Section 142: Modification or Recall of Bankruptcy Order under the Insolvency and Bankruptcy Code 2016
Section 142 of the Insolvency and Bankruptcy Code, 2016 empowers the Adjudicating Authority to modify or recall a bankruptcy order in specified circumstances and explains the legal consequences of such modification or recall.
Section 142 - Modification or recall of bankruptcy order
(1) The Adjudicating Authority may, on an application or suo motu, modify or recall a bankruptcy order, whether or not the bankrupt is discharged, if it appears to the Adjudicating Authority that:
(a) there exists an error apparent on the face of such order; or
(b) both the bankruptcy debts and the expenses of the bankruptcy have, after the making of the bankruptcy order, either been paid for or secured to the satisfaction of the Adjudicating Authority.
(2) Where the Adjudicating Authority modifies or recalls the bankruptcy order, any sale or other disposition of property, payment made or other things duly done by the bankruptcy trustee shall remain valid. The property of the bankrupt shall vest in a person appointed by the Adjudicating Authority or, in default of such appointment, revert to the bankrupt on such terms as the Adjudicating Authority may direct.
(3) A copy of the order passed under sub-section (1) shall be provided to the Board for recording an entry in the register referred to in Section 191.
(4) Modification or recall of the bankruptcy order under sub-section (1) is binding on all creditors so far as it relates to debts due to them that form part of the bankruptcy.
Power of the Adjudicating Authority
Section 142 permits the Adjudicating Authority to act either on an application or suo motu, meaning on its own motion. The power may be exercised whether or not the bankrupt has already been discharged.
Grounds for modification or recall
Error apparent on the face of the order
The first statutory ground is the existence of an error apparent on the face of the bankruptcy order. The provision therefore permits correction through modification or recall where the qualifying error is apparent from the order.
Bankruptcy debts and expenses paid or secured
The second ground applies where, after the bankruptcy order was made, both the bankruptcy debts and the expenses of the bankruptcy have either been paid or secured to the satisfaction of the Adjudicating Authority.
Effect on acts already done by the bankruptcy trustee
Modification or recall does not invalidate a sale or other disposition of property, payment, or other thing duly done by the bankruptcy trustee. Section 142(2) preserves those completed acts while separately regulating where the bankrupt's property will vest after modification or recall.
What happens to the bankrupt's property?
The property vests in the person appointed by the Adjudicating Authority. If no person is appointed, the property reverts to the bankrupt on the terms directed by the Adjudicating Authority.
Entry in the statutory register
Under Section 142(3), a copy of the modification or recall order must be provided to the Insolvency and Bankruptcy Board of India for recording an entry in the register referred to in Section 191 of the Code.
Effect on creditors
Section 142(4) makes the modification or recall binding on all creditors to the extent that it relates to debts due to them forming part of the bankruptcy.
Related provisions
Section 142 should be read with Section 138 - Discharge order, Section 140 - Disqualification of bankrupt, Section 141 - Restrictions on bankrupt, and Section 191 concerning the statutory register.