Insolvency and Bankruptcy - Law and Practice · Insolvency Resolution of Individuals and Partnership Firms

Application and Scope of Part III of IBC

Updated 11 October 2026 · Fact-checked

Part III of the IBC deals with insolvency and bankruptcy of individuals and partnership firms. Section 78 names individuals and partnership firms and applies where the default is at least ₹1,000, or a higher notified limit up to ₹1 lakh. Section 2(e), (f) and (g) also list personal guarantors to corporate debtors, partnership and proprietorship firms, and other individuals.

Understand Application and Scope of Part III of IBC

The IBC is not one process for everyone. It is split into parts, and each part covers a different kind of debtor. Part II covers corporate insolvency resolution and liquidation of corporate debtors, and Section 4 sets its minimum default. Part III covers individuals and partnership firms. Your first job in any question is to ask: who is the debtor?

Section 2 is the gateway. It lists the persons to whom the Code applies. Clauses (a) to (d) cover companies, companies under special Acts (except where inconsistent with that Act), LLPs and other bodies the Central Government notifies. Clauses (e), (f) and (g) are the ones that matter for Part III: personal guarantors to corporate debtors, partnership firms and proprietorship firms, and individuals other than those personal guarantors.

Section 78 then sets the scope of Part III. It applies to matters relating to fresh start, insolvency and bankruptcy of individuals and partnership firms. Note that Section 78 itself names individuals and partnership firms. Personal guarantors and proprietorship firms come in through the general applicability clause, Section 2(e) to (g). Section 78 also sets a minimum default: not less than ₹1,000. The Central Government may notify a higher minimum, but that figure cannot be more than ₹1 lakh. Compare this with Section 4 for corporate debtors, where the minimum default is ₹1 crore, with a power to notify a higher value not exceeding ₹1 crore.

Personal guarantors need extra care. They are individuals, and their insolvency is dealt with under the individual-insolvency provisions of Part III. But when they guarantee the debt of a corporate debtor, the forum changes. Under Section 60, the NCLT is the Adjudicating Authority for corporate persons and their personal guarantors. For other individuals and firms, Section 179 makes the Debt Recovery Tribunal the Adjudicating Authority, subject to Section 60. So the application of Part III and the choice of forum go together.

Also remember that Part III has been brought into force in phases, by notification, for different classes of debtors. For a live fact pattern, check that the provisions have been notified for that class of debtor. In an exam answer, state the scope of Part III as the Code gives it and mention the phased notification only if the question raises it.

Think of it as a two-question test. First, is the debtor within Section 2(e), (f) or (g)? Second, is the default at least the Section 78 minimum? If both are yes, Part III applies. Then check the forum.

Key rules to remember

Persons covered under Section 2 for Part III: Section 2(e) personal guarantors to corporate debtors; 2(f) partnership firms and proprietorship firms; 2(g) individuals other than personal guarantors; Clauses (e) to (g) were substituted with effect from 23-11-2017. Clauses (a) to (d) cover companies, LLPs and notified bodies.
Scope of Part III (Section 78): Part III applies to fresh start, insolvency and bankruptcy of individuals and partnership firms where default ≥ ₹1,000; The Central Government may notify a higher minimum, which cannot exceed ₹1 lakh.
Minimum default for corporate debtors (Section 4): Part II applies where minimum default = ₹1 crore; Use it to contrast with Section 78. The Central Government may notify a higher value, not more than ₹1 crore.
Adjudicating Authority for personal guarantors (Section 60): Personal guarantors of corporate debtors → NCLT with territorial jurisdiction over the registered office of the corporate person; If the corporate debtor's process is pending before an NCLT, applications about its personal guarantor are filed before that same NCLT.
Adjudicating Authority for other individuals and firms (Section 179): Individuals and firms → Debt Recovery Tribunal, subject to Section 60; Territorial jurisdiction is where the debtor actually and voluntarily resides, carries on business or personally works for gain.

How to solve Application and Scope of Part III of IBC questions

Use this method for any case-based question on who falls under Part III and whether it applies.

1Identify the debtor: company, LLP, individual, partnership firm, proprietorship firm or personal guarantor.
2Match the debtor to the right clause of Section 2. Clauses (e), (f) and (g) point to Part III.
3If the debtor is a personal guarantor, check whether the principal debtor is a corporate debtor. If yes, note the link to Section 60.
4Apply Section 78: state the scope (fresh start, insolvency, bankruptcy) and test the default against the ₹1,000 minimum, or any higher notified amount up to ₹1 lakh.
5Name the Adjudicating Authority: NCLT under Section 60 for personal guarantors of corporate debtors, DRT under Section 179 for other individuals and firms.
6Conclude clearly: Part III applies or does not apply, and say why.
7Where a corporate debtor's process is pending, add that related applications go to the same NCLT.

Quickest way: Debtor, default, forum

When to use it: Use it for short-answer questions and for the opening paragraph of a long case answer.

Debtor: write which clause of Section 2 covers the person.
Default: write the Section 78 test, at least ₹1,000 or a higher notified amount up to ₹1 lakh.
Forum: write NCLT for personal guarantors of corporate debtors, DRT for other individuals and firms.
Close with one line of conclusion.

