Bankruptcy Order for I & PFs (Sec. 121-148)

“(1) An application for bankruptcy of a debtor may be made, by a creditor individually or jointly with other creditors or by a debtor, to the Adjudicating Authority in the following circumstances, namely; – (a)where an order has been passed by an Adjudicating Authority under sub-section 4 of section 100; or (b)where an order has been passed by an Adjudicating Authority under sub-section 2 of section 115; or (c)where an order has been passed by an Adjudicating Authority under sub-section 3 of section 118. (2) An application for bankruptcy shall be filed within a period of three months of the date of the order passed by the Adjudicating Authority under the sections referred to in subsection (1). (3) Where the debtor is a firm, the application under sub-section (1) may be filed by any of its partners.”

VL Note : –
“(1) The application for bankruptcy by the debtor shall be accompanied by – (a) the records of insolvency resolution process undertaken under Chapter III of Part III; (b)the statement of affairs of the debtor in such form and manner as may be prescribed, on the date of the application for bankruptcy; and (c) a copy of the order passed by the Adjudicating Authority under Chapter III of Part III permitting the debtor to apply for bankruptcy. (2) The debtor may propose an insolvency professional as the bankruptcy trustee in the application for bankruptcy. (3) The application referred to in sub-section (1) shall be in such form and manner and accompanied by such fee as may be prescribed. (4) An application for bankruptcy by the debtor shall not be withdrawn without the leave of the Adjudicating Authority. ”

VL Note : –
“(1) The application for bankruptcy by the creditor shall be accompanied by- (a) the records of insolvency resolution process undertaken under Chapter III; (b)a copy of the order passed by the Adjudicating Authority under Chapter III permitting the creditor to apply for bankruptcy; (c)details of the debts owed by the debtor to the creditor as on the date of the application for bankruptcy; and (d)such other information as may be prescribed. (2) An application under sub-section (1) made in respect of a debt which is secured, shall be accompanied with – (a)a statement by the creditor having the right to enforce the security that he shall, in the event of a bankruptcy order being made, give up his security for the benefit of all the creditors of the bankrupt; or (b)a statement by the creditor stating– (i) that the application for bankruptcy is only in respect of the unsecured part of the debt; and (ii) an estimated value of the unsecured part of the debt. (3) If a secured creditor makes an application for bankruptcy and submits a statement under clause (b) of sub-section (2), the secured and unsecured parts of the debt shall be treated as separate debts. (4) The creditor may propose an insolvency professional as the bankruptcy trustee in the application for bankruptcy. (5) An application for bankruptcy under sub-section (1), in case of a deceased debtor, may be filed against his legal representatives. (6) The application for bankruptcy shall be in such form and manner and accompanied by such fee as may be prescribed. (7) An application for bankruptcy by the creditor shall not be withdrawn without the permission of the Adjudicating Authority.”

VL Note : –
“(1) When an application is filed under sections 122 or 123 – (a) an interim-moratorium shall commence on the date of the making of the application on all actions against the properties of the debtor in respect of his debts and such moratorium shall cease to have effect on the bankruptcy commencement date; and (b)during the interim-moratorium period – (i) any pending legal action or legal proceeding against any property of the debtor in respect of any of his debts shall be deemed to have been stayed; (ii) the creditors of the debtor shall not be entitled to initiate any legal action or legal proceedings against any property of the debtor in respect of any of his debts. (2) Where the application has been made in relation to a firm, the interimmoratorium under sub-section (1) shall operate against all the partners of the firm as on the date of the making of the application. (3) The provisions of this section shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.”

