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

Meera Iyer, an individual, is declared bankrupt on 1 June. She owes Rs 4 lakh under a contract entered into on 15 May, but a related invoice becomes payable only on 20 July, before her discharge. Under the Code, how is this liability treated?

The liability is a bankruptcy debt. The Code covers debts the bankrupt becomes liable for after the commencement date but before discharge, if they arise from a transaction entered into before commencement. The contract dated 15 May predates the 1 June order, so the later due date does not matter.

  1. AIt is not a bankruptcy debt because it became due after the order
  2. BIt is a bankruptcy debt, as she became liable after the commencement date by reason of a transaction entered into before itCorrect
  3. CIt is an excluded debt and survives bankruptcy
  4. DIt is a bankruptcy debt only if the trustee consents

Explanation

Bankruptcy debt includes any debt for which the bankrupt may become liable after the commencement date but before discharge by reason of a transaction entered into before that date. The contract of 15 May predates 1 June, so the liability qualifies. Option A wrongly looks only at the due date.

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