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

Ramesh and Suresh are partners in a firm, Ramesh & Co. A bankruptcy order under section 126 is passed against the firm. What is the effect of the order on the partners?

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, under section 128(3). It is not restricted to firm assets, managing partners or guarantor partners.

  1. AIt binds only the firm's assets and leaves the partners unaffected
  2. BIt operates as if it were a bankruptcy order made against each individual who is a partner on the date of the orderCorrect
  3. CIt operates only against the managing partner
  4. DIt operates against partners only if they gave personal guarantees

Explanation

Section 128(3) says a bankruptcy order against a firm operates as if it were made against each individual who, on the date of the order, is a partner in the firm. It is not limited to the firm's assets, a managing partner, or guarantors.

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