IBC Section 78: Application

Section 78 of Insolvency and Bankruptcy Code, 2016: Application

Official Bare Act Text

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

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.

Legal Commentary & Landmark Judgments: Section 78

Section 78 establishes the statutory application of Part III of the Code, governing the specialized insolvency resolution and bankruptcy proceedings for individuals and partnership firms.

Personal & Partnership Scope: Applies to matters relating to fresh start, insolvency resolution, and bankruptcy of individuals and partnership firms.
Dual Judicial Forums: Operates before the Debt Recovery Tribunal (DRT) for general individuals and non-corporate entities under Section 179, and before the NCLT for personal guarantors to corporate debtors under Section 60(2).
Comprehensive Debt Restructuring Code: Replaces the archaic Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920 with a modern, creditor-negotiated restructuring regime.

Key Landmark Precedents:

Lalit Kumar Jain v. Union of India (2021) 9 SCC 321: The Supreme Court upheld the phased application of Part III to personal guarantors to corporate debtors, affirming that personal guarantor insolvency under Part III operates concurrently with corporate debtor CIRP under Part II.
Dilip B. Jiwrajka v. Union of India (2024) 5 SCC 436: A 3-Judge Bench held that the scheme of Part III balances the rights of individual debtors with those of creditors, providing a fair and constitutionally robust insolvency resolution mechanism.

Courtroom Practice & Strategic Litigation Guidance:

In personal guarantor proceedings, verify the forum under Section 78 r/w Section 60(2). If a CIRP or liquidation proceeding is pending against the corporate debtor, the NCLT exercises exclusive Part III jurisdiction over the personal guarantor.