Section 139: Effect of Discharge under the Insolvency and Bankruptcy Code 2016

Section 139 of the Insolvency and Bankruptcy Code, 2016 explains the legal effect of a discharge order passed under Section 138(2). In general, the order releases the bankrupt from bankruptcy debts, subject to specific statutory exceptions.

Text and meaning of Section 139

The discharge order under sub-section (2) of Section 138 releases the bankrupt from all bankruptcy debts.

However, discharge does not:

(a) affect the functions of the bankruptcy trustee;

(b) affect the operation of Chapters IV and V of Part III;

(c) release the bankrupt from a debt incurred by means of fraud or breach of trust to which the bankrupt was a party; or

(d) discharge the bankrupt from any excluded debt.

What is a discharge order?

A discharge order is the order contemplated by Section 138 of the Code. The bankruptcy trustee applies to the Adjudicating Authority for the order in accordance with the time limits specified in that section. Section 139 then determines which bankruptcy liabilities are released and which liabilities continue despite discharge.

Meaning of bankruptcy debt

For Part III of the Code, the expression bankruptcy debt is defined in Section 79. It broadly concerns debts owed by a debtor at the bankruptcy commencement date, together with certain liabilities arising after that date because of obligations incurred before that date, subject to the statutory definition and exclusions.

Excluded debt is not discharged

Section 79 defines excluded debt to include specified liabilities that are not released through the bankruptcy discharge. These include liability to pay a fine imposed by a court or tribunal, liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other legal obligation, liability to pay maintenance under applicable law, liability relating to a student loan, and any other debt that may be prescribed.

Fraud and breach of trust

A discharge does not release a bankrupt from a debt incurred by means of fraud or breach of trust where the bankrupt was a party to that conduct. This statutory exception prevents Section 139 from extinguishing such liabilities merely because a discharge order has been passed.

Bankruptcy trustee continues to function

The discharge of the bankrupt does not terminate or restrict the statutory functions of the bankruptcy trustee. It also does not prevent the continued operation of Chapters IV and V of Part III, which contain provisions concerning the bankruptcy order and administration and distribution of the bankrupt's estate.

Key point: A discharge under Section 139 provides relief from bankruptcy debts, but it is not an unconditional release from every liability. Fraud or breach-of-trust debts and excluded debts remain outside the discharge.

Related provisions

Section 139 should be read with Section 137 - Completion of administration, Section 138 - Discharge order, and Section 140 - Disqualification of bankrupt.