Section 168: Obligations Under Contracts under the Insolvency and Bankruptcy Code 2016

Section 168 of the Insolvency and Bankruptcy Code, 2016 deals with contractual obligations where the bankrupt entered into a contract before the bankruptcy commencement date. It enables another party to the contract to seek orders concerning discharge of contractual obligations and payment of damages.

Scope of Section 168: The provision applies to a contract entered into by the bankrupt before the bankruptcy commencement date. It also specifies how damages payable by the bankrupt are treated and addresses contracts to which the bankrupt and another person are joint parties.

Text of Section 168 - Obligations Under Contracts

(1) This section shall apply where a contract has been entered into by the bankrupt with a person before the bankruptcy commencement date.

(2) Any party to a contract, other than the bankrupt under sub-section (1), may apply to the Adjudicating Authority for-

(a) an order discharging the obligations of the applicant or the bankrupt under the contract; and

(b) payment of damages by the party or the bankrupt, for non-performance of the contract or otherwise.

(3) Any damages payable by the bankrupt by virtue of an order under clause (b) of sub-section (2) shall be provable as bankruptcy debt.

(4) When a bankrupt is a party to the contract under this section jointly with another person, that person may sue or be sued in respect of the contract without joinder of the bankrupt.

Meaning and Application of Section 168

Section 168 addresses the treatment of contractual obligations arising from a contract made before the bankruptcy commencement date. The provision gives a contractual counterparty, other than the bankrupt, a statutory route to approach the Adjudicating Authority for appropriate orders concerning the continuing obligations under the contract.

Application to the Adjudicating Authority

Under Section 168(2), a party to the relevant contract other than the bankrupt may apply to the Adjudicating Authority. The application may seek an order discharging the obligations of either the applicant or the bankrupt under the contract. The applicant may also seek an order concerning payment of damages for non-performance of the contract or otherwise.

Damages as Bankruptcy Debt

Section 168(3) expressly provides that damages payable by the bankrupt pursuant to an order under Section 168(2)(b) are provable as bankruptcy debt. The provision therefore determines the status of such damages within the bankruptcy process.

Joint Contracts and Joinder of the Bankrupt

Section 168(4) applies where the bankrupt is jointly a party to the contract with another person. In that situation, the other person may sue or be sued in respect of the contract without joining the bankrupt as a party to those proceedings.

Related Provisions

Section 168 follows Section 167 on extortionate credit transactions and precedes Section 169 on continuance of proceedings on the death of a bankrupt. These provisions form part of the statutory framework governing bankruptcy and administration of the bankrupt's estate.

This page provides general legal information. The current Code, applicable rules, regulations, notifications and judicial decisions should be examined for a specific matter.