BPSC 69th CCE Prelims General Studies · Question 115 of 144

Correct — C, Only 4. Statements 1, 2 and 3 all run the two words the wrong way round, and statement 4 is the only one the Insolvency and Bankruptcy Code, 2016 supports. Read the Code's own definitions. Section 79(3) says a "bankrupt" is "a debtor who has been adjudged as bankrupt by a bankruptcy order under section 126"; section 79(7) says a "bankruptcy order" is "an order passed by an Adjudicating Authority under section 126"; and section 126 directs that authority to pass the order within fourteen days of confirming a bankruptcy trustee — that is, at the end of a process, not at its beginning. What sets the process going is something else, defined in section 3(12) as "default": "non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid". So the inability to pay as debts fall due is the financial condition — insolvency — while bankruptcy is the legal status a tribunal confers once that condition has been adjudicated. Statement 1 hands the financial-condition definition to bankruptcy, statement 2 hands the legal-process definition to insolvency, and statement 3 states the inversion outright by calling bankruptcy the state and insolvency the conclusion. Each is back to front. Two further pieces of the Code make the sequence unarguable. First, its own architecture: Part III is headed "INSOLVENCY RESOLUTION AND BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS", and its chapters run in this order — Chapter II Fresh Start Process, Chapter III Insolvency Resolution Process, Chapter IV Bankruptcy Order for Individuals and Partnership Firms, Chapter V Administration and Distribution of the Estate of the Bankrupt. Parliament put insolvency resolution in the chapter before bankruptcy, not after it. Second, section 121(1) says an application for bankruptcy may be made only "where an order has been passed by an Adjudicating Authority under sub-section 4 of section 100", or under section 115(2), or under section 118(3) — every one of them an order closing off the insolvency-resolution route — and section 121(2) requires the bankruptcy application to be filed within three months of that order. You cannot even apply for bankruptcy until insolvency resolution has been tried and has failed. Statement 3's inversion collapses on that alone. Statement 2 fails on a second, equally specific provision: section 128(1) says that on the passing of a bankruptcy order "the estate of the bankrupt shall vest in the bankruptcy trustee as provided in section 154" and "shall be divided among his creditors" — which is precisely the liquidation-for-the-benefit-of-creditors that statement 2 attributes to insolvency. The Code attaches it to bankruptcy. Statement 4 is right and is the only survivor. The Code's own long title says it is an Act "to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner … and to establish an Insolvency and Bankruptcy Board of India" — the regulator is written into the purpose of the statute. The IBBI was established on 1 October 2016 under section 188, and section 196 makes it the body that registers and regulates insolvency professionals, insolvency professional agencies and information utilities. The Board describes itself as "a unique regulator: regulates a profession as well as processes", writing and enforcing the rules for corporate insolvency resolution, corporate liquidation, individual insolvency resolution and individual bankruptcy. That is exactly what statement 4 claims.

• (a)1, 2 and 3 — The mirror-image answer, chosen by a candidate who accepts the stem's swapped definitions at face value — the three statements read fluently, which is exactly the trap, because a definition can be perfectly well written and still have its two labels exchanged. It also self-destructs on its own terms: by excluding statement 4 it asserts that the IBBI is not the regulator of insolvency and bankruptcy proceedings, when the Code's long title names the establishment of that very Board as one of the Act's purposes and sections 188 and 196 create it and empower it. An option that has to deny the existence of the regulator named in the statute's own title cannot be the key.
• (b)2, 3 and 4 — Gets statement 4 right, then adds two inverted statements — and is internally incoherent besides. Statement 3 says bankruptcy is a state; statement 1 says bankruptcy is a financial state in which the debtor cannot pay. Those are the same claim, so 1 and 3 must stand or fall together. Admitting 3 while rejecting 1 is not a position anyone can hold, and noticing that alone eliminates this option without knowing a line of the Code. On the substance, statement 2 fails against section 128(1), which vests the estate in the bankruptcy trustee and divides it among creditors on the passing of a bankruptcy order, and statement 3 fails against section 121, which permits a bankruptcy application only after the insolvency-resolution route has been closed by an order under section 100(4), 115(2) or 118(3).
• (d)Only 1 and 2 — Selects precisely the two definition statements that have their labels swapped and discards the one statement that is verifiable. It is also the least defensible of the three wrong options on internal logic: it keeps statement 1, which says bankruptcy is the state of being unable to pay, but drops statement 3, which says the same thing in fewer words. Like option (a), it can only be right if the IBBI is not the regulator of these proceedings — and the Board was created by section 188 of the Code for that purpose, has its head office in the National Capital Region under section 188(3), and began work on 1 October 2016.

