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

Mehta Traders, a partnership firm in Surat, defaulted on a debt of Rs 40,000 owed to a supplier. The Central Government has not notified any higher minimum default amount. Can Part III of the Code be applied to the firm on the basis of this default?

Yes. Part III applies to partnership firms where the default is at least Rs 1,000, unless the Central Government notifies a higher minimum of up to Rs 1 lakh. No higher amount is notified, so a Rs 40,000 default qualifies.

  1. AYes, because the default is not less than Rs 1,000Correct
  2. BNo, because the minimum default for Part III is Rs 1 lakh
  3. CNo, because Part III applies only to individuals and not to partnership firms
  4. DYes, but only if the default exceeds Rs 50,000

Explanation

Section 78 applies Part III to fresh start, insolvency and bankruptcy of individuals and partnership firms where the default is not less than Rs 1,000. The Central Government may notify a higher minimum, capped at Rs 1 lakh, but none is notified here. Rs 40,000 exceeds Rs 1,000, so Part III applies. The Rs 1 lakh figure is only the ceiling for any notified amount.

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