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

Overview of Part III of IBC for Individuals and Firms

Updated 11 October 2026 · Fact-checked

Part III of the IBC, 2016 governs fresh start, insolvency and bankruptcy of individuals and partnership firms. Section 2 brings in personal guarantors to corporate debtors, partnership and proprietorship firms, and other individuals. Section 78 sets a minimum default of ₹1,000. Section 79 gives the definitions, and the Debt Recovery Tribunal is the Adjudicating Authority.

Understand Overview of Part III of IBC for Individuals and Firms

The IBC, 2016 is not only about companies. Section 2 lists everyone it covers: companies, LLPs, other bodies the Central Government notifies, personal guarantors to corporate debtors, partnership and proprietorship firms, and individuals who are not personal guarantors. Part III is the part that deals with the last three groups.

Section 78 states what Part III covers: fresh start, insolvency and bankruptcy of individuals and partnership firms. It applies where the amount of the default is not less than ₹1,000. The Central Government may notify a higher minimum default by notification, but it cannot be more than ₹1 lakh.

The forum is the Debt Recovery Tribunal (DRT). Section 79(1) defines the Adjudicating Authority for this Part as the DRT constituted under section 3(1) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Under section 179(1), the DRT with territorial jurisdiction is the one where the individual debtor actually and voluntarily resides, carries on business or personally works for gain. Section 179(2) gives the DRT jurisdiction over suits, claims and questions of priority or of law and fact connected with the insolvency or bankruptcy of the individual debtor or firm. Under section 179(3), the moratorium period is excluded when computing limitation for suits or applications in the debtor's name.

Section 79 supplies the vocabulary: bankrupt, bankruptcy commencement date, bankruptcy debt, qualifying debt, excluded debt, excluded assets, associate, immediate family, firm, partnership debt and others. Exam answers depend on using these terms precisely.

A practical point: Part III works only for the categories that the Central Government has brought into force by notification. The personal guarantor regime is the one operating under the IBBI Personal Guarantor Regulations, 2019. When a question asks which provisions are in force, name the category and state the position you are sure of. Do not guess section numbers or dates of notification.

Key rules to remember

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.

How to solve Overview of Part III of IBC for Individuals and Firms questions

Use this method for any question on the scope, application or definitions of Part III.

  1. 1Identify the debtor: is it a personal guarantor to a corporate debtor, a partnership or proprietorship firm, or another individual? Match it to section 2(e), (f) or (g).
  2. 2Check the default against section 78: it must be at least ₹1,000, or the higher notified amount, which cannot exceed ₹1 lakh.
  3. 3Fix the forum: the DRT with territorial jurisdiction under section 179(1), based on where the debtor resides, works or carries on business.
  4. 4Pick the process the facts point to: fresh start, insolvency resolution or bankruptcy, and note which section 79 definitions apply.
  5. 5Apply the definitions to the facts: classify each debt as qualifying, excluded or secured, and each asset as excluded or not.
  6. 6State the conclusion in one line and mention any practical step, such as filing before the right DRT or appointing a resolution professional.

Quickest way: Four-line scope check

When to use it: When a short case question asks whether Part III applies and before which authority.

  1. Who is the debtor? Name the section 2 clause.
  2. Is the default at least ₹1,000 (or the notified higher figure)?
  3. Which DRT has territorial jurisdiction?
  4. Which section 79 term decides the issue? Quote it and conclude.

Common mistakes in Overview of Part III of IBC for Individuals and Firms

  • Saying that the NCLT is the Adjudicating Authority for individuals and firms.

    Students carry over the corporate insolvency position into Part III.

    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.

    The proviso to section 78 is misread.

    Fix: The minimum is ₹1,000. ₹1 lakh is the highest figure the Central Government may notify as the minimum.

  • Treating a secured debt as fully qualifying debt.

    Students ignore the words 'to the extent it is secured' in section 79(19)(b).

    Fix: Secured debt is excluded from qualifying debt only to the extent it is secured. Say so in your answer.

  • Listing a personal guarantor under 'other individuals'.

    Section 2(g) and 2(e) look similar.

