Section 138 of the Insolvency and Bankruptcy Code, 2016: Discharge Order
Section 138 of the Insolvency and Bankruptcy Code, 2016 (IBC) provides the procedure and timing for obtaining a discharge order in a bankruptcy process. The bankruptcy trustee applies to the Adjudicating Authority, which passes the order. Section 139 explains which liabilities are released and which remain unaffected.
Section 138 - Statutory provisions
138. Discharge order.
(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.
Source: Official India Code text of the IBC (PDF). Check the latest consolidated legislation and applicable commencement notifications before relying on a provision in a particular case.
Meaning of a discharge order
A discharge order is an order of the Adjudicating Authority discharging the debtor in accordance with the relevant provisions of the Code. For bankruptcy under Section 138, it is the formal order that activates the legal consequences described in Section 139. It is different from the release of the bankruptcy trustee from office under Section 148.
When must the bankruptcy trustee apply?
| Situation | Requirement under Section 138 |
|---|---|
| Ordinary one-year route | Apply on expiry of one year from the bankruptcy commencement date. |
| Administration completed early | If the committee of creditors approves completion under Section 137 before the one-year point, apply within seven days of that approval. |
| Application received | The Adjudicating Authority passes a discharge order under subsection (2). |
| After the order | A copy is provided to the IBBI for the register referred to in Section 196. |
These are alternative statutory triggers, not a requirement to wait one year after an early approval. The Code does not prescribe in Section 138 a separate number of days within which the Adjudicating Authority must pass the order.
Practical procedure
- Identify the bankruptcy commencement date. The date determines the ordinary one-year trigger.
- Review completion of administration. If the bankruptcy estate has been administered and distributed, Section 137 requires a report and consideration by the committee of creditors.
- Determine the application trigger. The trustee uses the one-year route or the earlier committee-approval route, as applicable.
- File before the competent Adjudicating Authority. Follow applicable procedural rules, forms and directions governing the bankruptcy case.
- Record the discharge. A copy of the resulting order is provided to the Insolvency and Bankruptcy Board of India for the statutory register.
Effect of discharge under Section 139
Section 139 provides that a discharge order under Section 138 releases the bankrupt from bankruptcy debts, subject to express exceptions. In particular, discharge does not:
- affect the functions of the bankruptcy trustee;
- affect the operation of Chapters IV and V of Part III;
- release debts incurred by fraud or breach of trust to which the bankrupt was a party; or
- discharge any excluded debt.
Accordingly, discharge should not be described as a universal waiver of every liability. The meaning of bankruptcy debt and excluded debt must be read with the definitions in Section 79 and the other applicable provisions of Part III.
Related legal provisions
- Section 79: Definitions for insolvency resolution and bankruptcy of individuals and partnership firms, including relevant debt terminology.
- Section 126: Bankruptcy order.
- Section 127: Validity of the bankruptcy order until discharge under Section 138.
- Section 137: Completion of administration, report to the committee of creditors and consideration of the trustee's release.
- Section 139: Effect of discharge and statutory exceptions.
- Sections 140 and 141: Disqualifications and restrictions on a bankrupt, including consequences associated with discharge.
- Section 148: Release of the bankruptcy trustee, which is distinct from discharge of the bankrupt.
- Section 196: Powers and functions of the Insolvency and Bankruptcy Board of India, including maintenance of registers.
Applicability and regulatory framework
Part III of the IBC concerns insolvency and bankruptcy of individuals and partnership firms. Its provisions have been brought into force in stages. In particular, the notified framework for personal guarantors to corporate debtors is governed by the applicable commencement notifications, procedural rules and the IBBI (Bankruptcy Process for Personal Guarantors to Corporate Debtors) Regulations, 2019, as amended. Do not assume that every Part III mechanism is operational for every class of individual merely because it appears in the Code.
For current regulations and amendments, consult the official IBBI legal framework and the India Code portal.
Frequently asked questions
Is discharge automatic after one year?
No. Section 138 requires the bankruptcy trustee to apply to the Adjudicating Authority, which passes the discharge order. The expiry of one year is a trigger for the application, not itself the order.
Can discharge be obtained before one year?
Yes. Where the committee of creditors approves completion of administration under Section 137 before the one-year period ends, the trustee must apply within seven days of that approval.
Does a discharge release fraudulent or excluded debts?
No. Section 139 expressly preserves liabilities for debts incurred by fraud or breach of trust involving the bankrupt, and for excluded debts.
Does discharge end all duties of the bankruptcy trustee?
No. Section 139 preserves the trustee's functions. The trustee's release is addressed separately, including under Section 148.
Official sources and further reading
- The Insolvency and Bankruptcy Code, 2016 - official text (India Code)
- IBBI - regulations, notifications and legal framework
- The Insolvency and Bankruptcy Code, 2016 - Lawdadi guide
This article provides general legal information. Statutory amendments, commencement notifications, judicial decisions and procedural directions may affect an individual case.