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

Application for Bankruptcy by Creditor under the IBC

Updated 11 October 2026 · Fact-checked

A creditor cannot apply for bankruptcy directly. Under section 121, an application is allowed only after an order under section 100(4), 115(2) or 118(3), and must be filed within three months of that order. Section 123 lists what it must contain. The Debt Recovery Tribunal hears it under section 179.

Understand Application for Bankruptcy by Creditor

Part III of the IBC deals with individuals and partnership firms. A creditor's route has two stages. First comes an insolvency resolution process. Bankruptcy follows only if that process ends in one of the orders named in section 121.

Stage one is section 95. A creditor may apply alone, jointly with other creditors, or through a resolution professional. For a partnership debt, the creditor may proceed against one or more partners, or against the firm. If one partner is already being proceeded against, any application against another partner of the same firm goes to, or is transferred to, the same Adjudicating Authority. That authority may consolidate the proceedings.

The demand notice is the key to a section 95 application. The application must carry details and documents on the debt as on the date of application, on the debtor's failure to pay within fourteen days of service of the notice of demand, and on evidence of default. The creditor must also give the debtor a copy of the application.

Stage two is bankruptcy under section 121. A creditor (individually or jointly) or the debtor may apply, but only where an order has been passed under section 100(4), 115(2) or 118(3). The application must be filed within three months of that order. If the debtor is a firm, any partner may file. Section 123 then sets out what a creditor's application must contain. The Debt Recovery Tribunal is the Adjudicating Authority for individuals and firms (section 179).

A note on a common mix-up. Section 169 is not about a demand notice. It says that if a bankrupt dies, the bankruptcy proceedings continue as if he were alive. Sections 8 and 9 (ten-day notice) apply to operational creditors of corporate debtors, not to individuals.

Key rules to remember

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.

How to solve Application for Bankruptcy by Creditor questions

Use this order for any case question on a creditor's bankruptcy application. Write provision, facts, conclusion.

1Identify the debtor: individual or firm. Name the forum: the Debt Recovery Tribunal under section 179.
2Check the pre-condition. Was there an order under section 100(4), 115(2) or 118(3)? If not, say the application cannot be made under section 121.
3Check the time. Count three months from the date of the order and compare with the filing date.
4Check the applicant. A creditor, jointly with others, or the debtor. For a firm, any partner.
5Check the contents under section 123(1): process records, the order permitting the creditor, debt details as on date of application, other prescribed information.
6If the debt is secured, check the statement under section 123(2): give up the security, or apply for the unsecured part only with an estimate.
7Add practical points: proposing a bankruptcy trustee, the prescribed form and fee, and no withdrawal without permission.
8Conclude clearly: maintainable or not, and what the creditor should do.

Quickest way: Four-gate check

When to use it: Use this when the question is short and asks whether a creditor's application is valid.

Gate 1: Is there a qualifying order (s.100(4), 115(2) or 118(3))?
Gate 2: Filed within three months of that order?
Gate 3: Are the section 123(1) documents attached?
Gate 4: If secured, is the section 123(2) statement given?
If every gate is passed, say the Debt Recovery Tribunal can proceed. If any gate fails, name it and give the remedy.

Common mistakes in Application for Bankruptcy by Creditor

Citing section 169 as the statutory demand notice provision.
Search results and notes mix up the numbering.
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.
Students remember the corporate process better.
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 a creditor can apply for bankruptcy straight away.
Students skip the resolution stage.
Fix: Section 121 allows an application only after an order under section 100(4), 115(2) or 118(3). Section 123(1) also requires the process records and the order permitting the creditor to apply.
Counting the three months from the day the order was received or from the default.
The words 'date of the order' are read loosely.
Fix: Count three months from the date of the order passed by the Adjudicating Authority.
Ignoring the secured creditor's choice.
Students focus on the debt amount only.
Fix: Always state both options under section 123(2): give up the security, or apply only for the unsecured part with an estimated value. Add that the two parts are then separate debts.
Naming the NCLT as the forum.
The NCLT is the usual forum for companies.
Fix: For individuals and firms, section 179 makes the Debt Recovery Tribunal the Adjudicating Authority, subject to section 60.