VL Note : –
“(1) If an insolvency professional is proposed as the bankruptcy trustee in the application for bankruptcy under section 122 or section 123, the Adjudicating Authority shall direct the Board within seven days of receiving the application for bankruptcy to confirm that there are no disciplinary proceedings against such professional. (2) The Board shall within ten days of the receipt of the direction under sub-section (1) in writing either – (a)confirm the appointment of the proposed insolvency professional as the bankruptcy trustee for the bankruptcy process; or (b)reject the appointment of the proposed insolvency professional as the bankruptcy trustee and nominate another bankruptcy trustee for the bankruptcy process. (3) Where a bankruptcy trustee is not proposed by the debtor or creditor under section 122 or 123, the Adjudicating Authority shall direct the Board within seven days of receiving the application to nominate a bankruptcy trustee for the bankruptcy process. (4) The Board shall nominate a bankruptcy trustee within ten days of receiving the direction of the Adjudicating Authority under sub-section (3). (5) The bankruptcy trustee confirmed or nominated under this section shall be appointed as the bankruptcy trustee by the Adjudicating Authority in the bankruptcy order under section 126.”

VL Note : –
“(1) The Adjudicating Authority shall pass a bankruptcy order within fourteen days of receiving the confirmation or nomination of the bankruptcy trustee under section 125. (2) The Adjudicating Authority shall provide the following documents to bankrupt, creditors and the bankruptcy trustee within seven days of the passing of the bankruptcy order, namely: – (a) a copy of the application for bankruptcy; and (b) a copy of the bankruptcy order”

VL Note : –
“The bankruptcy order passed by the Adjudicating Authority under section 126 shall continue to have effect till the debtor is discharged under section 138.”

VL Note : –
“(1) On the passing of the bankruptcy order under section 126, – (a) the estate of the bankrupt shall vest in the bankruptcy trustee as provided in section 154; (b)the estate of the bankrupt shall be divided among his creditors; (c)subject to provisions of sub-section (2), a creditor of the bankrupt indebted in respect of any debt claimed as a bankruptcy debt shall not– (i) initiate any action against the property of the bankrupt in respect of such debt; or (ii) commence any suit or other legal proceedings except with the leave of the Adjudicating Authority and on such terms as the Adjudicating Authority may impose. (2) Subject to the provisions of section 123, the bankruptcy order shall not affect the right of any secured creditor to realize or otherwise deal with his security interest in the same manner as he would have been entitled if the bankruptcy order had not been passed: Provided that no secured creditor shall be entitled to any interest in respect of his debt after the bankruptcy commencement date if he does not take any action to realise his security within thirty days from the said date. (3) Where a bankruptcy order under section 126 has been passed against a firm, the order shall operate as if it were a bankruptcy order made against each of the individuals who, on the date of the order, is a partner in the firm. (4) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.”

VL Note : –
“(1) Where a bankruptcy order is passed on the application for bankruptcy by a creditor under section 123, the bankrupt shall submit his statement of financial position to the bankruptcy trustee within seven days from the bankruptcy commencement date. (2 )The statement of financial position shall be submitted in the such form and manner as may be prescribed. (3) Where the bankrupt is a firm, its partners on the date of the order shall submit a joint statement of financial position of the firm, and each partner of the firm shall submit a statement of his financial position. ( 4 ) The bankruptcy trustee may require the bankrupt or any other person to submit in writing further information explaining or modifying any matter contained in the statement of financial position. ”

VL Note : –
“(1) The Adjudicating Authority shall– (a)send notices within ten days of the bankruptcy commencement date, to the creditors mentioned in – (i) the statement of affairs submitted by the bankrupt under section 129; or (ii) the application for bankruptcy submitted by the bankrupt under section 122. (b)issue a public notice inviting claims from creditors. ( 2 ) The public notice under clause (b) of sub-section (1) shall include the last date up to which the claims shall be submitted and such others matters and details as may be prescribed and shall be – (a)published in leading newspapers, one in English and another in vernacular having sufficient circulation where the bankrupt resides; (b)affixed on the premises of the Adjudicating Authority; and (c)placed on the website of the Adjudicating Authority. (3) The notice to the creditors referred to under clause (a) of sub-section (1) shall include such matters and details as may be prescribed”

VL Note : –
“(1) The creditors shall register claims with the bankruptcy trustee within seven days of the publication of the public notice, by sending details of the claims to the bankruptcy trustee in such manner as may be prescribed. (2) The creditor, in addition to the details of his claims, shall provide such other information and in such manner as may be prescribed”

