Insolvency process for Individuals & Partnership Firms.

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Insolvency law in India has its birthplace in the British law. In India, the requirement for a legitimate structure to manage bankruptcy was first felt in the three Presidency towns of Bombay, Calcutta, and Madras where the British continued extensive trade exchanges. The most punctual insolvency arrangements can be followed back to section 23 and 24 of the Government of India Act, 1800, the Indian Insolvency Act, 1848, and the Presidency-towns Insolvency Act, 1909. The Presidency-towns Insolvency Act, 1909 exists to be in force for Bombay, Calcutta and Madras and covers the insolvency and bankruptcy process of individuals, partnership firms.

The Insolvency and Bankruptcy Code, 2016 (the “IBC”), was brought into effect on May 28, 2016. This article will dwell upon the Insolvency cycle of the Individuals and partnership firms in India under the Code. The legislation has not yet specifically notified the part 3 of the code which deals with the it for the individuals and partnership firms but nevertheless the same has been applicable to the Personal Guarantors of the Corporate Debtors.  

The code tries to unite the laws identifying with insolvency and liquidation for corporates, individuals, partnership firms and other body corporates as might be informed by the Central Government every now and then. In this line, this article will examine the critical arrangements specifically of the Individual and partnership insolvency resolution measures such as repayment place, fresh start process, discharge order, appointment of Resolution professional and report for the resolution professional, the role of Adjudicating authority etc under the Insolvency and Bankruptcy Code, 2016. 


Before the Insolvency & Bankruptcy Code being passed, India lacked in dealing with the aspects of liquidation and financial distress. Moreover, there were different laws, every one of which applied to a different individual or type of creditors. For instance, the Sick Industrial Companies Act, 1985 (“SICA”) managed the restoration of Industrial organizations, while the Companies Act, 1956 gave provisions for liquidation process to the other corporate entities.

The 26th Report of the Law Commission (1964) proposed an upgrade of the individual insolvency laws. Numerous years after the fact, in 2001, the N L Mitra Committee suggested an exhaustive insolvency and bankruptcy code. In this way in 2014, the undertaking before BLRC was “to make a uniform structure that would cover matters of indebtedness and chapter 11 of every single lawful element and people”.

The Bankruptcy Law Reform Committee was a one of the Hallmark in marking the beginning of the new era for Insolvency laws in India. This committee was headed by Mr. T.K Viswanathan. After the report of the Committee, it was against passed on to the Joint Parliamentary Committee. After certain reforms and amendments, the Insolvency and Bankruptcy code was passed which regulates the liquidation process of the corporate entities.

This code is an impression of very fundamental thinking, it empowers lenders to rebuild terrible performing companies by a cycle of Insolvency Resolution Process(IRP) where it incorporates different strides to raise new assets or search for another purchaser to sell the organization that is remembered as resolution plan which whenever acknowledged may resuscitate the organization and whenever dismissed by the Committee of Creditors (COC), the organization will go into liquidation subject to the request for the court. The purpose of the IBC is to resolve the insolvency in a time-bound manner, and therefore, the insolvency framework provided in the Code at various stages entails working in a watertight compartment based on time.

One difficulty in the implementation of the Individual insolvency under the Code is that it’s difficult to estimate how much credit from the banking sector goes to “individuals” rather than limited liability companies. Agricultural loans, including those for “micro and small business” and “family loans,” are most likely issued to individuals. Furthermore, it is possible that some of the loans made for “services,” “trade,” and “NBFCs” would be passed on to them.


The discussion of this article shall mainly focus on the crux of the article that is Insolvency process for individual and partnership firms which involve repayment place, fresh start process, discharge order, appointment of Resolution professional and report for the resolution professional, the role of Adjudicating authority etc under the Insolvency and Bankruptcy Code, 2016. 

The law of insolvency is a lot more seasoned than the company law, and along these lines, clearly, insolvency laws were initially made for individuals. Afterward, corporate law evolved, bankruptcy standards, with specific alterations, were embraced by corporate laws. Before the enactment of the Code, the Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920 was in force for the insolvency of Individuals. The Code of 2016 makes a few enhancements over the current legislations on individual insolvency and has put forth a more considerate methodology for the recovery of debts.

