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

Discharge and Offences by Bankrupt under the IBC

Updated 11 October 2026 · Fact-checked

Discharge is the order of the Adjudicating Authority (the Debt Recovery Tribunal) that releases a bankrupt from bankruptcy debt. The bankruptcy trustee applies under section 138, after one year from the bankruptcy commencement date or within seven days of creditors' approval if earlier. Section 139 lists debts that survive discharge.

Understand Discharge and Offences by Bankrupt

Bankruptcy under Part III of the IBC applies to individuals and partnership firms. Once the Debt Recovery Tribunal passes a bankruptcy order, the debtor becomes a bankrupt. The date of that order is the bankruptcy commencement date. From that date the bankrupt lives under restrictions while the bankruptcy trustee administers the estate for creditors.

Discharge is the exit. It ends the bankruptcy and frees the bankrupt from the bankruptcy debt. Until discharge is received, the person is an undischarged bankrupt. That status matters because it blocks the person from applying for a fresh start (section 80(2)(d)) or for an insolvency resolution process (section 94(4)(a)).

The trustee, not the bankrupt, applies for discharge. Section 138 gives two timing routes. The first is on expiry of one year from the bankruptcy commencement date. The second is within seven days of the committee of creditors approving completion of administration of the estate under section 137, where that approval comes before the one-year mark. The Adjudicating Authority must pass the order on the trustee's application, and a copy goes to the Board (the Insolvency and Bankruptcy Board of India) for entry in its register.

Discharge is not a clean wipe. Section 139 says the order releases the bankrupt from all bankruptcy debt, but it does not affect the trustee's functions, does not affect Chapters IV and V of Part III, does not release debt incurred by fraud or breach of trust to which the bankrupt was a party, and does not discharge any excluded debt. Excluded debts include court fines, damages for negligence, nuisance or breach of obligation, maintenance, and student loans.

While bankrupt, the person faces the restrictions in section 141. These end if the bankruptcy order is modified or recalled under section 142, or on discharge under section 138. The provided text does not cover the offence sections, so for offences and penalties, read the offence provisions in Part III in your ICSI study material.

Key rules to remember

Discharge application timing (section 138(1)): Trustee applies: (a) on expiry of 1 year from bankruptcy commencement date; or (b) within 7 days of committee of creditors' approval of completion of administration under section 137, if approval comes before 1 year; The applicant is the bankruptcy trustee. Do not say the bankrupt applies.
Duty of the Adjudicating Authority (section 138(2)): On the trustee's application, the Adjudicating Authority shall pass a discharge order; The wording is mandatory ('shall').
Copy of order (section 138(3)): Copy of discharge order → the Board → entry in the register under section 196; Same record-keeping step appears in other orders under this Part.
Effect of discharge (section 139): Release from all bankruptcy debt, except: fraud or breach of trust debt; excluded debt; and discharge does not affect trustee's functions or Chapters IV and V; Learn the four carve-outs in the proviso.
Excluded debt (section 79(15)): Court or tribunal fines; damages for negligence, nuisance or breach of legal obligation; maintenance; student loan; any other prescribed debt; These survive discharge.
Restrictions on bankrupt (section 141(1)): No directorship or role in promotion, formation or management of a company; no charge on estate or fresh debt without trustee's sanction; inform business partners; inform parties to prescribed-value transactions; no legal action on bankruptcy debts without Adjudicating Authority's sanction; no overseas travel without its permission; Restrictions cease on recall or modification under section 142, or on discharge.
Bankruptcy debt (section 79(5)): Debt owed on the commencement date + debt arising later but before discharge from pre-commencement transactions + interest forming part of the debt under section 171; This is what discharge releases.

How to solve Discharge and Offences by Bankrupt questions

Use this order for any discharge or bankrupt-restriction question. Write provision first, then facts, then conclusion.

1Identify the stage. Confirm a bankruptcy order under section 126 has been passed and note the bankruptcy commencement date.
2Identify who acts. For discharge, the bankruptcy trustee applies and the Debt Recovery Tribunal passes the order.
3Test the timing under section 138(1): is it one year from commencement, or within seven days of creditor approval under section 137 given earlier?
4Classify each debt in the facts: bankruptcy debt, fraud or breach of trust debt, or excluded debt such as fines, maintenance or a student loan.
5State the effect under section 139: release from bankruptcy debt, then list what survives.
6If the facts show conduct by the bankrupt, check the restrictions in section 141 and say whether they still apply.
7For offences, name the offence provision from your study material and state the penalty only as you know it.
8Conclude in one clear line: whether discharge is available, and which debts remain.

Quickest way: Three-box check for discharge questions

When to use it: Use when time is short and the question asks whether a bankrupt is discharged or which debts survive.

Box 1, Timing: one year from commencement, or seven days after early creditor approval.
Box 2, Debts: released (ordinary bankruptcy debt) versus surviving (fraud, breach of trust, excluded debt).
Box 3, Status: before discharge, section 141 restrictions apply; after discharge or recall, they cease.
Write the section numbers 138, 139 and 141 beside each box to earn marks for the provision.

