IBC Section 81: Application for fresh start order

Section 81 of Insolvency and Bankruptcy Code, 2016: Application for fresh start order

Official Bare Act Text

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

(1) When an application is filed under section 80 by a debtor, an interim-moratorium shall commence on the date of filing of said application in relation to all the debts and shall cease to have effect on the date of admission or rejection of such application, as the case may be.

(2) During the interim-moratorium period,-

(i) any legal action or legal proceeding pending in respect of any of his debts shall be deemed to have been stayed; and

(ii) no creditor shall initiate any legal action or proceedings in respect of such debt.

(3) The application under section 80 shall be in such form and manner and accompanied by such fee, as may be prescribed.

(4) The application under sub-section (3) shall contain the following information supported by an affidavit, namely:-

(a) a list of all debts owed by the debtor as on the date of the said application along with details relating to the amount of each debt, interest payable thereon and the names of the creditors to whom each debt is owed;

(b) the interest payable on the debts and the rate thereof stipulated in the contract;

(c) a list of security held in respect of any of the debts;

(d) the financial information of the debtor and his immediate family up to two years prior to the date of the application;

(e) the particulars of the debtor's personal details, as may be prescribed;

(f) the reasons for making the application;

(g) the particulars of any legal proceedings which, to the debtor's knowledge has been commenced against him;

(h) the confirmation that no previous fresh start order under this Chapter has been made in respect of the qualifying debts of the debtor in the preceding twelve months of the date of the application.

Legal Commentary & Landmark Judgments: Section 81

Section 81 prescribes the procedural requirements for an eligible debtor to file an application for a Fresh Start Process before the Adjudicating Authority (DRT).

Application by Debtor: An application for fresh start process shall be submitted by the debtor directly or through a resolution professional.
Mandatory Affidavit of Assets: Must be accompanied by an affidavit verifying the list of qualifying debts, creditors' names, particulars of excluded assets, and financial statements.
Disclosure of Income & Dependants: Must fully disclose all sources of household income, liabilities, and dependants.
Application Fee: Accompanied by such fee as may be prescribed by the Central Government.

Key Landmark Precedents:

Dilip B. Jiwrajka v. Union of India (2024) 5 SCC 436: The Supreme Court held that the filing requirements under Section 81 ensure that the debtor makes a truthful and transparent disclosure of all personal economic affairs under oath.
Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17: Affirmed that procedural rigor under Section 81 prevents affluent individuals from misusing the indigent fresh start window.

Courtroom Practice & Strategic Litigation Guidance:

In a Section 81 application, draft the affidavit with extreme precision. Any concealment of bank accounts, post office savings, or gold jewelry will not only result in rejection of the application under Section 86, but attract penal prosecution under Section 184.