and Practice · Bankruptcy for Individuals and Partnership Firms

Discharge of Bankrupt and Offences by Debtors under IBC

Updated 11 October 2026 · Fact-checked

Discharge ends bankruptcy. The bankruptcy trustee applies to the Adjudicating Authority, which passes a discharge order under section 138. It releases the bankrupt from bankruptcy debt, except fraud or breach of trust debts and excluded debts. In an exam, state the trigger, the order, the effect and the exceptions.

Understand Discharge and Offences by Debtors

A bankruptcy order under Part III does not last forever. It continues until the debtor is discharged under section 138 (section 127). Discharge is the exit door. It gives the individual or partner a fresh financial start.

The process is led by the bankruptcy trustee, an insolvency professional. The trustee applies to the Adjudicating Authority, the Debt Recovery Tribunal, for a discharge order. The Adjudicating Authority shall pass the order on that application. A copy goes to the Insolvency and Bankruptcy Board of India for entry in its register.

The effect is wide but not total. The order releases the bankrupt from all bankruptcy debt. That means debts owed on the bankruptcy commencement date, debts arising later from earlier transactions, and interest forming part of the debt under section 171. The law then carves out exceptions. Discharge does not affect the trustee's functions, does not affect the operation of Chapters IV and V of Part III, does not release debts incurred by fraud or breach of trust to which the bankrupt was a party, and does not discharge any excluded debt.

Excluded debts are fines imposed by a court or tribunal, damages for negligence, nuisance or breach of a statutory, contractual or other legal obligation, maintenance payable under any law, student loans, and any other debt prescribed. Discharge also ends the restrictions and disqualifications on the bankrupt (sections 140 and 141). Some duties continue, such as helping the trustee, but not the duty to notify new property or income (section 150(3)).

You should also know the fresh start route. Under section 92, the resolution professional submits a final list of qualifying debts, and a discharge order is passed at the end of the moratorium. This discharge does not release any other person from liability on those debts. Part III also has offences and penalties. Section 58 applies the offences and penalties provisions of Chapter VII to this Chapter as the context requires. The text supplied here does not give the individual offence sections, so state them only in general terms unless you are sure.

Key rules to remember

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.

How to solve Discharge and Offences by Debtors questions

Use this order for any case question on discharge, its effect or offences by a debtor.

1Identify the stage: bankruptcy under section 126 order, or the fresh start process. This decides between section 138 and section 92.
2Check the trigger: one year from the bankruptcy commencement date has passed, or the committee of creditors approved completion of administration and the trustee applied within seven days.
3State who applies and who decides: the trustee applies, and the Adjudicating Authority (DRT) shall pass the order.
4List each debt in the facts and classify it: ordinary bankruptcy debt, fraud or breach of trust debt, or excluded debt.
5Apply section 139: ordinary debts are released, the others survive.
6State the consequences: restrictions and disqualifications end, the Board records the order, and continuing duties remain.
7For offences, say that section 58 applies Chapter VII offences and penalties as the context requires, and name a specific section only if you are certain of it.
8Conclude in one line that answers the question asked.

Quickest way: Four-line discharge answer

When to use it: Use when time is short and the question asks about the effect of discharge on a given debt.

Say the trustee applied and the Adjudicating Authority passed the order under section 138.
Say discharge releases all bankruptcy debt under section 139.
Test each debt against the four exceptions, mainly fraud or breach of trust and excluded debt.
Conclude debt by debt: released or survives.

