Insolvency law | Part III | Chapter I

Section 78 of the Insolvency and Bankruptcy Code, 2016: Application to Individuals and Partnership Firms

Section 78 sets out the monetary threshold for matters concerning the fresh start, insolvency and bankruptcy of individuals and partnership firms under Part III of the Insolvency and Bankruptcy Code, 2016 (IBC). Its practical operation must be read with the commencement notifications issued by the Central Government.

Key point: The statutory minimum default under Section 78 is Rs. 1,000. The Central Government may notify a higher threshold, but not above Rs. 1 lakh. The commencement of Part III is not uniform across all categories of individuals and firms.

Text of Section 78: Application

78. Application. This Part shall apply to matters relating to fresh start, insolvency and bankruptcy of individuals and partnership firms where the amount of the default is not less than one thousand rupees:

Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one lakh rupees.

Source: IBBI publication of the Insolvency and Bankruptcy Code, 2016 (PDF).

Meaning and scope of Section 78

Section 78 appears in Chapter I (Preliminary) of Part III, titled Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms. It describes the types of proceedings contemplated by Part III and the minimum monetary default required under the provision.

Individual: A natural person whose insolvency may fall within the applicable provisions of the Code.
Partnership firm: A firm within the meaning of the applicable definitions under the Code; its inclusion in Section 78 does not by itself mean every Part III process has commenced for firms.
Default: Under Section 3(12), non-payment of a debt when the whole or any part or instalment has become due and payable and is not paid by the debtor or corporate debtor, as the case may be.
Fresh start: A statutory process contemplated in Chapter II of Part III for eligible debtors, subject to its own conditions and commencement status.
Minimum amount: The Section 78 text specifies Rs. 1,000, with a power to increase the amount by notification to a maximum of Rs. 1 lakh.

Commencement and applicability to personal guarantors

Under Notification S.O. 4126(E), dated 15 November 2019, the Central Government brought specified provisions of Part III into force from 1 December 2019 only insofar as they relate to personal guarantors to corporate debtors. This included Section 78 except with regard to the fresh start process, Section 79, and Sections 94 to 187, among other provisions.

Accordingly, it is important not to read Section 78 as a declaration that all individual and partnership-firm insolvency procedures under Part III are operational. The notified framework specifically addresses personal guarantors to corporate debtors; the fresh start process was excluded from this commencement notification.

Official source: Ministry of Corporate Affairs notification S.O. 4126(E) (PDF).

Provision	Purpose
Section 1(3)	Permits different commencement dates for provisions of the Code through Central Government notifications.
Section 2(e), (f) and (g)	Identifies personal guarantors to corporate debtors, partnership and proprietorship firms, and other individuals as distinct categories.
Section 3(12)	Defines default for the purposes of the Code.
Section 79	Provides definitions applicable to Part III, subject to the context and other relevant provisions.
Sections 80 to 93	Concern the fresh start process, which was not brought into force for personal guarantors by the 2019 notification.
Sections 94 to 100	Deal with applications for insolvency resolution and the initial procedural steps for the notified personal-guarantor framework.
Section 60	Governs the National Company Law Tribunal's jurisdiction in specified matters involving corporate debtors and their personal guarantors.

Which adjudicating authority applies?

Section 79(1) refers to the Debt Recovery Tribunal as the adjudicating authority for Part III. However, Section 60 contains special jurisdictional provisions concerning personal guarantors to corporate debtors. In the notified personal-guarantor framework, the National Company Law Tribunal is the relevant forum where Section 60 applies. The correct forum therefore depends on the category of debtor and the applicable statutory provisions.

Judicial interpretation

In Lalit Kumar Jain v. Union of India (2021), the Supreme Court upheld the Central Government's 15 November 2019 notification bringing specified insolvency provisions into force for personal guarantors to corporate debtors. The Court also clarified that approval of a corporate debtor's resolution plan does not, by itself, discharge a personal guarantor's liability.

See the Supreme Court judgment hosted by IBBI (PDF).

Frequently asked questions

What is the minimum default amount under Section 78?

The text of Section 78 specifies Rs. 1,000. It authorises the Central Government to prescribe a higher minimum through notification, subject to a ceiling of Rs. 1 lakh.

Does Section 78 apply to every individual and partnership firm immediately?

No. The statutory scope and actual commencement are separate questions. The 2019 notification activated the specified Part III provisions in relation to personal guarantors to corporate debtors, not as a general commencement for every individual or partnership firm.

Does Section 78 itself create a right to a fresh start order?

No. It is an application and threshold provision. Eligibility and procedure for a fresh start process are dealt with elsewhere in Part III, and commencement must be checked separately.

Is the Rs. 1,000 threshold the same as the corporate insolvency threshold?

No. Section 78 concerns Part III, while Section 4 concerns the threshold for corporate insolvency under Part II. They are different statutory provisions.

Official legal sources

Legal information only. Statutory amendments, notifications and court decisions should be checked for the facts and date of a particular matter.