Common mistakes in Application and Scope of Part III of IBC

Applying the ₹1 crore corporate threshold to individuals.
Students mix up Section 4 and Section 78.
Fix: Link Part II to Section 4 and Part III to Section 78. Part III starts at ₹1,000 and any higher notified limit cannot exceed ₹1 lakh.
Saying Part III covers only individuals.
The heading sounds personal, so partnership firms get forgotten.
Fix: Section 78 names individuals and partnership firms. Section 2(f) also names proprietorship firms.
Sending a personal guarantor's case to the DRT.
Students see an individual and assume the DRT.
Fix: For personal guarantors to corporate debtors, Section 60 makes the NCLT the Adjudicating Authority. The DRT under Section 179 is subject to Section 60.
Treating the ₹1,000 minimum as fixed forever.
Students memorise the number and skip the proviso.
Fix: Add that the Central Government may notify a higher minimum, capped at ₹1 lakh.
Placing personal guarantors under Section 2(g).
They are individuals, so students use the general clause.
Fix: Clause (g) covers individuals other than those in clause (e). Personal guarantors to corporate debtors are clause (e).

Worked examples

Example 1

Ravi Menon guaranteed a ₹4 crore loan taken by Kaveri Textiles Pvt. Ltd., a company. The company defaults and the bank wants to proceed against Ravi under the IBC. Under which provisions is Ravi covered and which authority will hear the matter?

Show the solution

Debtor: Ravi is an individual who has given a guarantee for a corporate debtor. He is a personal guarantor to a corporate debtor.
Section 2(e) applies the Code to personal guarantors to corporate debtors. So he is within the Code.
His case relates to insolvency and bankruptcy of an individual, which is within Part III under Section 78. The default is far above ₹1,000, so the minimum is met.
Forum: Section 60(1) makes the NCLT with jurisdiction over the registered office of the corporate person the Adjudicating Authority for personal guarantors of corporate debtors.
If Kaveri Textiles' own insolvency process is pending before an NCLT, Section 60(2) requires the application about Ravi to be filed before that NCLT.

Answer: Ravi is covered by Section 2(e). Part III applies under Section 78. The Adjudicating Authority is the NCLT under Section 60, not the DRT.

Example 2

Sunita and Anil run a partnership firm, Sharma & Co. A supplier claims a default of ₹800. Another creditor claims a default of ₹50,000. Assume no higher minimum has been notified. Discuss whether Part III can apply and which authority has jurisdiction.

Show the solution

Debtor: a partnership firm is covered by Section 2(f), so it falls within the Code.
Section 78 applies Part III to partnership firms where the default is not less than ₹1,000.
The supplier's default of ₹800 is below ₹1,000. Part III cannot apply on that default.
The other creditor's default of ₹50,000 is above ₹1,000, so Part III can apply on that default.
Forum: the firm is not a personal guarantor of a corporate debtor on these facts. Section 179(1) makes the DRT the Adjudicating Authority for insolvency matters of individuals and firms, subject to Section 60. The section fixes territorial jurisdiction by the place where the debtor actually and voluntarily resides, carries on business or personally works for gain. The text is worded around the individual debtor, so for a firm the connecting factor is the place where the firm carries on business and where its partners work. Here, that is the DRT whose area covers the firm's place of business.

Answer: Part III does not apply on the ₹800 default. It can apply on the ₹50,000 default. The DRT under Section 179, with territorial jurisdiction over the firm's place of business, is the Adjudicating Authority, subject to Section 60.

Exam tips

Start every case answer by naming the Section 2 clause that covers the debtor. Examiners reward this opening.
Write the structure provision, analysis, conclusion. Quote the ₹1,000 and ₹1 lakh figures exactly.
Keep a contrast line ready: Section 4 for corporate debtors at ₹1 crore, Section 78 for individuals and firms at ₹1,000.
When a personal guarantor appears, always mention Section 60 and the NCLT before discussing the DRT.
Do not spend time on procedural steps of fresh start or bankruptcy here. Those belong to other topics.

Practice questions from Insolvency Resolution of Individuals and Partnership Firms

Application and Scope of Part III of IBC: frequently asked questions

Who is covered under Part III of the IBC?

Section 78 applies Part III to individuals and partnership firms. Section 2(e), (f) and (g) is the general applicability clause. It also lists personal guarantors to corporate debtors, partnership and proprietorship firms, and other individuals.

What is the minimum default for Part III?

Section 78 says the default must be not less than ₹1,000. The Central Government may notify a higher minimum, which cannot be more than ₹1 lakh.

Are personal guarantors under Part III?

Personal guarantors to corporate debtors are named in Section 2(e), and their matters relate to individual insolvency. For them the Adjudicating Authority is the NCLT under Section 60, not the DRT.

Which tribunal hears cases of other individuals and firms?

Under Section 179, the Debt Recovery Tribunal is the Adjudicating Authority, subject to Section 60. Jurisdiction is fixed by where the debtor resides, carries on business or works for gain. For a firm, look to its place of business.