Section 118: Repayment Plan Coming to an End Prematurely
Section 118 of the Insolvency and Bankruptcy Code, 2016 (IBC) explains when a repayment plan is treated as prematurely ended, the resolution professional's reporting obligations, the order of the Adjudicating Authority, and the resulting rights of the debtor and unpaid creditors.
Meaning of premature end of a repayment plan
A repayment plan under section 105 provides for the restructuring or repayment of debts in the insolvency resolution process for individuals and partnership firms under Part III of the IBC, to the extent the relevant provisions have been brought into force for the class of debtor concerned. Under section 118, the decisive test is whether the plan was fully implemented within its stated period for everyone bound by it.
The resolution professional's role in supervising implementation is addressed by section 116. Successful completion is separately governed by section 117.
Section 118: Explanation of all six sub-sections
118(1) - When a plan ends prematurely
A repayment plan is deemed to end prematurely when it has not been fully implemented for every person bound by it within the period specified in the plan. Partial performance alone does not amount to full implementation.
118(2) - Resolution professional's report
The resolution professional must submit a report to the Adjudicating Authority identifying (a) receipts and payments under the plan, (b) reasons for its premature end, and (c) creditors whose claims remain unsatisfied in full.
118(3) - Order of the Adjudicating Authority
On the basis of that report, the Adjudicating Authority must pass an order recording that the repayment plan has not been completely implemented.
118(4) - Right to seek bankruptcy
The debtor or a creditor whose claim under the repayment plan has not been fully satisfied may apply for a bankruptcy order under Chapter IV of Part III, subject to the applicable requirements, including section 121.
118(5) - Communication to persons bound by the plan
The Adjudicating Authority must forward copies of the resolution professional's report under section 118(2) and its order under section 118(3) to the persons bound by the plan under section 115.
118(6) - Communication to the Board
The provision requires the Adjudicating Authority to forward a copy of the order referred to in section 118(4) to the Insolvency and Bankruptcy Board of India for entries in the register referred to in section 196. Section 118(4) itself concerns entitlement to apply for bankruptcy; the statutory cross-reference should be read as enacted.
What happens after premature termination?
The resolution professional reports the failure, including payments made and outstanding claims. The Adjudicating Authority then makes the order contemplated by section 118(3), and the required documents are circulated to persons bound by the plan.
Under section 121 of the IBC, a bankruptcy application following an order under section 118(3) is subject to a three-month filing period from the date of the relevant order, as well as the applicable statutory and procedural requirements. A premature end does not itself constitute a bankruptcy order.
The rights and obligations following an approved plan should also be read with section 115 and the discharge provisions in section 119. The applicable Adjudicating Authority and procedural rules depend on the debtor category and the provisions in force.