Common mistakes in Discharge and Offences by Debtors

Saying the bankrupt applies for discharge.
Students assume the debtor asks for relief.
Fix: Section 138(1) says the bankruptcy trustee applies to the Adjudicating Authority.
Saying discharge wipes out every debt.
The word 'discharge' sounds absolute.
Fix: Section 139 keeps fraud and breach of trust debts and excluded debts alive. Name them.
Treating student loans or maintenance as discharged.
They look like ordinary loans or obligations.
Fix: Both are excluded debts under section 79(15). Court fines and damages for breach of legal obligation are also excluded.
Mixing section 92 with section 138.
Both are headed 'Discharge order'.
Fix: Section 92 is fresh start, ending the moratorium and covering qualifying debts. Section 138 is bankruptcy.
Saying all duties of the bankrupt end on discharge.
Students link discharge with the end of all obligations.
Fix: Under section 150(3), duties other than the notice of new property or income continue.
Stating offence section numbers from memory.
Students try to sound precise.
Fix: Cite section 58 and describe the offence. Give a number only when you are sure it is right.

Worked examples

Example 1

Rakesh Menon was adjudged bankrupt. One year has passed since the bankruptcy commencement date. His debts include a ₹6,00,000 personal loan from a bank, a ₹1,50,000 court-imposed fine, and ₹4,00,000 obtained from a friend by knowingly giving a false account of his finances, which amounts to fraud. Advise on the effect of discharge.

Show the solution

Trigger: one year has expired from the bankruptcy commencement date, so the trustee may apply under section 138(1)(a).
The Adjudicating Authority shall pass the discharge order under section 138(2).
Section 139 releases Rakesh from all bankruptcy debt, subject to the provisos.
The ₹6,00,000 bank loan is an ordinary bankruptcy debt, so it is released.
The ₹1,50,000 fine is a liability to pay a fine imposed by a court, an excluded debt under section 79(15)(a), so it survives.
The ₹4,00,000 was incurred by fraud to which he was a party, so section 139(c) keeps it alive.

Answer: After the trustee applies and the Adjudicating Authority passes the discharge order, only the ₹6,00,000 bank loan is released. The ₹1,50,000 fine and the ₹4,00,000 fraud debt survive discharge.

Example 2

Meera, a bankrupt, was discharged. She later inherits a house. A creditor says she must still notify the trustee within seven days and that her disqualification from being a public servant continues. Examine.

Show the solution

Duties: section 150(3) says she continues the duties under section 150(1) other than clause (c) even after discharge.
Clause (c) covers notice of acquisition or devolution of property and increase in income. The inheritance falls in clause (c)(ii).
So the seven-day notice duty under section 150(2) no longer binds her after discharge.
Disqualification: under section 140(3)(b), disqualifications cease on discharge under section 138, including the bar on acting as a public servant under section 140(2)(b).
So the creditor is wrong on both points. Her other duties, such as giving information, continue.

Answer: Meera need not give the seven-day notice about the inherited house, and her section 140 disqualifications ended on discharge. Duties other than the clause (c) notices still continue.

Exam tips

Write section 138 and section 139 together. Examiners test the application, the order, and then the exceptions.
Learn the four provisos of section 139 and the five heads of excluded debt as two short lists.
In case studies, classify every debt in the facts. Answer debt by debt.
Keep section 92 (fresh start) separate from section 138 (bankruptcy) in your answer.
For offences, cite section 58 and avoid unsure section numbers.

Practice questions from Bankruptcy for Individuals and Partnership Firms

Discharge and Offences by Debtors: frequently asked questions

Who applies for a discharge order under section 138?

The bankruptcy trustee applies to the Adjudicating Authority. The application is made on the expiry of one year from the bankruptcy commencement date, or within seven days of committee of creditors approval of completed estate administration if that comes earlier.

Which debts survive a discharge order?

Debts incurred by fraud or breach of trust to which the bankrupt was a party, and excluded debts, survive. Excluded debts include court fines, maintenance, student loans and damages for breach of a legal obligation.

Does discharge end the restrictions on a bankrupt?

Yes. The disqualifications in section 140 and the restrictions in section 141 cease to have effect on discharge under section 138. They also cease if the bankruptcy order is modified or recalled under section 142.

What is the difference between discharge under section 92 and section 138?

Section 92 applies to the fresh start process. The order is passed at the end of the moratorium for qualifying debts. Section 138 applies to bankruptcy and is passed on the trustee's application.