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

Bankruptcy Order and Interim Moratorium under the IBC

Updated 11 October 2026 · Fact-checked

An interim moratorium starts on the date a bankruptcy or insolvency application is filed and ends on its admission, staying debt actions. A bankruptcy order under section 126 follows trustee confirmation or nomination under section 125. It vests the estate in the trustee and restrains creditors, subject to secured creditor rights.

Understand Bankruptcy Order and Interim Moratorium

Part III of the IBC deals with individuals and partnership firms. The Adjudicating Authority for them is the Debt Recovery Tribunal (DRT) with territorial jurisdiction (section 179). Two protections matter in this topic: the interim moratorium and the bankruptcy order.

The interim moratorium (section 96) applies when an application is filed under section 94 or 95. It starts on the date of the application and covers all debts. It ends on the date the application is admitted. While it runs, pending legal action or proceedings on any debt are deemed stayed, and creditors cannot start new ones. If the application concerns a firm, it operates against all partners as on the date of the application. It does not apply to transactions the Central Government notifies in consultation with a financial sector regulator.

Before a bankruptcy order, a trustee must be in place (section 125). If the application proposes an insolvency professional, the Adjudicating Authority directs the Board within seven days of receiving the application to confirm that no disciplinary proceedings are pending. The Board has ten days to confirm or to reject and nominate another. If no trustee is proposed, the Authority directs the Board within seven days to nominate one, and the Board nominates within ten days. The trustee so confirmed or nominated is appointed in the bankruptcy order.

The bankruptcy order (section 126) must be passed within fourteen days of receiving the confirmation or nomination. Within seven days of passing it, the Authority gives the bankrupt, the creditors and the trustee a copy of the application and a copy of the order. The order continues until the debtor is discharged under section 138 (section 127).

Effects (section 128): the estate vests in the trustee as provided in section 154, and is divided among creditors. A creditor with a bankruptcy debt cannot act against the bankrupt's property or start a suit or other proceedings, except with the Authority's leave and on its terms. A secured creditor can still realise security as if no order had been passed, but loses interest after the bankruptcy commencement date if he takes no action to realise within thirty days of that date. An order against a firm operates as an order against each individual who is a partner on the date of the order.

Key rules to remember

Interim moratorium period (s. 96): Starts: date of application under s. 94 or 95 | Ends: date of admission of the application; Covers all debts. Pending proceedings are deemed stayed and creditors cannot initiate new ones. For a firm, it operates against all partners as on the date of application.
Trustee confirmation timeline, proposed professional (s. 125(1)-(2)): Direction to Board: within 7 days of application | Board confirms or rejects and nominates: within 10 days of direction; The Board confirms that no disciplinary proceedings are pending against the proposed professional.
Trustee nomination timeline, none proposed (s. 125(3)-(4)): Direction to Board: within 7 days of application | Board nominates: within 10 days of direction; The confirmed or nominated trustee is appointed in the bankruptcy order.
Bankruptcy order timeline (s. 126): Order: within 14 days of confirmation or nomination of trustee | Documents to bankrupt, creditors, trustee: within 7 days of order; Documents are a copy of the application and a copy of the order.
Validity (s. 127): Order continues until the debtor is discharged under s. 138; No fixed end date.
Effects of order (s. 128): Estate vests in trustee (s. 154) + divided among creditors + creditors barred from actions against property and from suits without leave; Secured creditors keep their right to realise security, but lose interest after the bankruptcy commencement date if they do not act within 30 days of that date.
Firm bankruptcy (s. 128(3)): Order against firm = order against each individual who is a partner on the date of the order; Test partner status on the date of the order.

How to solve Bankruptcy Order and Interim Moratorium questions

Use this sequence for any case-based question on interim moratorium or the bankruptcy order. Always tie each conclusion to the section.

1Identify the debtor: individual or firm, and the stage: application filed, admitted, or bankruptcy order passed.
2If the application is filed but not admitted, apply section 96: interim moratorium from the date of application, covering all debts, stays pending proceedings and bars new ones. Note the firm rule and the notified-transactions exception.
3Fix the trustee position under section 125: was a professional proposed? Apply the 7-day direction and the 10-day Board response, and check the no-pending-disciplinary-proceedings condition.
4Check the timing of the bankruptcy order: within 14 days of confirmation or nomination (section 126(1)). Then the 7-day delivery of documents.
5State the effects under section 128: vesting in the trustee, division among creditors, the bar on actions, and the leave of the Adjudicating Authority.
6Deal with secured creditors: the right to realise is preserved; interest stops after the bankruptcy commencement date if no action within 30 days.
7If a firm is involved, extend the order or interim moratorium to the partners on the correct date.
8Write a one-line conclusion answering exactly what was asked.

Quickest way: Timeline-and-effects grid

When to use it: When the question gives dates and asks whether an act was valid or what protection applies.

Draw a line: application date, admission, trustee confirmation or nomination, bankruptcy order, discharge.
Mark the interim moratorium from application date to admission.
Mark the bankruptcy order effects from the order until discharge (s. 127).
Insert the periods: 7 and 10 days for the trustee, 14 days for the order, 7 days for documents, 30 days for secured creditors.
Place each fact on the line and answer using the section number.

