The 2016 Insolvency and Bankruptcy Code (IBC) is a landmark law that streamlined and unified insolvency and bankruptcy proceedings in India. The IBC is mostly talked about in terms of corporate insolvency, but Part III of the Code talks about how to handle insolvency for individuals and partnership firms. Section 95 of IBC, which lets a creditor start insolvency proceedings against a person or partnership firm, is one of the most important parts of this law. When debts are not paid, this section is vital to making sure that creditors have legal options.
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Breakdown and Explanation of Section 95 IBC
In this section, Section 95 is broken down into its individual clauses to help readers fully grasp the steps, rights and duties involved in starting any insolvency proceedings.
Sub-section (1): Right to Apply
"A creditor may apply either by himself, or jointly with other creditors, or through a resolution professional to the Adjudicating Authority for initiating an insolvency resolution process under this section by submitting an application."
Who can apply?
A single creditor
A group of creditors jointly
A creditor through a resolution professional (RP)
This ensures flexibility in the mode of filing the application.
Sub-section (2): Applicability on Partnerships
"A creditor may apply under sub-section (1) in relation to any partnership debt owed to him for initiating an insolvency resolution process against—
(a) any one or more partners of the firm; or
(b) the firm."
Scope: The creditor can target:
Individual partners, or
The entire partnership firm
This provision helps in tackling joint and several liability, a common feature in partnership debts.
Sub-section (3): Consolidation of Applications
"Where an application has been made against one partner in a firm, any other application against another partner in the same firm shall be presented in or transferred to the same Adjudicating Authority..."
Ensures procedural efficiency and avoids conflicting decisions.
The Adjudicating Authority (usually the Debt Recovery Tribunal (DRT)) can consolidate proceedings to deliver a comprehensive decision.
Sub-section (4): Mandatory Documentation
"An application under sub-section (1) shall be accompanied with details and documents relating to—
(a) debts owed as on the application date;
(b) failure to repay within 14 days of notice;
(c) evidence of such default."
This section ensures that only genuine defaults are brought to the authority.
It demands:
Clear debt figures
Proof of notice and default
Supporting evidence (such as contracts, invoices, bounced cheques, or emails)
Sub-section (5): Debtor's Right to Know
"The creditor shall also provide a copy of the application made under sub-section (1) to the debtor."
This guarantees transparency and gives the debtor an opportunity to respond.
Promotes natural justice and prevents ex-parte decisions.
Sub-section (6): Format and Fee
"The application...shall be in such form and manner and accompanied by such fee as may be prescribed."
The application process is standardized.
Format and fees are defined under the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Individuals and Firms) Rules, 2019.
Sub-section (7): Specification of Documents
"The details and documents...shall be such as may be specified."
The IBBI (Insolvency and Bankruptcy Board of India) may specify further documentation requirements.
This sub-section gives flexibility to include changing financial practices and document types over time.
Key Objectives of Section 95
The main reasons for introducing Section 95 are outlined in this section, along with how it helps creditors and makes individual and partnership insolvency proceedings more efficient.
To provide a clear, legal pathway for creditors to recover dues from non-corporate debtors.
To ensure fair treatment of both debtors and creditors through due process.
To promote early identification of default and initiate a time-bound resolution.
Importance of Section 95 in the Broader Framework
This part talks about how Section 95 fits into the bigger picture of insolvency, making it easier to get back debts and making sure that everyone, not just businesses, follows good money habits.
Fills the gap in debt recovery mechanisms for individuals and firms not covered under corporate insolvency.
Acts as a deterrent for willful default.
Supports financial discipline in informal business sectors like small partnerships.
Enables orderly resolution over litigation-based recovery, which is often delayed.
Real-Life Applicability Example
Suppose a bank lent ₹25 lakhs to a partnership firm. After repeated follow-ups, the firm defaults. The bank serves a 14-day demand notice, which goes unanswered. The bank can now invoke Section 95, submit documentation proving the debt and default, and initiate an insolvency process either against the firm or specific partners.
Summary
Section 95 is a very important law that helps creditors get justice against people or partnership firms that don't pay their debts. It provides a transparent and standardised method of resolving non-payment disputes with its thorough framework on who can apply, how the process should be followed, and what documents should be submitted. Provisions like Section 95 play a crucial role in expanding the reach of IBC beyond corporations and bringing financial discipline to all levels of the economy as India's insolvency ecosystem matures.
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Section 95 IBC: FAQs
Q1. What if applications are filed against multiple partners?
They are transferred to the same Adjudicating Authority for consolidation.
Q2. Which authority handles Section 95 applications?
Debt Recovery Tribunal (DRT) is the Adjudicating Authority for individuals and firms.
Q3. Can action be taken against one partner only?
Yes, creditors can target one or more partners or the firm as a whole.
Q4. What documents are needed to apply?
Debt details, proof of 14-day demand notice, and evidence of default.
Q5. Is a notice to the debtor mandatory?
Yes, the debtor must be served a copy of the application.
