Ch. 12 Bankruptcy for Individuals and Partnership Firms: PYQ Decoder

June 2026Q. 3(e)5 marksSyllabus 2022

(e)Rajesh Kumar, a textile merchant, was adjudicated bankrupt following insolvency proceedings. Anand was appointed Bankruptcy Trustee to administer the estate.

Upon assuming office, Anand identified several urgent matters: the business required temporary continuation to maximise asset recovery; outstanding debts owed to Rajesh needed arbitration; certain creditors sought compromise arrangements; and a mortgageable property existed suitable for raising funds towards debt settlement.

Additionally, a contractual option over a warehouse formed part of the estate apart from other issues.

Before proceeding further, Anand wants to convene a meeting of the creditors.

In such a situation, elucidate which are the acts of the Bankruptcy Trustee that require prior approval from creditors?

June 2024Q. 1(d)5 marksSyllabus 2022

Show the facts common to all parts of Q. 1

Alok is a dealer in Eyewear, Spectacles and other eye accessories in India for the last 10 years based in Gurgaon. His vision was to transform the way people see and experience the world.

He is a frequent traveller and visited many countries to expand his business. Gulshan is one of the cousins of Alok and a resident of South Africa. Alok has a very good relations with his cousin and during his visit to South Africa in 2015 he started a showroom in partnership with his cousin in South Africa.

Alok has a very big showroom in India also. He used to import spectacles and other accessories from South Africa. With the increasing demand of more and more spectacles, goggles etc., business is reaching greater heights and he made a huge profit. His business was a growing business going very well. Since there was huge demand, the business went well and profits got multiplied in 3 to 4 years. In the year 2019 some differences developed between both the cousins and Alok decided to quit from the partnership.

He was also a director of Padmavat Solutions Private Limited and its associate company. Shekhawat Solutions Private Limited where he used to get the sitting fee for attending the Board Meetings.

In India also due to entry of online selling platform and other sales promotion strategies of the competitors, there were lots of changes in the market situation in India and his business started running into losses. He raised loans worth ₹ 10 Crore in the year 2019 to finance the working capital requirement of the business. He managed for another one year (year 2020) to run the business out of the retained earnings of the business. However due to the impact of COVlD 19 and other reasons the demand declined rapidly and later on he started making defaults. He defaulted in making payment to his creditors and Insolvency proceedings commenced and a repayment plan was approved. Alok failed to follow the repayment plan and filed for bankruptcy on 1st April, 2022 which was admitted on 10th April, 2022. A Bankruptcy order was passed and Gopal Gupta, an Insolvency Professional was appointed as a Bankruptcy Trustee.

Gopal Gupta started investigation of the affairs of the Bankrupt. He observed that on 7th April, 2022, Alok Gupta sold his shop to Kapil Kalra for ₹ 50 Lakh and gifted this amount to his major son.

As per Bankruptcy Trustee, he has some doubt that this transaction is not allowed as per Insolvency and Bankruptcy Code, 2016.

The Bankruptcy Trustee further asked Alok to prepare the list of the assets and hand over to the bankruptcy trustee. As per the list of the assets, Alok informed as below :

l Alok stated that he has been entrusted by his friend Arun to look after his property in Delhi currently valued at ₹ 1 Crore as Arun is staying in UK.

l Alok has ₹ 50 Lakh in provident fund, pension fund and the gratuity fund of the employees.

l Alok has a residential flat worth ₹ 2 Crore in his name.

l He has an antique paintings and silver household utensils and other valuable items worth ₹ 50 Lakh which have not been encumbered.

l He has also unencumbered insurance policy worth of ₹ 50 Lakh.

l He has also the father’s inherited property now in his name worth ₹ 5 Crore.

While bankruptcy proceedings were going on, Alok further decided to start a new business of kids garments by forming a new company in the name of “Kids Paradise Pvt. Ltd.” and engage himself in the formation and management of Kids Paradise Pvt Ltd. (Under Incorporation).