The attention is on restoration of the indebted person who is adjudged as an insolvent. The Code gives a target trigger to inception of initiation of insolvency resolution process as opposed to depending on the commission of an act of insolvency. It likewise commands a Moratorium which gives a breathing space to the indebted person and banks to work out a repayment plan. Further, it empowers a automatic discharge instead of requiring that discharge be granted by the Adjudicating authority on the satisfaction that the insolvent has conducted himself well in the run up to and during insolvency. Part III of the Code makes arrangements for indebtedness goal and liquidation of people and association firms.

For this purpose, Part 3 of the code classifies individuals into three categories, namely,

(i) personal guarantors (PGs) to corporate debtors (CDs),

 (ii) partnership firms and proprietorship firms, and

 (iii) other individuals.

This empowers execution of individual insolvency in a staged way considering about the more extensive effect of these arrangements. As an initial phase in executing Part III of the Code, the Government has notified the provisions related to the indebtedness and insolvency process for Personal Guarantors of Corporate debtors, with impact from first December, 2019. It has advised: (I) the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 (IIRP Rules); and (ii) the Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors) Rules, 2019 (Bankruptcy Rules) relating to the insolvency process of Personal Guarantors of the Corporate Debtors.  Personal Guarantor according to Rule 3 (e) Individual Insolvency Resolution Process Rules “A Personal Guarantor is a debtor who is a Personal guarantor to a Corporate debtor and in respect of whom guarantee has been invoked by the creditor and remains unpaid in full or part.”

Under the Individual insolvency provisions, the Fresh start process is available to the individuals whose annual income is more than 60000 and do not have a dwelling place. These debtors can file an application for the discharge of his debts and fresh start of the life. This process stands as an saviour for the debtors who fall under the given criteria. The process of fresh start takes place in such a way that the Resolution professional examines the application of the debtor and makes a report to the adjudicating authority based on which the application might be accepted or rejected.

New start or fresh start is another and commendable idea in fact, identical to obligation waivers, permitting an individual to give a new beginning to his life. New beginning is an once‐in‐life‐time opportunity conceded to the person, to look for ban, eliminating commitments, and so on with the goal that the individual may begin his life anew. However, the applicability of the option is greatly limited by the very narrow monetary limits This largely covers the bottom‐of‐the‐pyramid individuals who may not have qualified for any borrowing in any case.

Process of Filing for Individual insolvency

An application for insolvency resolution process may be filed before the Adjudicating authority on a default of Rs. 1000. Further, code also allows for the voluntary insolvency process, where a Personal Guarantor may file an application himself or through a Resolution Professional (RP) in the Form A of Individual Insolvency Resolution Process Rules in respect of default of debt. Where a creditor wishes to file an application, it shall issue a notice in Form B of Individual Insolvency Resolution Process Rules calling upon the Personal guarantor of the corporate debtor to make the payment. Only if the Personal guarantor fails to make the payment within 14 days of receipt of such notice, the creditor may initiate insolvency proceeding against him. A creditor may file an application either himself or jointly with other creditors or through a Resolution professional (RP) in Form C Individual Insolvency Resolution Process Rules of the in respective default of debt. These applications shall also come with a requisite fee.

Report for Resolution Professional & Admission of application

Similar to the corporate Insolvency Resolution process, the individual insolvency shall also have the interim moratorium period which will commence from the Individual Insolvency Resolution Process Rules. This shall continue for the period till the application gets admitted. Right after the admission of the application the actual moratorium commence which bars any legal proceedings against the personal guarantor. In fact, this acts as a protective blanket for the Personal guarantor from multiple legal suits being against him. Moratorium extends till the date the Adjudicating authority passes an order approving or rejecting the repayment plan, or after the expire of 180 days.

Post admission of the application the Resolution professional gets appointed. In Report by the Resolution Professional, the resolution professional analyses the application regarding the qualification of the Personal guarantor, all things considered, for inception of insolvency resolution process, qualifying obligation and different necessities as determined in Section 94 & 95 of the Code and presents a report suggesting acknowledgment or dismissal of the application, inside ten days of his appointment. The application before the Adjudicating authority either gets admitted or rejected with the time frame of 14 days from the report of the Resolution professional.

