IBC Section 118: Repayment plan coming to end prematurely

Section 118 of Insolvency and Bankruptcy Code, 2016: Repayment plan coming to end prematurely

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

(1) A repayment plan shall be deemed to have come to an end prematurely if it has not been fully implemented in respect of all persons bound by it within the period as mentioned in the repayment plan.

(2) Where a repayment plan comes to an end prematurely under this section, the resolution professional shall submit a report to the Adjudicating Authority which shall state-

(a) the receipts and payments made in pursuance of the repayment plan;

(b) the reasons for premature end of the repayment plan; and

(c) the details of the creditors whose claims have not been fully satisfied.

(3) The Adjudicating Authority shall pass an order on the basis of the report submitted under sub-section (2) by the resolution professional that the repayment plan has not been completely implemented.

(4) The debtor or the creditor, whose claims under repayment plan have not been fully satisfied, shall be entitled to apply for a bankruptcy order under Chapter IV.

(5) The Adjudicating Authority shall forward to the persons bound by the repayment plan under section 115, a copy of the-

(a) report submitted by the resolution professional to the Adjudicating Authority under sub-section (2); and

(b) order passed by the Adjudicating Authority under sub-section (3).

(6) The Adjudicating Authority shall forward a copy of the order passed under sub-section (4) to the Board, for the purpose of recording entries in the register referred to in section 196.

Legal Commentary & Landmark Judgments: Section 118

Section 118 provides the statutory mechanism and consequences when a repayment plan fails or comes to an end prematurely due to debtor default or insolvency impracticability.

Grounds for Premature End: A repayment plan comes to a premature end if the debtor defaults in executing scheduled payments, breaches fundamental covenants, or dies prior to full implementation.
Resolution Professional's Duty to Report: The resolution professional must immediately prepare and submit a default report to the Adjudicating Authority and all creditors stating the nature and value of the default.
Adjudicating Authority Declaration: The Adjudicating Authority examines the report and formally orders the premature termination of the plan, opening the gateway for bankruptcy proceedings under Chapter IV.

Key Landmark Precedents:

Dilip B. Jiwrajka v. Union of India (2024) 5 SCC 436: The Supreme Court held that the failure of a consensual repayment plan under Section 118 is a statutory condition precedent that triggers the creditor's right to seek individual bankruptcy.
Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17: Reiterated that the statutory timeline and consequences of default under the Code are sacrosanct to prevent endless recovery stalling by insolvent borrowers.

Courtroom Practice & Strategic Litigation Guidance:

Upon receiving an adverse report under Section 118, creditors should immediately secure certified copies of the Adjudicating Authority's termination order to substantiate their Section 121 bankruptcy petition and preserve their debt priority.