Based on the above facts, answer the following questions :

(d)Based on the above facts, ascertain the assets, which will form part of the estate of the Alok.

June 2025Q. 1(b)(i)6 marksSyllabus 2017

Show the facts common to all parts of Q. 1

(b)Read the following background information and answer the questions :

Vikram Deshmukh was a successful businessman who had built his empire from scratch. He had a thriving construction business, Deshmukh Constructions, and was well-known for his innovative approach to architecture. His company was booming, and for years, his fortunes seemed unstoppable.

However, as the construction market became increasingly competitive, Vikram found himself facing immense financial pressures. He had invested heavily in land acquisitions and large-scale projects, but a sudden downturn in the economy left him unable to meet his obligations. The debts began to pile up, and creditors were knocking on his door.

One fateful day, unable to meet his financial obligations and faced with the possibility of bankruptcy, one of the financial Creditor’s had filed for bankruptcy under the Insolvency and Bankruptcy Code 2016 (IBC, 2016). The date of filing marked the beginning of the legal process, and Vikram’s business was soon under scrutiny by his creditors, including banks and other financial institutions. However, before the official bankruptcy commencement date arrived, a series of events transpired that would forever change Vikram’s life.

In the weeks following his bankruptcy filing, Vikram found himself desperate to raise funds. He knew his business was struggling and feared that the creditors would seize his property once the bankruptcy proceedings began. In a bid to save some assets, he made a decision that would later become a point of contention, he sold a prime piece of commercial real estate to a buyer, Raghav, a well-known businessman in the city.

Vikram presented the sale as an opportunity for Raghav, offering him the property at a fair price. Raghav, a seasoned entrepreneur, did his due diligence and was satisfied with the terms of the transaction. Both parties agreed to the sale, and the deal was completed in good faith.

Raghav had no reason to suspect that Vikram was in financial distress or that the transaction could be problematic.

On the above background answer the following questions :

(i)One of the Creditors of Deshmukh Constructions, approached you as a Company Secretary to give opinion on the genuineness of above transaction as per the IBC, 2016.

Section 158 of the Insolvency and Bankruptcy Code, 2016 deals with Restrictions on disposition of property. It provides that:

(1)Any disposition of property made by the debtor, during the period between the date of filing of the application for bankruptcy and the bankruptcy commencement date shall be void.

(2)Any disposition of property made under sub-section (1) shall not give rise to any right against any person, in respect of such property, even if he has received such property before the bankruptcy commencement date in –

(a)good faith;

(b)for value; and

(c)without notice of the filing of the application for bankruptcy.

(3)For the purposes of this section, the term “property” means all the property of the debtor, whether or not it is comprised in the estate of the bankrupt, but shall not include property held by the debtor in trust for any other person.

As the bankruptcy proceedings officially commenced, the appointed Insolvency Professional (IP)

began reviewing all of Vikram’s transactions to ensure fairness and that no fraudulent preferences had been made. Upon discovering the sale of the property to Mr. Raghav, the IP raised a red flag. The transaction took place during the window between the filing date and the bankruptcy commencement date.

According to Section 158(1) of the Insolvency and Bankruptcy Code, any disposition of property made by the debtor during this period is considered void, even if the transaction was made in good faith and for value. The law was clear as such dispositions were deemed invalid because they could unfairly prejudice the creditors, depriving them of assets that might have otherwise been used to satisfy their claims.

Despite the fact that Mr. Raghav had purchased the property in good faith and had paid a fair price, the law did not distinguish between good intentions and potential harm to creditors. The Insolvency Professional shall file a report, and the matter would be taken up with the National Company Law Tribunal (NCLT), which ruled that the transaction between Vikram and Raghav was void.

Source⁠‌‌‌‌⁠: ICSI Guideline Answers, June 2025, Q. 1(b)(i) (Syllabus 2017).

June 2024Q. 1(a)5 marksSyllabus 2022