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

Vikram Traders, a proprietary firm, defaulted on a loan of Rs 80,000 to a bank, and the Central Government has not notified any higher minimum default amount. The bank wants to know whether Part III of the Code applies to this default, and which entities fall within the Code's application clauses covering persons other than companies and LLPs. Which statement is correct?

Part III applies because the default of Rs 80,000 is above the Rs 1,000 minimum, and no higher threshold has been notified. Section 2 covers partnership and proprietorship firms, personal guarantors and individuals. The Rs 1 lakh figure is only the maximum the Government may notify.

  1. APart III applies, since the default is not less than Rs 1,000 and proprietorship firms are covered along with partnership firms, personal guarantors and individualsCorrect
  2. BPart III does not apply, as the default must be at least Rs 1 lakh
  3. CPart III applies only to partnership firms and not to proprietorship firms
  4. DPart III applies only if the default exceeds Rs 1 crore

Explanation

Section 78 applies Part III where the default is not less than Rs 1,000, with the Central Government able to notify a higher minimum not exceeding Rs 1 lakh; none has been notified here, so Rs 80,000 qualifies. Section 2 covers personal guarantors, partnership and proprietorship firms and individuals. Option B wrongly treats the Rs 1 lakh ceiling as the floor.

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