IBC Section 140: Disqualification of bankrupt

Section 140 of Insolvency and Bankruptcy Code, 2016: Disqualification of bankrupt

Official Bare Act Text

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

(1) The bankrupt shall, from the bankruptcy commencement date, be subject to the disqualifications mentioned in this section.

(2) In addition to any disqualification under any other law for the time being in force, a bankrupt shall be disqualified from-

(a) being appointed or acting as a trustee or representative in respect of any trust, estate or settlement;

(b) being appointed or acting as a public servant;

(c) being elected to any public office where the appointment to such office is by election; and

(d) being elected or sitting or voting as a member of any local authority.

(3) Any disqualification to which a bankrupt may be subject under this section shall cease to have effect, if-

(a) the bankruptcy order against him is modified or recalled under section 142; or

(b) he is discharged under section 138.

Explanation.-For the purposes of this section, the term "public servant" shall have the same meaning as assigned to it in section 21 of the Indian Penal Code (45 of 1860).

Legal Commentary & Landmark Judgments: Section 140

Section 140 imposes extensive statutory disqualifications on an undischarged bankrupt, barring him from holding public office, corporate directorships, or acting as a trustee.

Corporate Directorship Bar: An undischarged bankrupt is legally disqualified from being appointed or acting as a director in any company or being involved in its promotion or management.
Public Office Disqualification: Disqualified from being appointed or serving as a public servant, justice of the peace, or member of any local government authority or legislature.
Fiduciary and Professional Restrictions: Barred from acting as a trustee of a trust, executor of an estate, or holding fiduciary professional appointments until discharge is granted.

Key Landmark Precedents:

Arun Kumar Jagatramka v. Jindal Steel and Power Ltd. (2021) 7 SCC 474: The Supreme Court held that statutory disqualifications under the Code are vital to maintain commercial probity and protect corporate governance from insolvent actors.
Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17: Emphasized that individual insolvency restrictions serve the public interest by ensuring that bankrupt individuals do not abuse public trust.

Courtroom Practice & Strategic Litigation Guidance:

Corporate boards and regulatory bodies must mandate annual filings of non-insolvency affidavits; if an active director is adjudicated bankrupt under Section 126, his office falls vacant immediately by operation of law under Section 140 r/w Section 164 of the Companies Act, 2013.