Repayment Plan

The Personal guarantor a Repayment Plan, in meeting with the Resolution professional, containing a proposition to the loan bosses for restructuring of his debts and its execution plan just and the sources of assets. The arrangement may accommodate transfer or sale of all or part of the resources of the Personal guarantor alongside the mode and way of such deal, fulfilment or alteration of any security interest, decrease in sum payable to banks and adjustment with respect to the terms of reimbursement, and so on.

The arrangement accommodates a base financial plan needed for the Personal guarantor to cover his sensible costs and furthermore of his close relatives to the degree they are reliant on him, given that in any event, 10% of the income of the Personal guarantor is utilized for repayment of his debts. The resolution professional presents the repayment plan alongside his report on such arrangement to the Adjudicating authority within 21 days from the last date of submission of claims. The approval of the plan or the rejection lies with the Resolution professional who in fact analyses the assets and creditworthiness of it. The copy of the report is present to the creditors of the Personal guarantor and to the Adjudicating authority.

The repayment plan has the effect of prematurity. That is repayment plan will be considered to have reached a conclusion in the event that it has not been completely carried out in regard of all people limited by it, inside the time frame referenced in it. In such cases, the Resolution professional is needed to present a report expressing the receipts and payments made, purposes behind untimely end and the creditors who are unsatisfied with the plan. In view of such report, the Adjudicating authority will pass a request that the repayment plan has not been totally executed. The debtor or the creditor, whose claims under repayment plan have not been fully satisfied, shall be entitled to apply for a bankruptcy.

Discharge Order

The discharge order is enriched under Section 119 of the Code. The Resolution professional will apply to the Adjudicating authority for a discharge order to the debts referenced in the repayment plan and the Adjudicating authority may pass such release request. The repayment plan may accommodate an early release or release on complete execution of the repayment plan. The discharge order will be sent to the IBBI, to record sections in the register.


Banking Law Reform Committee was of the view that cross-border issues might be taken up in the following phase of thoughts as domestic code in bankruptcy system required the focus. In fact, this was jested as a contemptible effort. The Joint Committee of Parliament was of the view that not consolidating cross board indebtedness arrangements in the Code may prompt a deficient Code. The UNCITRAL Model Law on Cross-Border Insolvency, received in 1997, is intended to help States to outfit their indebtedness laws with a cutting edge, fit and reasonable structure to address occurrences of cross-line bankruptcy more effectively.

IBC and its requirement so far have given a desire to having an instrument in India which persistently screens the exhibition of laws and the establishments and measures the impact of the Insolvency process. Open access information base on all orders/decisions of the NCLT, NCLAT and Supreme Court would encourage promotion of research in the field. Standing Committee on Finance has perceived the requirement for eliminating bottlenecks and smooth out the CIRP further, and henceforth it is a ‘work in progress’. Economies explicit examination has shown that bankruptcy changes that empower obligation rebuilding and rearrangement diminish both failure rates among little and medium-size companies and the liquidation of productive businesses.

Moreover, the development of the laws for individual insolvency, has brought about a standard and clear framework of recovery of the debts for both the creditors and debtors. The changes that have looked to reinforce the creditors, give advantage just to the banks and a subset of FIs. Non-bank loan creditors can just implement obligation recuperation activity utilizing the Civil Courts. Collective action by the creditors must be under the arrangements of SICA, 1985 and the Companies Act, 1956.

The Insolvency and Bankruptcy Code (IBC) 2016 has been in effect for more than three and a half years. However, not all parts of the Code, including the one on the Fresh Start Process (FSP) for individuals, have been applied. Apart from the phased implementation strategy, operationalization issues have hampered IBC’s complete implementation. Even though the results of corporate insolvency resolution have been mixed so far, there are increasing questions about how the sections on individual insolvency will be implemented.

Apart from the fear of clogging the adjudication system with a large number of individual cases, there are questions about the appropriateness of the conditions and procedures proposed for individual insolvency.


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