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CS Professional · Insolvency and Bankruptcy - Law and Practice

Insolvency Resolution of Individuals and Partnership Firms

Part III of the IBC deals with insolvency of individuals and partnership firms. The Debt Recovery Tribunal is the Adjudicating Authority. The Part offers a fresh start for very poor debtors, an insolvency resolution process with a repayment plan, and bankruptcy. To solve questions, identify the debtor, check the section's conditions, then conclude.

What this chapter covers

This chapter covers Part III of the Insolvency and Bankruptcy Code, 2016. It applies to individuals and partnership firms. Part II of the Code deals with corporate persons, and you should keep the two apart in your mind.

You begin with scope. Part III applies where the amount of default is not less than ₹1,000. The Central Government may notify a higher minimum, but not more than ₹1 lakh. Then you study the forum. Under section 179, the Debt Recovery Tribunal (DRT) is the Adjudicating Authority for individuals and firms, subject to section 60. Section 60 sends personal guarantors of corporate debtors to the NCLT. After this, you study three routes: the fresh start process, the insolvency resolution process with a repayment plan, and bankruptcy.

The chapter links to the rest of the paper in a direct way. The corporate chapters teach the same ideas of moratorium, resolution professional and committee of creditors. Here they are applied to people and firms. The insolvency professional's duties in section 208 also run across all of them. Questions in a written paper often ask you to compare routes or to apply a threshold to facts.

This chapter is full of definitions, thresholds and conditions, and these are exactly what a case-based written paper tests. You are given a debtor's income, assets and debts and asked which route is open. If you know the section 80 limits and the section 79 definitions, you can give a clean provision, analysis and conclusion. Many students skip Part III because it is used less in practice than the corporate process, and that leaves easy marks to those who prepare it.

Insolvency Resolution of Individuals and Partnership Firms: topics in the order to study them

  1. 1Application and Scope of Part III of IBCStart here to know who is covered, the minimum default of ₹1,000 and the key definitions in section 79 that every later topic uses.
  2. 2Adjudicating Authority and Debt Recovery TribunalNext, learn which forum hears each matter, the DRT under section 179 and the NCLT link for personal guarantors under section 60.
  3. 3Fresh Start ProcessThis is the simplest route, with fixed numeric conditions in section 80, so it builds your habit of checking eligibility.
  4. 4Insolvency Resolution Process for IndividualsTake this after fresh start, as it brings in the resolution professional, the repayment plan and the creditors' role.
  5. 5Bankruptcy Order and Effects for IndividualsStudy bankruptcy after resolution, since it is the outcome when no plan works, and it brings in the trustee, estate and discharge.
  6. 6Insolvency Resolution and Bankruptcy of Partnership FirmsFinish with firms, because they reuse the individual rules and add the partners' position and partnership debt.

How to prepare Insolvency Resolution of Individuals and Partnership Firms

Treat this chapter as a set of conditions and definitions. Learn them accurately, then practise applying them to facts.

  1. Read the section 78 and 79 text first and list every definition: associate, immediate family, qualifying debt, excluded assets, excluded debt, bankruptcy debt.
  2. Make a one-page table of section 80 conditions: income not above ₹60,000, assets not above ₹20,000, qualifying debts not above ₹35,000, no dwelling unit, no subsisting process, no fresh start order in the preceding twelve months.
  3. Draw a flow of the three routes with the stage, the authority and the outcome. Learn it as a sequence.
  4. Note the DRT and NCLT split. Write one line on section 179 and one on section 60, and practise the personal guarantor example.
  5. Take small fact patterns and answer in three parts: the provision, your analysis of the facts, and the conclusion.
  6. Revise the insolvency professional's code of conduct in section 208 and link it to each process.
  7. Write two or three full answers in 3 hours' exam conditions and check that every number and term is exact.

Common mistakes in Insolvency Resolution of Individuals and Partnership Firms

  • Naming the NCLT as the authority for every insolvency matter.

    Fix: State that the DRT handles individuals and firms, and the NCLT only for corporate persons and personal guarantors of corporate debtors under section 60.

  • Mixing up the fresh start figures.

    Fix: Link each to its item: income ₹60,000, assets ₹20,000, qualifying debts ₹35,000. Write them in a table and recite them.

  • Treating all debts as qualifying debts.

    Fix: Exclude excluded debt, secured debt to the extent it is secured, and debt incurred in the three months before the application.

  • Forgetting the dwelling unit condition for a fresh start.

    Fix: Add a check that the debtor owns no dwelling unit, whether or not it is encumbered.

  • Writing the conclusion without applying the facts.

    Fix: Compare each fact with each condition, in turn, and then conclude whether the route is open.

  • Confusing excluded assets with excluded debts.

    Fix: Excluded assets are items kept by the debtor, such as tools and a single dwelling unit. Excluded debts are liabilities like fines and maintenance.

Last-day revision: Insolvency Resolution of Individuals and Partnership Firms

  • Part III applies to individuals and partnership firms where the default is at least ₹1,000; the Central Government can raise this, up to ₹1 lakh.
  • The DRT is the Adjudicating Authority for individuals and firms under section 179, subject to section 60.
  • Under section 60, the NCLT handles insolvency of corporate persons and personal guarantors of corporate debtors.
  • The DRT has jurisdiction over suits, claims and questions of priority linked to the debtor's insolvency.
  • Moratorium periods are excluded when computing limitation for suits by the debtor under section 179(3).
  • Fresh start limits: income up to ₹60,000, assets up to ₹20,000, qualifying debts up to ₹35,000.
  • A fresh start applicant must not own a dwelling unit, whether encumbered or not.
  • No earlier fresh start order in the preceding twelve months, and no subsisting fresh start, resolution or bankruptcy process.
  • Qualifying debt excludes excluded debt, the secured part of a debt and debt incurred in the three months before the application.
  • Immediate family means spouse, dependent children and dependent parents.
  • Bankruptcy commencement date is the date the bankruptcy order is passed under section 126.
  • Insolvency professionals must act with reasonable care and diligence and let the agency inspect their records (section 208(2)).

Insolvency Resolution of Individuals and Partnership Firms practice questions

Insolvency Resolution of Individuals and Partnership Firms in other exams

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

Insolvency Resolution of Individuals and Partnership Firms: frequently asked questions

Which authority decides insolvency cases of individuals and firms?

The Debt Recovery Tribunal with territorial jurisdiction decides them under section 179. The place is where the individual debtor actually and voluntarily resides, carries on business or personally works for gain. This is subject to section 60, which sends personal guarantors of corporate debtors to the NCLT.

What is the minimum default for Part III to apply?

The amount of default must be not less than ₹1,000. The Central Government can notify a higher minimum amount, but it cannot be more than ₹1 lakh.

Who can apply for a fresh start?

A debtor unable to pay debts who meets all the conditions in section 80 can apply, personally or through a resolution professional. Those include income, asset and qualifying debt limits, no dwelling unit and no earlier fresh start order in the preceding twelve months.

How should I answer a case-based question from this chapter?

Name the provision, apply each condition to the facts given, and then state a clear conclusion. Use the exact terms from the Code, such as qualifying debt and bankruptcy commencement date.