Section 121 of IBC : Section 121: Application For Bankruptcy

Explanation using Example

Imagine a situation where a small business owner, Mr. Sharma, is unable to repay his debts to his supplier, XYZ Pvt. Ltd. Despite several reminders, Mr. Sharma fails to settle the outstanding amount. XYZ Pvt. Ltd. decides to take legal action and applies to the Adjudicating Authority for a demand notice under section 100 of the Insolvency and Bankruptcy Code, 2016.

The Adjudicating Authority, after reviewing the case, passes an order under subsection 4 of section 100, confirming that Mr. Sharma has indeed defaulted on his debt. XYZ Pvt. Ltd. now has the right to file a bankruptcy application against Mr. Sharma based on this order.

Following the order, XYZ Pvt. Ltd. must file the bankruptcy application within three months to initiate bankruptcy proceedings against Mr. Sharma. If they fail to do so within this timeframe, they may lose the opportunity to pursue this legal remedy.

In this scenario, Section 121 of the Insolvency and Bankruptcy Code, 2016 is being applied to allow XYZ Pvt. Ltd. to take the next step in recovering their dues from Mr. Sharma by potentially declaring him bankrupt.