Insolvency is a financial condition: the debtor's obligations have fallen due and cannot be met. Bankruptcy is what a court or tribunal declares once that condition has been established and the attempt to resolve it has failed — a legal status with legal consequences, including the vesting of the debtor's estate in a trustee. India's Insolvency and Bankruptcy Code, 2016 consolidated a scattered set of older laws into one time-bound framework and even splits its architecture along that line: Part II covers the insolvency resolution and liquidation of corporate persons, where the Adjudicating Authority is the National Company Law Tribunal under section 5(1), and Part III covers insolvency resolution and bankruptcy for individuals and partnership firms, where the Adjudicating Authority is the Debt Recovery Tribunal under section 79(1). Only Part III uses the word bankruptcy at all, and it uses it for the order that ends the road, not for the trouble that starts it. The Code, No. 31 of 2016, received assent on 28 May 2016, extends to the whole of India, and by section 2 applies to companies, LLPs, personal guarantors to corporate debtors, partnership and proprietorship firms and individuals — "in relation to their insolvency, liquidation, voluntary liquidation or bankruptcy, as the case may be", a single clause in which Parliament lists insolvency and bankruptcy as different things. What the Code replaced makes the same point historically: section 243 repeals the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920, the two colonial-era statutes that had governed individual insolvency in India for a century, with pending proceedings under them saved. Before 2016 corporate winding up, debt recovery, sick industrial companies and personal insolvency each sat in a different law and a different forum; the IBC's achievement was to put them under one time-bound roof, and its vocabulary — insolvency first, bankruptcy last — is part of that design rather than loose usage.

The safe route here does not require settling any argument about vocabulary, and that matters because the Code never actually defines the word 'insolvency'. Work from structure instead. First notice that statements 1 and 3 make the same claim in different words — both say bankruptcy is the state of being unable to pay. Any code that keeps one and drops the other is incoherent, which removes (b), holding 3 without 1. Then test statement 4 on its own: the IBBI exists, it was set up under section 188 of the Code, and section 196 gives it registration and rule-making powers over the whole insolvency ecosystem, so statement 4 is true. Every option except (c) excludes statement 4, and an option that calls a true statement false cannot be the key. That leaves (c) standing alone, and the substantive reading confirms it — under the Code, default comes first and the bankruptcy order comes last. Note honestly where the softness sits: statements 1 to 3 rest on the standard textbook distinction rather than on any statutory definition of 'insolvency', and section 79(4) does say bankruptcy 'means the state of being bankrupt'. That single clause is the strongest thing a defender of statement 3 could point to, and it is worth naming rather than hiding, because a student who finds it later should not think the card missed it. It does not rescue the statement: the state of being bankrupt exists only once a section 126 order has been passed, section 121 will not even let you apply for that order until the insolvency-resolution route has been closed, and Chapter III of Part III is titled Insolvency Resolution Process while Chapter IV is titled Bankruptcy Order. The sequence is fixed by the structure of the Code, so statement 3's inversion still fails. If you want one line to carry out of this question, make it the chapter order: insolvency resolution is Chapter III, the bankruptcy order is Chapter IV.

