Insolvency and Bankruptcy Code, 2016 | Part III

Section 127: Validity of Bankruptcy Order under the IBC, 2016

Section 127 explains the duration of a bankruptcy order made under Section 126. The order remains in effect until the debtor is discharged under Section 138, subject to the applicable statutory framework.

Key rule: A bankruptcy order does not automatically expire after a fixed number of days or months. Section 127 links its continuing validity to discharge under Section 138.

Text of Section 127 - Validity of bankruptcy order

127. The bankruptcy order passed by the Adjudicating Authority under section 126 shall continue to have effect till the debtor is discharged under section 138.

This is a single-provision section. It establishes the period for which a bankruptcy order continues to operate; it does not itself prescribe the procedure for obtaining a discharge.

Meaning and legal effect of Section 127

1. A valid bankruptcy order must be passed under Section 126

The relevant order is one made by the Adjudicating Authority in accordance with Section 126. That section deals with the making of a bankruptcy order after confirmation or nomination of a bankruptcy trustee under Section 125.

2. The order continues during the bankruptcy process

Once made, the order remains operative throughout the period specified by the Code. Its continuing effect must be read with the provisions governing the bankruptcy estate, the bankruptcy trustee, creditors and the bankrupt's obligations.

3. Discharge under Section 138 is the statutory endpoint

Section 127 expressly refers to discharge under Section 138. A discharge is the legal event addressed by that provision, and its consequences must be assessed together with the Code's provisions on debts and liabilities that are not released by discharge.

Section 121 - Application for bankruptcy: identifies the circumstances in which a debtor or creditor may apply for bankruptcy.
Section 122 - Application by debtor: specifies documents and other requirements when the debtor applies.
Section 123 - Application by creditor: addresses creditor applications, including special requirements for secured creditors.
Section 125 - Appointment of bankruptcy trustee: provides for confirmation or nomination of the insolvency professional who will act as trustee.
Section 126 - Bankruptcy order: governs the making of the bankruptcy order and circulation of specified documents.
Section 128 - Effect of bankruptcy order: addresses the consequences flowing from the order, distinct from its duration under Section 127.
Section 138 - Discharge order: governs the discharge referred to in Section 127.

Practical illustration

Suppose the Adjudicating Authority makes a bankruptcy order under Section 126. The fact that several months pass after that order does not, by itself, terminate the order under Section 127. Its statutory validity continues until discharge under Section 138. Any question about a particular debt, asset, transaction or proceeding requires consideration of the other applicable provisions and orders.

Applicability and jurisdiction

Part III of the IBC deals with insolvency and bankruptcy of individuals and partnership firms, but its provisions have not been brought into force uniformly for every category of individual debtor. The notified framework concerning personal guarantors to corporate debtors must be distinguished from provisions not generally commenced for other individuals and firms. The applicable notification, jurisdiction and procedural rules should be checked before relying on Section 127 in a specific matter.

For personal guarantors to corporate debtors, the adjudicatory framework is also informed by Section 60 of the IBC, where applicable. The existence of a statutory provision in the Code should not be taken to mean that it applies to every individual bankruptcy case.

Frequently asked questions

How long is a bankruptcy order valid under Section 127?

It continues to have effect until the debtor is discharged under Section 138, as stated in Section 127.

Does a bankruptcy order expire automatically after one year?

Section 127 does not create a fixed one-year expiry period. The discharge provisions, including Section 138, must be considered.

Is Section 127 the same as Section 128?

No. Section 127 concerns how long the bankruptcy order remains effective. Section 128 addresses the effects of a bankruptcy order.

Does discharge necessarily cancel every debt?

No such general conclusion should be drawn from Section 127 alone. The discharge provisions and statutory exceptions must be examined.

Official legal sources

Legal information only. Check the current statutory text, commencement notifications, applicable rules and judicial decisions before acting on an individual case.