Sections 168 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.
Section 168 deals with contracts a bankrupt entered into before the bankruptcy commencement date and lets the other party apply to the Adjudicating Authority. Section 169 says bankruptcy proceedings continue if the bankrupt dies, and section 170 says how the estate of a deceased bankrupt is administered.
The article follows the IBBI consolidated text of the Code amended up to 12 August 2021 (the "consolidated text").
A party to a contract with the bankrupt (other than the bankrupt) may apply for an order discharging the obligations of either side and for damages for non-performance. Damages payable by the bankrupt are provable as bankruptcy debt. If a bankrupt dies, the proceedings continue as if he were alive, and Chapter V applies to the estate so far as applicable. Funeral and testamentary expenses claimed by legal representatives rank equally with secured creditors under section 178; any surplus goes to the legal representatives.
Section 168: obligations under contracts
Sub-section (1): when it applies. "This section shall apply where a contract has been entered into by the bankrupt with a person before the bankruptcy commencement date." The bankruptcy commencement date is the date of the bankruptcy order under section 126 (section 79(6)). Contracts made after that date are outside the section as printed.
Sub-section (2): who applies and for what. "Any party to a contract, other than the bankrupt under sub-section (1), may apply to the Adjudicating Authority for –"
| Clause | Relief |
|---|---|
| (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 |
Several points follow. The applicant is the counterparty, not the bankrupt and not (in terms) the trustee. Clause (a) lets the order discharge the obligations of either "the applicant or the bankrupt". Clause (b) speaks of damages payable "by the party or the bankrupt", "for non-performance of the contract or otherwise". The text does not set out the grounds on which the Adjudicating Authority should decide, and it does not say whether the relief in (a) and (b) is cumulative or alternative beyond the connecting word "and". If you are a counterparty to a contract with someone who has been adjudged bankrupt, a legal consultation can help you see where the contract stands under this section.
Sub-section (3): damages as debt. "Any damages payable by the bankrupt by virtue of an order under clause (b) of sub-section (2) shall be provable as bankruptcy debt." So the counterparty's damages claim enters the bankruptcy as a debt to be proved, not as a charge on the estate ahead of other creditors. The bankruptcy debt definition is in section 79(5), and the proof procedure is in sections 171 to 173; see the live post on proof of debt under sections 171 to 173.
Sub-section (4): joint contracts. "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." The co-contractor is not obstructed by the bankrupt's absence from the case.
Section 169: continuance of proceedings on death
The section is one sentence: "If a bankrupt dies, the bankruptcy proceedings shall, continue as if he were alive." The comma after "shall" is printed in the consolidated text. Death does not end the process.
Section 170: administration of the estate of a deceased bankrupt
| Sub-section | Rule |
|---|---|
| (1) | All the provisions of Chapter V relating to administration and distribution of the estate apply, so far as applicable, to the administration of the estate of a deceased bankrupt |
| (2) | While administering the estate, the trustee shall have regard to claims by the legal representatives of the deceased bankrupt to payment of the proper funeral and testamentary expenses incurred by them |
| (3) | The claims under sub-section (2) "shall rank equally to the secured creditors in the priority provided under section 178" |
| (4) | If a surplus remains in the hands of the trustee after payment in full of all debts, with the costs of administration and interest as provided under section 178, the surplus is paid to the legal representatives of the estate of the deceased bankrupt "or dealt with in such manner as may be prescribed" |
On sub-section (3): section 178(1)(b) places workmen's dues for twenty-four months and debts owed to secured creditors in the second rank. Section 170(3) puts the funeral and testamentary expense claims at the same level as secured creditors "in the priority provided under section 178". The live post on the priority of payment of debts under section 178 sets out that order. The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026) adds an Explanation to section 178(1)(d) by its section 57; that is not explained here.
On sub-section (4): the surplus provision is the counterpart of section 176(5), under which the bankrupt is entitled to a surplus after payment in full with interest and expenses; see Sections 176 and 177. The manner in which a surplus may otherwise be "dealt with" is left to what may be prescribed, and no prescription is in the texts consulted.
A worked example
Before the bankruptcy order, Harish Gupta agrees to buy machinery from Gagan Industries on instalments, and the machinery has not yet been delivered. The Adjudicating Authority passes a bankruptcy order against Harish. Gagan Industries, a party to the contract other than the bankrupt, applies under section 168(2). If the Adjudicating Authority makes an order discharging the obligations under the contract and awards damages against Harish for non-performance, the damages are provable as bankruptcy debt under section 168(3).
Harish then dies during the bankruptcy. Under section 169 the proceedings continue as if he were alive. Under section 170 the trustee administers his estate under Chapter V; his son, as legal representative, claims the proper funeral expenses he paid. These claims rank equally with secured creditors in the priority in section 178. If the estate pays everything and a surplus remains, the surplus goes to the legal representatives or is dealt with as prescribed. The names and facts are invented.
What the sections do not say
- Section 168 does not list the grounds for an order, and the text names no time limit for the application.
- Section 168 does not say what happens to a contract if no application is made.
- Sections 169 and 170 do not say who represents the estate before the Adjudicating Authority after death, beyond the trustee's role under Chapter V.
Where to read more
The trustee's functions are in section 149: Sections 149, 151 and 152. The onerous-property power in sections 160 and 161, which also affects unprofitable contracts, is covered in Sections 160 and 161.
Law around these sections
The Amendment Act, 2026 has no clause that amends sections 168, 169 or 170. It 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 to a related provision has been notified.
For personal guarantors to corporate debtors, the Insolvency and Bankruptcy Board of India (Bankruptcy Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 (the copy consulted is amended up to 02-06-2026) apply alongside Part III; no rules or regulations for other individuals or for partnership firms are in the texts consulted.
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 contract involving a bankrupt?
If you are the other party to a contract with a bankrupt, or you act for the legal representatives of a bankrupt who has died, the sections above decide what you can apply for and where you rank. Our team can help you apply them through a legal consultation.
Key takeaways
- Section 168 covers contracts entered into before the bankruptcy commencement date.
- A party other than the bankrupt may apply for discharge of obligations and for damages.
- Damages payable by the bankrupt are provable as bankruptcy debt.
- Bankruptcy proceedings continue after the bankrupt's death.
- Chapter V applies to the deceased bankrupt's estate so far as applicable, with funeral and testamentary expense claims ranking equally with secured creditors.
- Any surplus goes to the legal representatives or is dealt with as prescribed.
Read next
- Sections 171 and 172: proof of debt and proof of debt by secured creditors
- Section 167 of the Insolvency and Bankruptcy Code, 2016: extortionate credit transactions of a bankrupt
- The priority of payment of debts under section 178
- Personal guarantor insolvency under the IBC
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.