VL Note : –
“The bankruptcy trustee shall, within fourteen days from the bankruptcy commencement date, prepare a list of creditors of the bankrupt on the basis of – (a) the information disclosed by the bankrupt in the application for bankruptcy filed by the bankrupt under section 118 and the statement of affairs filed under section 125; and (b) claims received by the bankruptcy trustee under sub-section (2) of section 130”

VL Note : –
“(1) The bankruptcy trustee shall, within twenty-one days from the bankruptcy commencement date, issue a notice for calling a meeting of the creditors, to every creditor of the bankrupt as mentioned in the list prepared under section 132. (2) The notices issued under sub-section (1) shall – (a)state the date of the meeting of the creditors, which shall not be later than twenty-one days from the bankruptcy commencement date; (b)be accompanied with forms of proxy voting; (c)specify the form and manner in which the proxy voting may take place. (3) The proxy voting, including electronic proxy voting shall take place in such manner and form as may be specified. ”

VL Note : –
“(1) The bankruptcy trustee shall be the convener of the meeting of the creditors summoned under section 133. (2) The bankruptcy trustee shall decide the quorum for the meeting of the creditors, and conduct the meeting only if the quorum is present. (3 )The following business shall be conducted in the meeting of the creditors in which regard a resolution may be passed, namely: – (a) the establishment of a committee of creditors; (b) any other business that the bankruptcy trustee thinks fit to be transacted. (4) The bankruptcy trustee shall cause the minutes of the meeting of the creditors to be recorded, signed and retained as a part of the records of the bankruptcy process. (5) The bankruptcy trustee shall not adjourn the meeting of the creditors for any purpose for more than seven days at a time.”

VL Note : –
“(1) Every creditor mentioned in the list under section 132 or his proxy shall be entitled to vote in respect of the resolutions in the meeting of the creditors in accordance with the voting share assigned to him (2) The resolution professional shall determine the voting share to be assigned to each creditor in the manner specified by the Board. (3) A creditor shall not be entitled to vote in respect of a debt for an unliquidated amount. (4) The following creditors shall not be entitled to vote under this section, namely: – (a) creditors who are not mentioned in the list of creditors under section 132 and those who have not been given a notice by the bankruptcy trustee; (b) creditors who are associates of the bankrupt. ”

VL Note : –
“The bankruptcy trustee shall conduct the administration and distribution of the estate of the bankrupt in accordance with the provisions of Chapter V.”

VL Note : –
“(1) The bankruptcy trustee shall convene a meeting of the committee of creditors on completion of the administration and distribution of the estate of the bankrupt in accordance with the provisions of Chapter V. (2) The bankruptcy trustee shall provide the committee of creditors with a report of the administration of the estate of the bankrupt in the meeting of the said committee. (3) The committee of creditors shall approve the report submitted by the bankruptcy trustee under sub-section (2) within seven days of the receipt of the report and determine whether the bankruptcy trustee should be released under section 148. (4) The bankruptcy trustee shall retain sufficient sums from the estate of the bankrupt to meet the expenses of convening and conducting the meeting required under this section during the administration of the estate.”

VL Note : –
“(1) The bankruptcy trustee shall apply to the Adjudicating Authority for a discharge order – (a) on the expiry of one year from the bankruptcy commencement date; or (b) within seven days of the approval of the committee of creditors of the completion of administration of the estates of the bankrupt under section 137, where such approval is obtained prior to the period mentioned in clause (a). (2) The Adjudicating Authority shall pass a discharge order on an application by the bankruptcy trustee under sub-section (1). (3) A copy of the discharge order shall be provided to the Board, for the purpose of recording an entry in the register referred to in section 196. ”

VL Note : –
“The discharge order under sub-section (2) of section 138 shall release the bankrupt from all the bankruptcy debts: Provided that a discharge shall not – (a) affect the functions of the bankruptcy trustee; or (b) affect the operation of the provisions of Chapter IV and V of Part III: (c) release the bankrupt from any debt incurred by means of fraud or breach of trust to which he was a party; or (d ) discharge the bankrupt from any excluded debt”

