Section 141: Restrictions on Bankrupt under the Insolvency and Bankruptcy Code 2016
Section 141 of the Insolvency and Bankruptcy Code, 2016 imposes specific restrictions on a bankrupt from the bankruptcy commencement date. These restrictions concern company management, creation of charges and further debt, disclosure to business partners and transaction parties, legal proceedings relating to bankruptcy debts, and overseas travel.
Section 141 - Restrictions on bankrupt
(1) A bankrupt, from the bankruptcy commencement date, shall:
(a) not act as a director of any company, or directly or indirectly take part in or be concerned in the promotion, formation or management of a company;
(b) without the previous sanction of the bankruptcy trustee, be prohibited from creating any charge on his estate or taking any further debt;
(c) be required to inform his business partners that he is undergoing a bankruptcy process;
(d) before entering into any financial or commercial transaction of such value as may be prescribed, individually or jointly, inform all parties involved that he is undergoing a bankruptcy process;
(e) without the previous sanction of the Adjudicating Authority, be incompetent to maintain any legal action or proceedings in relation to the bankruptcy debts; and
(f) not be permitted to travel overseas without the permission of the Adjudicating Authority.
(2) A restriction under this section ceases if the bankruptcy order is modified or recalled under Section 142, or the bankrupt is discharged under Section 138.
When do the restrictions begin?
The restrictions apply from the bankruptcy commencement date. Section 79 of Part III defines this as the date on which a bankruptcy order is passed by the Adjudicating Authority under Section 126.
Restriction on acting as a company director
A bankrupt cannot act as a director of a company and cannot directly or indirectly participate in, or be concerned with, the promotion, formation or management of a company while Section 141 applies.
Creating a charge or taking further debt
A bankrupt cannot create a charge on the bankrupt's estate or take further debt without the previous sanction of the bankruptcy trustee. This restriction operates from the bankruptcy commencement date until it ceases in accordance with Section 141(2).
Disclosure of bankruptcy process
The bankrupt must inform business partners that a bankruptcy process is underway. Section 141 also requires disclosure to all parties before entering into a financial or commercial transaction of the prescribed value, whether the transaction is entered into individually or jointly.
Legal proceedings relating to bankruptcy debts
Without the previous sanction of the Adjudicating Authority, the bankrupt is incompetent to maintain legal action or proceedings relating to bankruptcy debts. The expression bankruptcy debt is defined in Section 79 for the purposes of Part III of the Code.
Overseas travel
A bankrupt is not permitted to travel overseas without permission of the Adjudicating Authority while the restriction remains operative under Section 141.
When do the restrictions cease?
Under Section 141(2), the restrictions cease if the bankruptcy order is modified or recalled under Section 142 or if the bankrupt is discharged under Section 138.
Related provisions
Section 141 should be read with Section 138 - Discharge order, Section 140 - Disqualification of bankrupt, Section 142 - Modification or recall of bankruptcy order, and the relevant definitions in Section 79.