Skip to content

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

Bankruptcy Process for Individuals and Firms: Overview

Updated 11 October 2026 · Fact-checked

Part III of the IBC deals with insolvency and bankruptcy of individuals and partnership firms. Under Section 179, the Debt Recovery Tribunal with territorial jurisdiction is the Adjudicating Authority. Insolvency professionals run the fresh start, resolution and bankruptcy processes. To solve questions, identify the debtor, the process, the forum and the professional's role.

Understand Bankruptcy Process for Individuals and Firms: Overview

The IBC has two tracks. Part II covers corporate persons, and the NCLT decides those cases. Part III covers individuals and partnership firms. This page gives you the map of Part III. The detailed rules on each process come in later topics.

Part III has separate processes for an individual or firm in financial distress. The Code names them in Section 208(1): the fresh start process (Chapter II of Part III), the individual insolvency resolution process (Chapter III), and the individual bankruptcy process (Chapter IV). Bankruptcy is the last stage. It follows when resolution is not possible or does not succeed.

The forum is the key difference from corporate cases. Under Section 179(1), and subject to Section 60, the Adjudicating Authority for insolvency matters of individuals and firms is the Debt Recovery Tribunal (DRT). It must have territorial jurisdiction over the place where the individual debtor actually and voluntarily resides, carries on business or personally works for gain. The DRT must also be one that can entertain an application under the Code regarding that person.

The DRT's powers are wide. Section 179(2) gives it jurisdiction, despite any other law, over any suit or proceeding by or against the individual debtor, any claim by or against the debtor, and any question of priorities or other question of law or fact arising out of or in relation to the insolvency and bankruptcy of the individual debtor or firm. So related disputes are pulled into one forum.

Section 179(3) protects the debtor's own claims. Where a moratorium has been ordered under Part III, the period of moratorium is excluded when computing limitation for any suit or application in the name and on behalf of the debtor. This applies despite the Limitation Act, 1963.

Insolvency professionals carry out the processes. Under Section 208(1), once a process has started, it is the professional's function to take the actions necessary in that process. Section 208(2) sets a code of conduct, covered below.

Key rules to remember

Adjudicating Authority for individuals and firms
Section 179(1): DRT with territorial jurisdiction (subject to Section 60)
Territory is the place where the debtor actually and voluntarily resides, carries on business or personally works for gain. For corporate persons the forum is the NCLT.
Scope of DRT jurisdiction
Section 179(2): suits/proceedings, claims, and questions of priorities, law or fact, by or against the debtor
Applies notwithstanding any other law for the time being in force.
Limitation during moratorium
Section 179(3): moratorium period is excluded in computing limitation
Only for suits or applications in the name and on behalf of the debtor, where a moratorium has been ordered under Part III.
Processes an insolvency professional handles
Section 208(1): fresh start, individual insolvency resolution, corporate insolvency resolution, pre-packaged resolution, individual bankruptcy, liquidation of a corporate debtor firm
For this chapter, focus on the three Part III processes: fresh start, insolvency resolution and bankruptcy.
Code of conduct of an insolvency professional
Section 208(2)(a)-(e)
Reasonable care and diligence; comply with IPA bye-laws; allow IPA inspection of records; submit copies of records of every proceeding before the Adjudicating Authority to the Board and the IPA; perform functions as specified.

How to solve Bankruptcy Process for Individuals and Firms: Overview questions

Use this method for any case-based question on the overview of the individual and firm bankruptcy process.

  1. 1Identify the debtor: an individual, a partnership firm, or a corporate person. Only the first two fall under Part III.
  2. 2Name the process the facts point to: fresh start, individual insolvency resolution, or bankruptcy.
  3. 3State the forum. For individuals and firms it is the DRT under Section 179(1), not the NCLT.
  4. 4Fix territorial jurisdiction from the facts: where the debtor resides, carries on business or works for gain.
  5. 5Apply Section 179(2) if the question involves a suit, claim or question of priority linked to the debtor's insolvency.
  6. 6Bring in the insolvency professional and Section 208 if the question asks who conducts the process or how they must behave.
  7. 7Conclude in one clear line that answers the question asked.

Quickest way: Debtor-Forum-Professional check

When to use it: Use it when time is short and the question asks which forum or authority applies.

  1. Ask who the debtor is. Individual or firm means Part III and the DRT.
  2. Ask where the debtor lives or works. That decides which DRT.
  3. Ask what must be decided. If it is a related suit, claim or priority issue, cite Section 179(2).
  4. Ask who acts. The insolvency professional, bound by Section 208(2).

Common mistakes in Bankruptcy Process for Individuals and Firms: Overview

  • Naming the NCLT as the Adjudicating Authority for an individual or partnership firm.

    Students carry over the corporate insolvency rule without checking the debtor type.

    Fix: Check the debtor first. Under Section 179(1), individuals and firms go to the DRT. Corporate persons go to the NCLT.

  • Ignoring territorial jurisdiction and saying any DRT can hear the case.

