Insolvency and Bankruptcy of Partnership Firms under IBC

Understand Insolvency Resolution and Bankruptcy of Partnership Firms

Key rules to remember

Adjudicating Authority for firms

Individuals and firms → Debt Recovery Tribunal with territorial jurisdiction (s. 179(1))

Not the NCLT. Territorial link is the debtor's residence, business or place of work for gain.

Debtor's application for a firm

Partner may apply for the firm only if all or a majority of partners file jointly (s. 94(2))

One partner alone cannot apply on behalf of the firm.

Bars on debtor's application

Not undischarged bankrupt, fresh start, IRP or bankruptcy process; no admitted application in last 12 months (s. 94(4), (5))

Also only for debts that are not excluded debts (s. 94(3)).

Creditor's options for partnership debt

Apply against one or more partners, or against the firm (s. 95(2))

Creditor may apply alone, jointly, or through a resolution professional (s. 95(1)).

Joint proceedings

First application against a partner → later applications against other partners go to the same DRT, which may consolidate (s. 95(3))

Applies to partners of the same firm.

Creditor's proof of default

Failure to pay within 14 days of service of demand notice, with evidence (s. 95(4))

Copy of application must be given to the debtor (s. 95(5)).

Limitation during moratorium

Moratorium period excluded in computing limitation for debtor's suits or applications (s. 179(3))

Applies despite the Limitation Act, 1963.

How to solve Insolvency Resolution and Bankruptcy of Partnership Firms questions

1. 1Identify who is applying: the debtor (partners) or a creditor. This decides whether section 94 or section 95 applies.
2. 2Name the Adjudicating Authority: the DRT with territorial jurisdiction under section 179, not the NCLT.
3. 3If a debtor applies for the firm, check section 94(2): did all or a majority of partners file jointly?
4. 4Check the debtor's eligibility under section 94(3) to (5): excluded debts, existing processes, undischarged bankruptcy, and any admitted application in the last twelve months.
5. 5If a creditor applies, check section 95: partnership debt, choice of firm or partners, demand notice, fourteen days, documents, evidence and a copy to the debtor.
6. 6If more than one partner is proceeded against, apply section 95(3): same DRT, transfer, and consolidation directions.
7. 7Add the consequences: DRT's wide jurisdiction and exclusion of the moratorium period for limitation under section 179.
8. 8Write a clear conclusion that answers the exact question asked, citing the section.

Quickest way: Who, where, how many: three-question check

Common mistakes in Insolvency Resolution and Bankruptcy of Partnership Firms

• Naming the NCLT as the authority for firms.

  Students carry over the corporate insolvency route.

  Fix: Remember that Part III uses the DRT for individuals and firms (section 179).

• Saying one partner can apply for the firm alone.

  The word 'debtor' suggests a single person.

  Fix: State section 94(2): all or a majority of partners must file jointly.

• Forgetting the twelve-month bar.

  Students list only the existing-process bars.

  Fix: Add section 94(5): no application if one was admitted in the preceding twelve months.

• Omitting the demand notice and fourteen-day period in a creditor application.

  Students copy the corporate default test.

  Fix: Cite section 95(4)(b): failure to pay within fourteen days of service of the notice of demand, with evidence.

• Filing separate cases in different tribunals against partners of one firm.

  Students treat each partner as unrelated.

  Fix: Apply section 95(3): later applications go to the DRT where the first is pending, which may consolidate them.

• Treating the debt as covered even if it is an excluded debt.

  Section 94(3) is easy to skip.

  Fix: Check whether the debt is excluded before concluding that a debtor's application is valid.

Worked examples