VL Note : –
“(1) The bankrupt shall, from the bankruptcy commencement date, be subject to the disqualifications mentioned in this section. (2) In addition to any disqualification under any other law for the time being in force, a bankrupt shall be disqualified from– (a) being appointed or acting as a trustee or representative in respect of any trust, estate or settlement; (b) being appointed or acting as a public servant; (c) being elected to any public office where the appointment to such office is by election; and (d) being elected or sitting or voting as a member of any local authority. (3) Any disqualification to which a bankrupt may be subject under this section shall cease to have effect, if – (a) the bankruptcy order against him is modified or recalled under section 142;or (b) he is discharged under section 138. Explanation. – For the purposes of this section, the term “public servant” shall have the same meaning as assigned to it in section 21 of the Indian Penal Code, 1860 (45 of 1860).”

VL Note : –
“(1) A bankrupt, from the bankruptcy commencement date, shall, – (a) not act as a director of any company, or directly or indirectly take part in or be concerned in the promotion, formation or management of a company; (b) without the previous sanction of the bankruptcy trustee, be prohibited from creating any charge on his estate or taking any further debt; (c) be required to inform his business partners that he is undergoing a bankruptcy process; (d) prior to entering into any financial or commercial transaction of such value as may be prescribed, either individually or jointly, inform all the parties involved in such transaction that he is undergoing a bankruptcy process; (e) without the previous sanction of the Adjudicating Authority, be incompetent to maintain any legal action or proceedings in relation to the bankruptcy debts; and (f) not be permitted to travel overseas without the permission of the Adjudicating Authority. (2) Any restriction to which a bankrupt may be subject under this section shall cease to have effect, if – (a) the bankruptcy order against him is modified or recalled under section 142; or (b) he is discharged under section 138. ”

VL Note : –
“(1) The Adjudicating Authority may, on an application or suo motu, modify or recall a bankruptcy order, whether or not the bankrupt is discharged, if it appears to the Adjudicating Authority that — (a) there exists an error apparent on the face of such order; or (b) both the bankruptcy debts and the expenses of the bankruptcy have, after the making of the bankruptcy order, either been paid for or secured to the satisfaction of the Adjudicating Authority. (2) Where the Adjudicating Authority modifies or recalls the bankruptcy order under this section, any sale or other disposition of property, payment made or other things duly done by the bankruptcy trustee shall be valid except that the property of the bankrupt shall vest in such person as the Adjudicating Authority may appoint or, in default of any such appointment, revert to the bankrupt on such terms as the Adjudicating Authority may direct. (3) A copy of the order passed by the Adjudicating Authority under sub-section (1) shall be provided to the Board, for the purpose of recording an entry in the register referred to in section 191. (4) The modification or recall of the order by the Adjudicating Authority under subsection (1) shall be binding on all creditors so far as it relates to any debts due to them which form a part of the bankruptcy”

VL Note : –
“The bankruptcy trustee shall perform his functions and duties in compliance with the code of conduct provided under section 208. ”

VL Note : –
“(1) A bankruptcy trustee appointed for conducting the bankruptcy process shall charge such fees as may be specified in proportion to the value of the estate of the bankrupt. (2) The fees for the conduct of the bankruptcy process shall be paid to the bankruptcy trustee from the distribution of the estate of the bankrupt in the manner provided in section 178.”

VL Note : –
“(1) Where Committee of creditors is of the opinion that at any time during the bankruptcy process, a bankruptcy trustee appointed under section 125 is required to be replaced, it may replace him with another bankruptcy trustee in the manner provided under this section. (2) The Committee of creditors may, at a meeting, by a vote of seventy-five per cent. of voting share, propose to replace the bankruptcy trustee appointed under section 125 with another bankruptcy trustee. (3)The Committee of creditors may apply to the Adjudicating Authority for the replacement of bankruptcy trustee. (4) The Adjudicating Authority shall within seven days of the receipt of the application under sub-section (3) direct the Board to recommend for replacement of bankruptcy trustee. (5) The Board shall, within ten days of the direction of the Adjudicating Authority under sub-section (4), recommend a bankruptcy trustee for replacement against whom no disciplinary proceedings are pending. (6)The Adjudicating Authority shall, by an order, appoint the bankruptcy trustee as recommended by the Board under sub-section (5) within fourteen days of receiving such recommendation. (7) The earlier bankruptcy trustee shall deliver possession of the estate of the bankrupt to the bankruptcy trustee appointed under sub-section (6), on the date of his appointment. (8) The Adjudicating Authority may give directions to the earlier bankruptcy trustee- (a )to share all information with the new bankruptcy trustee in respect of the bankruptcy process; and (b )to co-operate with the new bankruptcy trustee in such matters as may be required. (9) The earlier bankruptcy trustee replaced under this section shall be released in accordance with the provisions of section 148. (10) The bankruptcy trustee appointed under this section shall give a notice of his appointment to the bankrupt within seven days of his appointment”

