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

Mehta Traders, a partnership firm in Surat, is adjudged bankrupt by a bankruptcy order under section 126 of the Code. Rohan and Kavita were its partners on the date of the order. What is the effect of the order on the two partners personally?

A bankruptcy order against a firm operates as if it were made against each individual who is a partner on the date of the order. Rohan and Kavita are therefore treated as bankrupt without any separate application or selection of a signatory partner.

  1. AThe order operates as if it were a bankruptcy order made against each of them, as partners on the date of the orderCorrect
  2. BThe order affects only the firm's assets and leaves each partner's personal status unchanged
  3. CThe order applies only to the partner who signed the loan agreement with the creditor
  4. DThe order applies to the partners only after a separate application is filed against each of them

Explanation

Where a bankruptcy order has been passed against a firm, it operates as if it were a bankruptcy order made against each individual who is a partner on the date of the order. No separate application is needed, and it is not limited to the signatory partner. So the option saying personal status is unaffected is wrong.

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