Worked examples

Example 1

Rohan Traders, a partnership firm, is the debtor. An order under section 118(3) was passed on 12 March. Sunrise Finance, a creditor, files a bankruptcy application on 20 June of the same year. Is the application in time? Who else could have filed?

Show the solution

Provision: section 121(1)(c) permits an application after an order under section 118(3). Section 121(2) requires filing within three months of the date of the order.
Facts: the order is dated 12 March. Three months from that date ends on 12 June.
Application: the filing on 20 June is eight days after 12 June, so it is late.
Section 121(1) allows a creditor (alone or jointly) or the debtor to apply. As the debtor is a firm, section 121(3) lets any of its partners file, but the same time limit applies to them.
Conclusion: Sunrise Finance's application is barred by the time limit in section 121(2). The statute here gives no power to extend this period.

Answer: The application filed on 20 June is out of time, because the three-month period ended on 12 June. Any partner of the firm could have filed, but only within that same period.

Example 2

Anand Sharma owes Metro Bank ₹80,00,000, secured by a property. After an order permitting the bank to apply for bankruptcy, the bank estimates the property is worth ₹50,00,000. It wants to apply only for the shortfall. What must it do under section 123, and how will the debt be treated?

Show the solution

Provision: section 123(2) applies to a secured debt. The creditor must give either a statement giving up its security for all creditors, or a statement that the application is only for the unsecured part with an estimated value of that part.
Facts: the bank wants to keep its security, so it must choose the second option.
Calculation: unsecured part = ₹80,00,000 − ₹50,00,000 = ₹30,00,000.
The bank's statement must say the application covers only the unsecured part and give its estimate of ₹30,00,000.
Section 123(3): the secured and unsecured parts are then treated as separate debts.
The application must also carry the records of the resolution process, the order permitting the bank to apply, and debt details as on the date of the application (section 123(1)).

Answer: Metro Bank files a statement under section 123(2)(b) that it applies only for the unsecured part, estimated at ₹30,00,000. The secured ₹50,00,000 and the unsecured ₹30,00,000 are treated as separate debts. Alternatively, it could give up the security for the benefit of all creditors.

Exam tips

Open the answer with the sequence: section 95 resolution stage, then the section 121 bankruptcy stage. Examiners reward clear structure.
Quote the numbers exactly: fourteen days (s.95(4)(b)), three months (s.121(2)), and for a firm any partner (s.121(3)).
If a question says 'statutory demand notice' and 'section 169', politely correct it in your answer: the notice is in section 95(4), and section 169 is about the death of a bankrupt.
In a case question, list the section 123(1) documents as a short checklist. It is quick to write and easy to mark.
For the debt threshold, quote the amount only from the current notification in your study material. Do not guess a figure.

Practice questions from Bankruptcy Order for Individuals and Partnership Firms

Application for Bankruptcy by Creditor: frequently asked questions

Can a creditor file for bankruptcy directly against an individual?

No. Section 121 allows an application only after an order under section 100(4), 115(2) or 118(3). Section 123(1) also requires the records of the resolution process and the order permitting the creditor to apply.

What is the statutory demand notice period in section 95?

Section 95(4)(b) requires details of the debtor's failure to pay within fourteen days of service of the notice of demand. The application must also carry the debt details and evidence of default. The creditor must give the debtor a copy of the application.

Which tribunal hears a creditor's bankruptcy application against an individual?

The Debt Recovery Tribunal having territorial jurisdiction, under section 179. This is where the individual debtor actually and voluntarily resides, carries on business or personally works for gain. It is subject to section 60.

Can a creditor withdraw a bankruptcy application?

Not freely. Section 123(7) says the application cannot be withdrawn without the permission of the Adjudicating Authority.

What happens if the debtor dies?

Under section 123(5), a creditor's application may be filed against the debtor's legal representatives. Under section 169, if a bankrupt dies, the bankruptcy proceedings continue as if he were alive.