Common mistakes in Bankruptcy Order and Interim Moratorium

Saying the interim moratorium starts on admission of the application.
It is confused with the moratorium after admission or with the CIRP moratorium.
Fix: Remember section 96: it starts on the date of the application and ceases on the date of admission.
Saying the Adjudicating Authority for individuals and firms is the NCLT.
Corporate persons are handled by the NCLT, so students carry that over.
Fix: Under section 179, it is the DRT with territorial jurisdiction over the place where the debtor resides, carries on business or works for gain.
Mixing up the trustee periods (7, 10) and the order period (14).
Several short timelines appear in adjacent sections.
Fix: Learn them as a chain: 7 days to direct the Board, 10 days for the Board, 14 days to pass the order, 7 days to deliver documents.
Saying a secured creditor is barred from enforcing security after a bankruptcy order.
Students over-apply the creditor bar in section 128(1)(c).
Fix: Section 128(2) preserves the right to realise security. Only interest stops after the bankruptcy commencement date if no action is taken within 30 days of it.
Saying creditors can never sue after the order.
The word 'shall not' is read as absolute.
Fix: A creditor may commence a suit or proceedings with leave of the Adjudicating Authority and on its terms.
Treating a firm's order as affecting only the firm.
Students forget the partner rule.
Fix: Under section 128(3), the order operates as an order against each individual who is a partner on the date of the order.

Worked examples

Example 1

On 3 March, Ramesh Iyer, a trader in Pune, files an application under section 94. Before it is admitted, his creditor Sundaram Traders files a recovery suit for ₹4,00,000. Advise on the suit and say until when this protection lasts.

Show the solution

Section 96 applies because the application was filed under section 94.
The interim moratorium commenced on 3 March, the date of the application, and covers all debts.
Under section 96(1)(b), creditors shall not initiate legal action or proceedings in respect of any debt, and pending proceedings are deemed stayed.
So the suit filed by Sundaram Traders during this period is barred, and any earlier pending suit on a debt is deemed stayed.
The protection ceases on the date of admission of the application.

Answer: The interim moratorium bars Sundaram Traders from initiating the suit, and stays any pending proceedings. It lasts from 3 March until the date the application is admitted. Notified transactions are excepted.

Example 2

An application for bankruptcy of Meera Textiles, a partnership firm with partners Anil and Bhavna, does not propose a bankruptcy trustee. The application is received by the Adjudicating Authority on 1 July. Describe the process up to the bankruptcy order, and the effect on the partners. Anil retired on 20 June, before the order.

Show the solution

No trustee was proposed, so section 125(3) applies: the Authority must direct the Board within seven days of receiving the application, that is by 8 July.
Under section 125(4), the Board must nominate a trustee within ten days of receiving the direction.
The nominated trustee is to be appointed in the bankruptcy order (section 125(5)).
Under section 126(1), the order must be passed within fourteen days of receiving the nomination.
Within seven days of the order, copies of the application and the order go to the bankrupt, the creditors and the trustee (section 126(2)).
Under section 128(3), the order operates as an order against each individual who is a partner on the date of the order.
Anil retired on 20 June, before the order, so he was not a partner on the date of the order. Bhavna was.

Answer: The Authority directs the Board by 8 July, the Board nominates within ten days, and the Authority passes the order within fourteen days of nomination, appointing that trustee. The order operates against Bhavna as a partner on the date of the order, but not against Anil on these facts. Note that section 96(2) tests partner status on the date of the application for the interim moratorium.

Exam tips

Write the section number beside each timeline. Examiners look for 7, 10, 14 and 7 days in the right place.
Always state the Adjudicating Authority as the DRT for individuals and firms (section 179), not the NCLT.
In firm cases, check the date used for partner status: date of application for interim moratorium, date of order for the bankruptcy order.
In effects questions, cover vesting, division among creditors, the creditor bar with leave, and the secured creditor exception with the 30-day interest rule.
Since this is an open-book elective, mark the pages for sections 96, 125, 126, 127 and 128 so you can quote them quickly.

Practice questions from Bankruptcy Order for Individuals and Partnership Firms

Bankruptcy Order and Interim Moratorium: frequently asked questions

When does the interim moratorium begin and end for an individual debtor?

Under section 96, it begins on the date the application is filed under section 94 or 95. It ceases on the date the application is admitted. It covers all debts.

Who appoints the bankruptcy trustee?

The Board confirms the professional proposed in the application, or nominates one if the proposal is rejected or none is made, under section 125. The Adjudicating Authority then appoints the confirmed or nominated person in the bankruptcy order.

Can a secured creditor enforce security after the bankruptcy order?

Yes, under section 128(2) the order does not affect the right to realise or deal with the security interest, subject to section 123. But no interest is payable after the bankruptcy commencement date if no action to realise is taken within thirty days of that date.

How long does a bankruptcy order last?

Under section 127, it continues to have effect until the debtor is discharged under section 138.