Common mistakes in Discharge and Offences by Bankrupt

Saying the bankrupt applies for the discharge order.
Students mix this with the fresh start process, where the debtor applies under section 80(2) and the discharge order is passed under section 92.
Fix: Section 138(1) says the bankruptcy trustee applies. Write this in the first line. Remember the split: fresh start discharge is under section 92, bankruptcy discharge is under section 138.
Claiming discharge wipes out every debt.
The words 'release from all the bankruptcy debt' sound absolute.
Fix: Always add the proviso to section 139: fraud or breach of trust debts and excluded debts survive.
Treating the one-year period as the only route.
Students remember the first clause and skip the early route.
Fix: Add clause (b): within seven days of committee of creditors' approval under section 137, if obtained before one year.
Thinking section 141 restrictions continue after discharge.
Students link restrictions to the status of bankrupt for life.
Fix: Section 141(2): they cease on recall or modification under section 142, or on discharge under section 138.
Confusing fresh start with bankruptcy limits and conditions.
Both are in Part III and both can end in a discharge order, but under different sections: section 92 for fresh start and section 138 for bankruptcy.
Fix: Fresh start (section 80) is for small debtors under fixed limits: income up to ₹60,000, assets up to ₹20,000, qualifying debt up to ₹35,000, and no dwelling unit. Bankruptcy has no income, asset or qualifying-debt ceilings like section 80, but Part III applies only where the default is at least ₹1,000 (section 78).
Treating student loans or maintenance dues as released.
Students think these are ordinary loans or liabilities.
Fix: Section 79(15) makes both excluded debts. Excluded debts are not discharged under section 139.

Worked examples

Example 1

A bankruptcy order was passed against Ramesh Iyer on 1 March. The committee of creditors approved completion of administration of his estate on 10 July of the same year. Within what time must the trustee apply for discharge, and does Ramesh owe the court fine imposed on him earlier after discharge?

Show the solution

Provision: section 138(1)(b) allows the trustee to apply within seven days of creditor approval under section 137, where approval comes before one year from commencement.
Facts: approval was on 10 July, which is before one year from 1 March of that year. So clause (b) applies.
Time limit: the trustee must apply within seven days of 10 July, that is, by 17 July.
Fine: a liability to pay a fine imposed by a court or tribunal is an excluded debt under section 79(15)(a).
Section 139 proviso (d): discharge does not discharge the bankrupt from an excluded debt.

Answer: The trustee must apply by 17 July. After discharge, Ramesh remains liable for the court fine because it is an excluded debt.

Example 2

Meera Textiles, a partnership firm, is under bankruptcy. Partner Anil, now an undischarged bankrupt, wants to become a director of a company and to travel abroad for a trade fair. Advise him, and state when his restrictions end.

Show the solution

Provision: section 141(1) restricts a bankrupt from the bankruptcy commencement date.
Directorship: under section 141(1)(a), a bankrupt shall not act as a director of any company or take part in its promotion, formation or management.
Travel: under section 141(1)(f), a bankrupt cannot travel overseas without the permission of the Adjudicating Authority.
Conclusion on travel: Anil must apply to the Debt Recovery Tribunal and obtain permission first.
End of restrictions: under section 141(2), they cease if the bankruptcy order is modified or recalled under section 142, or on discharge under section 138.

Answer: Anil cannot act as a director while bankrupt. He may travel abroad only with the Adjudicating Authority's prior permission. The restrictions end on recall or modification of the order, or on discharge.

Exam tips

Quote the section numbers 138, 139 and 141 in your answer. Case-based answers earn marks for the provision.
Always identify the Adjudicating Authority for individuals and firms as the Debt Recovery Tribunal.
When a question lists debts, sort them one by one into released or surviving. Write a short reason for each.
For comparison questions, use a two-column layout in prose: who applies, eligibility limits, effect and exit. Cover fresh start, insolvency resolution and bankruptcy.
For the offences part, rely on your ICSI material and state only penalties you have verified.

Practice questions from Bankruptcy Order for Individuals and Partnership Firms

Discharge and Offences by Bankrupt: frequently asked questions

Who applies for the discharge order of a bankrupt?

The bankruptcy trustee applies to the Adjudicating Authority under section 138(1). The bankrupt does not apply. The Adjudicating Authority shall then pass the order.

When can discharge be sought under section 138?

Either on expiry of one year from the bankruptcy commencement date, or within seven days of the committee of creditors approving completion of administration under section 137, if that approval comes earlier.

Which debts survive discharge?

Debts incurred by fraud or breach of trust to which the bankrupt was a party, and excluded debts such as court fines, damages for negligence, maintenance and student loans. Discharge also does not affect the trustee's functions.

What is the difference between fresh start and bankruptcy for individuals?

Fresh start under section 80 is for debtors with very low income, assets and qualifying debt, who own no dwelling unit. Bankruptcy follows a bankruptcy order under section 126 and has no income, asset or qualifying-debt ceilings like section 80, though Part III applies only where the default is at least ₹1,000 (section 78). In bankruptcy, a trustee administers the estate and the bankrupt faces section 141 restrictions.