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CS Professional · Insolvency and Bankruptcy - Law and Practice · Bankruptcy for Individuals and Partnership Firms

A bankruptcy order under section 126 is made against the partnership firm Mehta & Sons, which has three partners. Under the Code's definition of 'bankrupt', what is the position of the partners?

Each of the three partners becomes a bankrupt. The Code defines bankrupt to include each of the partners of a firm where a bankruptcy order under section 126 has been made against the firm, so no separate order against each partner is needed.

  1. AOnly the managing partner becomes bankrupt
  2. BEach of the partners of the firm becomes a bankruptCorrect
  3. CNo partner is bankrupt, as only the firm is adjudged
  4. DPartners become bankrupt only if they apply separately for discharge

Explanation

Bankrupt includes each of the partners of a firm where a bankruptcy order under section 126 has been made against the firm. So all three partners are bankrupt without separate orders. Treating only the firm as bankrupt ignores this limb of the definition.

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