IBC Section 126: Bankruptcy order

Section 126 of Insolvency and Bankruptcy Code, 2016: Bankruptcy order

Official Bare Act Text

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

(1) The Adjudicating Authority shall pass a bankruptcy order within fourteen days of receiving the confirmation or nomination of the bankruptcy trustee under section 125.

(2) The Adjudicating Authority shall provide the following documents to bankrupt, creditors and the bankruptcy trustee within seven days of the passing of the bankruptcy order, namely:-

(a) a copy of the application for bankruptcy; and

(b) a copy of the bankruptcy order.

Legal Commentary & Landmark Judgments: Section 126

Section 126 mandates the Adjudicating Authority to pass a formal Bankruptcy Order admitting the application within fourteen days of receiving the confirmation from the Board.

Fourteen-Day Adjudication Window: The Adjudicating Authority is statutorily required to pass the bankruptcy order within 14 days of receiving trustee confirmation from the IBBI.
Grounds for Rejection: The Adjudicating Authority may reject the application if it finds that the debt is not a qualifying debt, that the application was filed mala fide, or that the procedural requirements of Chapter III were bypassed.
Service of Order: A certified copy of the bankruptcy order and the application must be promptly served on the bankrupt, the creditors, and the bankruptcy trustee within seven days.

Key Landmark Precedents:

Dilip B. Jiwrajka v. Union of India (2024) 5 SCC 436: The Supreme Court held that the passing of a bankruptcy order under Section 126 is a judicial function that determines the civil status of the debtor and requires adherence to natural justice principles.
Lalit Kumar Jain v. Union of India (2021) 9 SCC 321: Held that the bankruptcy order against an individual guarantor triggers statutory vesting of their personal estate for equitable distribution to creditors.

Courtroom Practice & Strategic Litigation Guidance:

At the Section 126 hearing stage, the debtor's counsel can raise jurisdictional objections (such as non-exhaustion of Chapter III resolution or full payment of the underlying debt), but cannot re-argue issues already settled during the resolution phase.