    The section is read quickly and only the forum name is remembered.

    Fix: Quote the test: the DRT with jurisdiction over the place where the debtor actually and voluntarily resides, carries on business or personally works for gain.

  • Treating Section 179 as covering only the filing of applications.

    Students overlook sub-section (2).

    Fix: Remember that the DRT can also decide suits, claims and questions of priority or of law or fact arising from the debtor's insolvency or bankruptcy.

  • Applying the limitation exclusion to all proceedings, including those against the debtor.

    Section 179(3) is remembered as a general rule about moratorium and limitation.

    Fix: State that it covers suits or applications in the name and on behalf of the debtor, where a Part III moratorium has been ordered.

  • Saying Part III is one single process called bankruptcy.

    The word bankruptcy is used for the whole Part.

    Fix: List the three processes: fresh start, individual insolvency resolution and bankruptcy. Bankruptcy is one of them.

Worked examples

Example 1

Ramesh Iyer, an individual, lives in Pune and runs a trading business in Nashik. A creditor wants to start insolvency proceedings against him under the IBC. Which authority is the Adjudicating Authority, and how is its jurisdiction decided?

Show the solution
  1. Provision: Section 179(1) makes the Debt Recovery Tribunal the Adjudicating Authority for insolvency matters of individuals and firms, subject to Section 60.
  2. Analysis: Ramesh is an individual, so Part III applies and the NCLT is not the forum.
  3. Jurisdiction depends on the place where the debtor actually and voluntarily resides, carries on business or personally works for gain.
  4. On the facts, he resides in Pune and carries on business in Nashik. Both are places that fit the test.
  5. Conclusion: The DRT having territorial jurisdiction over the place of residence or business can entertain the application.

Answer: The Adjudicating Authority is the Debt Recovery Tribunal under Section 179(1), with territorial jurisdiction over where Ramesh resides or carries on business, and not the NCLT.

Example 2

During individual insolvency proceedings against Meena Traders, a partnership firm, a moratorium is ordered under Part III. Meena Traders had a claim against a customer that would otherwise have become time-barred during the moratorium. Also, a dispute arises on which creditor has priority. Advise on both points.

Show the solution
  1. Forum: Section 179(1) makes the DRT the Adjudicating Authority for firms.
  2. Priority dispute: Section 179(2)(c) gives the DRT jurisdiction over any question of priorities, or any other question of law or fact, arising out of or in relation to the insolvency and bankruptcy of the firm. So the DRT decides the priority question.
  3. Limitation: Section 179(3) says that, notwithstanding the Limitation Act, 1963, the period of moratorium is excluded when computing limitation for a suit or application in the name and on behalf of the debtor.
  4. The claim is in the firm's own name and a Part III moratorium has been ordered, so the moratorium period is excluded.
  5. Conclusion: The claim does not lose time during the moratorium, and the DRT decides the priority dispute.

Answer: The DRT decides the priority question under Section 179(2)(c), and the moratorium period is excluded in computing limitation for the firm's claim under Section 179(3).

Exam tips

  • Write the forum in your first line: DRT for individuals and firms, NCLT for corporate persons. Examiners often test this contrast.
  • Always add the territorial jurisdiction test from Section 179(1) when asked which DRT applies.
  • Use the provision, analysis, conclusion format. Quote the section number with each point.
  • When the facts mention a suit, claim or priority dispute, cite Section 179(2). When they mention a moratorium and time-barred claims, cite Section 179(3).
  • For a question on insolvency professionals, list the Section 208(2) code of conduct points in order.

Practice questions from Bankruptcy Order for Individuals and Partnership Firms

Bankruptcy Process for Individuals and Firms: Overview in other exams

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

Bankruptcy Process for Individuals and Firms: Overview: frequently asked questions

Which authority decides insolvency matters of individuals and partnership firms under the IBC?

The Debt Recovery Tribunal decides them under Section 179(1), subject to Section 60. It must have territorial jurisdiction over the place where the debtor resides, carries on business or works for gain.

What is the difference between corporate insolvency and individual bankruptcy under the IBC?

Corporate insolvency falls under Part II and goes to the NCLT. Individual and firm insolvency falls under Part III and goes to the DRT. Part III has its own processes: fresh start, insolvency resolution and bankruptcy.

What can the DRT decide besides the main application?

Under Section 179(2), it can hear any suit or proceeding by or against the debtor, any claim by or against the debtor, and any question of priorities or other law or fact arising from the insolvency or bankruptcy. This applies notwithstanding any other law.

How does a moratorium affect limitation for the debtor's own suits?

Section 179(3) excludes the moratorium period when computing limitation for a suit or application in the name and on behalf of the debtor. It applies despite the Limitation Act, 1963.

What are the duties of an insolvency professional in these processes?

Under Section 208(1), the professional takes the actions necessary in the process. Under Section 208(2), they must act with reasonable care and diligence, follow the bye-laws of their agency, allow inspection of records, and submit copies of records of every proceeding before the Adjudicating Authority to the Board and the agency.