    Fix: Section 2(g) covers individuals other than those in clause (e). Personal guarantors to corporate debtors sit in clause (e).

  • Defining immediate family as any relative.

    Associate and relative are mixed up.

    Fix: Immediate family means spouse, dependent children and dependent parents only. Relatives are a wider group within the definition of associate.

  • Assuming a firm must be registered to come under Part III.

    Confusion with partnership registration law.

    Fix: Section 79(16) defines firm as a body of individuals carrying on business in partnership, whether or not registered under section 59 of the Indian Partnership Act, 1932.

Worked examples

Example 1

Ravi Kumar of Pune gave a personal guarantee for a loan taken by his company, Kumar Textiles Pvt Ltd. The company defaulted and the bank claims ₹4,50,000 from Ravi. Does Part III apply, and which authority will hear the matter?

Show the solution
  1. Category: Ravi is a personal guarantor to a corporate debtor, so section 2(e) applies.
  2. Default: ₹4,50,000 is more than ₹1,000, so the section 78 threshold is met even if the Government has notified a higher minimum, since that minimum cannot exceed ₹1 lakh.
  3. Forum: the Adjudicating Authority is the DRT under section 79(1). Under section 179(1), it is the DRT with territorial jurisdiction over the place where Ravi actually and voluntarily resides, carries on business or personally works for gain, here Pune.
  4. Conclusion: Part III applies to Ravi as a personal guarantor, subject to the relevant provisions being in force for this category.

Answer: Yes. Ravi falls under section 2(e), the default exceeds the section 78 limit, and the DRT having territorial jurisdiction over his place of residence or work will hear the matter.

Example 2

Meena owes ₹2,00,000 to a bank secured by a mortgage on her flat. The flat's value covers ₹1,50,000 of the debt. She also owes ₹30,000 as a student loan and ₹70,000 to a supplier on an unsecured contract. Which amounts are qualifying debt?

Show the solution
  1. Secured debt: section 79(19)(b) excludes a debt only to the extent it is secured. The secured part is ₹1,50,000, so the unsecured balance of ₹50,000 can qualify.
  2. Student loan: section 79(15)(d) makes it an excluded debt, so the ₹30,000 does not qualify.
  3. Supplier debt: it is a liquidated sum under a contract, not excluded or secured, so ₹70,000 qualifies.
  4. Add the qualifying amounts: ₹50,000 + ₹70,000 = ₹1,20,000.
  5. Note the condition: for a fresh start application, any debt incurred within three months before the application date is also excluded. Assume that no debt here falls in that period.

Answer: Qualifying debt is ₹1,20,000, being ₹50,000 of the bank debt not covered by security plus ₹70,000 owed to the supplier. The student loan and the secured portion are excluded.

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.

Practice questions from Bankruptcy for Individuals and Partnership Firms

Overview of Part III of IBC for Individuals and Firms in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Overview of Part III of IBC for Individuals and Firms: frequently asked questions

Which persons does Part III of the IBC apply to?

Part III deals with individuals and partnership firms. Section 2 lists personal guarantors to corporate debtors, partnership and proprietorship firms, and other individuals. Section 78 applies it to fresh start, insolvency and bankruptcy matters.

What is the minimum default for Part III?

Section 78 sets the minimum default at ₹1,000. The Central Government may notify a higher minimum by notification, but it cannot be more than ₹1 lakh.

Who is the Adjudicating Authority for individuals and firms?

It is the Debt Recovery Tribunal. Under section 179(1), the DRT with territorial jurisdiction over where the debtor resides, carries on business or works for gain hears the case.

What is the difference between qualifying debt and excluded debt?

Qualifying debt is a liquidated sum due, but it leaves out excluded debt, secured debt to the extent secured, and debt incurred in the three months before a fresh start application. Excluded debt covers fines, damages, maintenance, student loans and any other prescribed debt.

Is a partnership firm covered if it is not registered?

Yes. Section 79(16) defines a firm as a body of individuals carrying on business in partnership, whether or not registered under section 59 of the Indian Partnership Act, 1932.