Section 142: Modification or Recall of Bankruptcy Order
Section 142 sets out when the Adjudicating Authority may modify or recall a bankruptcy order and explains what happens to earlier trustee actions, the bankrupt's property, official records and creditors' claims.
Meaning of Section 142(1): Grounds for modification or recall
The Adjudicating Authority may act on an application or suo motu (on its own initiative), regardless of whether the bankrupt has already been discharged. It may modify or recall the bankruptcy order if either of these statutory grounds exists:
- Section 142(1)(a) - Error apparent on the face of the order: An evident error in the bankruptcy order may justify correction or recall. The existence of the statutory ground must be determined by the Adjudicating Authority.
- Section 142(1)(b) - Debts and expenses paid or secured: After the bankruptcy order was made, both the bankruptcy debts and the expenses of bankruptcy must have been paid or secured to the satisfaction of the Adjudicating Authority.
The two grounds are alternatives. Paying only some debts, without addressing the bankruptcy expenses, does not by itself satisfy clause (b).
Section 142(2): Effect on trustee actions and property
A modification or recall does not automatically invalidate sales, other property dispositions, payments or other acts duly carried out by the bankruptcy trustee. Those completed acts remain valid under subsection (2).
The bankrupt's remaining property vests in a person appointed by the Adjudicating Authority. If no person is appointed, it reverts to the bankrupt, subject to any terms directed by that Authority. Thus, the treatment of property depends on the order and cannot be assumed to be an unconditional reversal of every bankruptcy transaction.
Section 142(3): Notice to the Insolvency and Bankruptcy Board
A copy of the modification or recall order must be provided to the Insolvency and Bankruptcy Board of India (IBBI), so an entry can be recorded in the register referred to in Section 191 of the Code.
Section 142(4): Binding effect on creditors
The modification or recall binds all creditors in relation to debts owed to them that form part of the bankruptcy. This statutory effect concerns bankruptcy debts and should not be confused with an unrestricted ruling on unrelated liabilities.
Related legal provisions
- Section 138 - Discharge order: Governs discharge of the bankrupt, a concept distinct from modification or recall under Section 142.
- Section 140 - Disqualifications of bankrupt: Provides for specified disqualifications and their cessation when the order is modified or recalled or the bankrupt is discharged.
- Section 141 - Restrictions on bankrupt: Imposes specified restrictions during bankruptcy; subsection (2) addresses their cessation following modification or recall or discharge.
- Section 191 - Register: Concerns the register maintained by the Board, including the recording referred to in Section 142(3).
Practical implications
An applicant relying on Section 142 should identify the precise statutory ground and provide relevant material, such as the order containing the apparent error or evidence that bankruptcy debts and expenses have been paid or adequately secured. The Adjudicating Authority decides whether the statutory requirements are met and what property-related directions are appropriate.
A recall is not equivalent to treating all acts of the bankruptcy trustee as void. Nor does a discharge automatically mean that a bankruptcy order has been recalled.
Official legislation and further reading
For the statutory text and applicable notifications, consult the IBC text published by IBBI, the India Code official legislation portal and the Insolvency and Bankruptcy Board of India. Also see The Insolvency and Bankruptcy Code, 2016 - overview and Section 141 - Restrictions on bankrupt.
Legal information only. Commencement, amendments, rules and judicial interpretations should be checked for the relevant proceedings and date.