VL Note : –
“(1) A bankruptcy trustee may resign if – (a) he intends to cease practising as an insolvency professional; or (b) there is conflict of interest or change of personal circumstances which preclude the further discharge of his duties as a bankruptcy trustee. (2)The Adjudicating Authority shall, within seven days of the acceptance of the resignation of the bankruptcy trustee, direct the Board for his replacement. (3) The Board shall, within ten days of the direction of the Adjudicating Authority under sub-section (2) recommend another bankruptcy trustee as a replacement. (4) The Adjudicating Authority shall appoint the bankruptcy trustee recommended by the Board under sub-section (3) within fourteen days of receiving the recommendation. (5) The replaced bankruptcy trustee shall deliver possession of the estate of the bankrupt to the bankruptcy trustee appointed under sub-section (4), on the date of his appointment. (6) The Adjudicating Authority may give directions to the bankruptcy trustee who has resigned – (a) to share all information with the new bankruptcy trustee in respect of the bankruptcy process; and (b) to co-operate with the new bankruptcy trustee in such matters as may be required. ( 7 )The bankruptcy trustee appointed under this section shall give a notice of his appointment to the committee of creditors and the bankrupt within seven days of his appointment. ( 8 )The bankruptcy trustee replaced under this section shall be released in accordance with the provisions of section 148”

VL Note : –
“(1) If a vacancy occurs in the office of the bankruptcy trustee for any reason other than his replacement or resignation, the vacancy shall be filled in accordance with the provisions of this section. (2) In the event of the occurrence of vacancy referred to in sub-section (1), the Adjudicating Authority shall direct the Board for replacement of a bankruptcy trustee. (3) The Board shall, within ten days of the direction of the Adjudicating Authority under sub-section (2), recommend a bankruptcy trustee as a replacement. (4) The Adjudicating Authority shall appoint the bankruptcy trustee recommended by the Board under sub-section (3) within fourteen days of receiving the recommendation. (5) The earlier bankruptcy trustee shall deliver possession of the estate of the bankrupt to the bankruptcy trustee appointed under sub-section (4), on the date of his appointment. (6) The Adjudicating Authority may give directions to the bankruptcy trustee who has vacated the office – (a) to share all information with the new bankruptcy trustee in respect of the bankruptcy; (b)to co-operate with the new bankruptcy trustee in such matters as may be required. (7) The bankruptcy trustee appointed under sub-section (4) shall give a notice of his appointment to the committee of creditors and the bankrupt within seven days of his appointment. (8) The earlier bankruptcy trustee replaced under this section shall be released in accordance with the provisions of section 148: Provided that this section shall not apply if the vacancy has occurred due to temporary illness or temporary leave of the bankruptcy trustee. ”

VL Note : –
“(1) A bankruptcy trustee shall be released from his office with effect from the date on which the Adjudicating Authority passes an order appointing a new bankruptcy trustee in the event of replacement, resignation or occurrence of vacancy under sections 145, 146 or 147, as the case may be. (2) Notwithstanding the release under sub-section (1), the bankruptcy trustee who has been so released, shall share all information with the new bankruptcy trustee in respect of the bankruptcy process and co-operate with the new bankruptcy trustee in such matters as may be required. (3) A bankruptcy trustee who has completed the administration of the bankruptcy process shall be released of his duties with effect from the date on which the committee of creditors approves the report of the bankruptcy trustee under section 137. ”

VL Note : –