• IBC, 2016 s.79(3): a "bankrupt" is "a debtor who has been adjudged as bankrupt by a bankruptcy order under section 126" — bankruptcy is conferred by an order, never by mere inability to pay
• IBC, 2016 s.3(12): "default" means non-payment of debt when the whole or any part or instalment has become due and payable and is not paid — this is the financial condition the process begins from
• The IBBI was established on 1 October 2016 under s.188 of the Code; s.196 makes it the body that registers and regulates insolvency professional agencies, insolvency professionals and information utilities
• Two different Adjudicating Authorities: the National Company Law Tribunal for corporate debtors (s.5(1)) and the Debt Recovery Tribunal for individuals and partnership firms (s.79(1)) — the IBBI regulates, it does not adjudicate
• s.12 timeline: the corporate insolvency resolution process must finish in 180 days, extendable once by up to 90 days, with a mandatory outer limit of 330 days including time taken in legal proceedings
• s.4 threshold: the Code set the minimum default at Rs 1 lakh; the Ministry of Corporate Affairs raised it to Rs 1 crore by notification S.O. 1205(E) dated 24 March 2020, which in the Gazette reads 'the Central Government hereby specifies one crore rupees as the minimum amount of default for the purposes of the said section'
• Part III chapter order is the answer in one line: Chapter II Fresh Start Process, Chapter III Insolvency Resolution Process, Chapter IV Bankruptcy Order for Individuals and Partnership Firms, Chapter V Administration and Distribution of the Estate of the Bankrupt
• s.121: a bankruptcy application may be made only after an Adjudicating Authority order under s.100(4), s.115(2) or s.118(3) — each of which ends the insolvency-resolution route — and must be filed within three months of that order
• s.128(1): on the passing of a bankruptcy order the estate of the bankrupt vests in the bankruptcy trustee under s.154 and is divided among his creditors; s.127 keeps the order alive until discharge under s.138 — the liquidation statement 2 mislabels as insolvency
• s.243 repeals the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920, saving proceedings already pending under them; the Code itself is Act No. 31 of 2016, dated 28 May 2016
• s.189: the IBBI has a Chairperson, three ex-officio Central Government members not below Joint Secretary rank (Finance, Corporate Affairs and Law), one ex-officio Reserve Bank of India nominee and five other members of whom at least three are whole-time; s.188(3) puts its head office in the National Capital Region

• Treating 'insolvency' and 'bankruptcy' as synonyms. They are sequential: insolvency is the financial condition, bankruptcy the adjudicated status that may follow it
• Assuming the IBBI hears cases. It is a regulator — it registers and disciplines insolvency professionals and writes the process regulations; the NCLT and the Debt Recovery Tribunal decide the cases
• Falling for the 'three statements must be right' rhythm. On this item exactly one statement of four is correct, and two of the wrong ones (1 and 3) are simply the same error stated twice

BPSC tests this area as terminology — it prints textbook definitions with the labels swapped and asks which survive, so the marks go to whoever can say which word names the condition and which names the order. That style also means the safest preparation is statutory rather than conceptual: the section number or the chapter heading settles a swap argument in a way that a paraphrase never can. UPSC almost never asks the definition; it asks about the machinery and the news around it, as in the 2017 question on the RBI's Scheme for Sustainable Structuring of Stressed Assets, whose fourth option was the bait that S4A was a provision of the Insolvency and Bankruptcy Code. Between the two habits, learn the IBC as a sequence with named forums attached — default, NCLT or DRT, resolution process, plan or liquidation, bankruptcy order — and both question types become the same question.

• practice — not a real PYQ

  Under the Insolvency and Bankruptcy Code, 2016, who is the Adjudicating Authority for insolvency resolution of individuals and partnership firms?

  • (a)National Company Law Tribunal
  • (b)Debt Recovery Tribunal
  • (c)Insolvency and Bankruptcy Board of India
  • (d)Securities Appellate Tribunal

  Answer(b) Debt Recovery Tribunal — section 79(1) of the Code. The NCLT is the Adjudicating Authority only for corporate debtors, under section 5(1).

• practice — not a real PYQ

  Under the Insolvency and Bankruptcy Code, 2016, what is the mandatory outer time limit for completing a corporate insolvency resolution process, including time taken in legal proceedings?

  • (a)180 days
  • (b)270 days
  • (c)330 days
  • (d)365 days

  Answer(c) 330 days — section 12 allows 180 days plus a single extension of up to 90 days, but the second proviso caps the whole process at 330 days including litigation.