Sections 127 and 128 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Once a bankruptcy order is passed under section 126, two questions follow at once: how long does it last, and what does it do? Section 127 answers the first and section 128 the second. This article reads both as printed in the IBBI consolidated text of the Code amended up to 12 August 2021. The bankruptcy order itself is covered by our article on the bankruptcy order under section 126. Creditors and bankrupts who face a dispute over these effects can approach a legal dispute resolution adviser.
A bankruptcy order continues to have effect till the debtor is discharged under section 138. On the order, the estate of the bankrupt vests in the bankruptcy trustee under section 154 and is divided among his creditors, and a creditor on a bankruptcy debt cannot act against the bankrupt's property or start a suit without the leave of the Adjudicating Authority. A secured creditor keeps the right to realise his security, but loses further interest if he takes no action within thirty days of the bankruptcy commencement date. An order against a firm operates against each partner. Notified transactions are outside sub-section (1).
Section 127: how long the order lasts
"The bankruptcy order passed by the Adjudicating Authority under section 126 shall continue to have effect till the debtor is discharged under section 138."
The end point is a discharge under section 138, which is explained in our article on the bankruptcy discharge order under section 138. Section 127 sets no fixed term, and it gives no other event that ends the order. Section 79 defines an "undischarged bankrupt" as a bankrupt who has not received a discharge order under section 138, which is why the status matters for other provisions of Part III.
Section 128(1): what the order does
"On the passing of the bankruptcy order under section 126":
| Clause | Effect |
|---|---|
| (a) | The estate of the bankrupt shall vest in the bankruptcy trustee as provided in section 154 |
| (b) | The estate of the bankrupt shall be divided among his creditors |
| (c) | Subject to sub-section (2), a creditor of the bankrupt indebted in respect of any debt claimed as a bankruptcy debt shall not (i) initiate any action against the property of the bankrupt in respect of such debt, or (ii) commence any suit or other legal proceedings except with the leave of the Adjudicating Authority and on such terms as the Adjudicating Authority may impose |
Clauses (a) and (b) change who holds the property and who is to benefit from it. Clause (c) stops individual creditor action. Two limbs are distinct: no action "against the property of the bankrupt" at all, and no suit or other proceedings except with leave and on terms. The first limb has no leave exception; the second does.
Printing point: clause (c) speaks of "a creditor of the bankrupt indebted in respect of any debt claimed as a bankruptcy debt". The word "indebted" is printed as shown and is quoted as printed. It is read as a reference to a creditor whose debt is claimed as a bankruptcy debt.
Vesting is dealt with in section 154, discussed in our article on the bankruptcy estate vesting in sections 154, 155 and 158. The trustee who receives the estate is appointed in the order itself (section 125(5)); see our article on section 125.
Section 128(2): secured creditors
"Subject to the provisions of section 123, the bankruptcy order shall not affect the right of any secured creditor to realise or otherwise deal with his security interest in the same manner as he would have been entitled if the bankruptcy order had not been passed."
The proviso: "no secured creditor shall be entitled to any interest in respect of his debt after the bankruptcy commencement date if he does not take any action to realise his security within thirty days from the said date."
Two points:
- The right survives. A secured creditor may realise or deal with his security as if no order had been passed. The words "subject to the provisions of section 123" point to the statement a secured creditor files with a bankruptcy application: if he promised to give up his security, or applied for the unsecured part only, section 123 governs; see our article on section 123.
- Interest stops if he waits. If the creditor takes no action to realise within thirty days from the bankruptcy commencement date (the date of the bankruptcy order under section 126, per section 79), he is not entitled to any interest on his debt after that date. The proviso speaks of interest "after the bankruptcy commencement date"; it does not say the security is lost.
Example. Crestline Bank holds a charge on a warehouse owned by the bankrupt, Tejas Naidu. The bankruptcy order is passed on a stated day. The bank may realise the warehouse as if the order had not been passed. If it takes no action to realise within thirty days from that day, it is not entitled to interest on its debt after the bankruptcy commencement date. A trade supplier with an unsecured claim may not sue Tejas or act against his property, except that a suit or proceeding may be started with the Authority's leave and on terms.
Section 128(3): firms
"Where a bankruptcy order under section 126 has been passed against a firm, the order shall operate as if it were a bankruptcy order made against each of the individuals who, on the date of the order, is a partner in the firm." Every person who is a partner on the date of the order is therefore a bankrupt. The text fixes partnership status by "the date of the order".
Section 128(4): notified transactions
"The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator." No notification is in the texts consulted. This article names no transaction, and any such notification must be checked before it is assumed that sub-section (1) applies to every transaction.
What is missing from the text
- Section 128 does not say what happens to proceedings that were already pending against the bankrupt when the order was passed. It speaks of initiating actions and commencing suits.
- It does not define "bankruptcy debt" within the section.
- It does not say how long the Authority has to decide on a request for leave.
The Insolvency and Bankruptcy Board of India (Bankruptcy Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 is the regulation set for bankruptcy of personal guarantors; the copy consulted is amended up to 02-06-2026. No rules or regulations on other individuals or on partnership firms are in the texts consulted.
The Amendment Act, 2026
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026) does not amend sections 127 or 128 as printed in the texts consulted. The Amendment Act, 2026 comes into force on the date or dates the Central Government notifies; the notification is not in the texts consulted, so check whether any change in Part III has been notified.
Amendments and notifications made after 12 August 2021, other than the Amendment Act, 2026, are not in the texts consulted and should be checked.
Need help with a creditor action after a bankruptcy order?
After a bankruptcy order, what a creditor may do depends on whether the debt is secured and on the thirty-day period for realising security. Our legal dispute resolution team can look at the order, the security documents and the dates and advise whether to realise, to seek leave, or to prove the debt.
Key takeaways
- The bankruptcy order lasts till the debtor is discharged under section 138.
- The estate vests in the bankruptcy trustee and is divided among creditors.
- Creditors cannot act against the bankrupt's property, or start suits, except with the Authority's leave for suits and proceedings.
- A secured creditor keeps his right to realise but loses interest after the bankruptcy commencement date if he does not act within thirty days.
- An order against a firm operates against each partner on the date of the order.
Read next
- Section 129: statement of financial position of the bankrupt
- Sections 130 to 132: public notice, claims and the list of creditors in bankruptcy
- The bankruptcy order under section 126
- Section 125: appointment of the bankruptcy trustee
Disclaimer: Based on the IBBI consolidated text of the Insolvency and Bankruptcy Code, 2016 amended up to 12 August 2021 and on the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026), which comes into force on the date or dates notified by the Central Government, as consulted on 2 October 2026. It explains the words of the statute only; commencement notifications, other amendments made after 12 August 2021, notified thresholds, the rules and IBBI regulations, and the way tribunals and courts apply these sections should be checked. This article is general information, not legal advice; check the official text before acting.