Section 78 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 78 is the entry gate to Part III. It says that Part III applies to matters relating to fresh start, insolvency and bankruptcy of individuals and partnership firms, where the amount of the default is not less than one thousand rupees, and it lets the Central Government raise that floor by notification. This article follows the IBBI consolidated text of the Code amended up to 12 August 2021. A short legal consultation before any filing helps to confirm that the gate is open.
Part III applies to fresh start, insolvency and bankruptcy matters of individuals and partnership firms where the amount of the default is not less than one thousand rupees. The proviso lets the Central Government, by notification, specify a minimum amount of default of higher value which shall not be more than one lakh rupees. The Code does not state any notified amount in this section, so the amount actually notified must be checked before an application is planned.
The text of section 78
Section 78, headed "Application", reads: "This Part shall apply to matters relating to fresh start, insolvency and bankruptcy of individuals and partnership firms where the amount of the default is not less than one thousand rupees: Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one lakh rupees."
It is a single sentence with a proviso, but it does three jobs.
- It defines the subject matter of Part III. The matters are "fresh start, insolvency and bankruptcy". Those three words correspond to the three processes in the Part: the fresh start process in Chapter II (sections 80 to 93), the insolvency resolution process in Chapter III (sections 94 to 120) and the bankruptcy order in Chapter IV (sections 121 to 148). Chapters V to VII deal with the administration of the estate, the Adjudicating Authority and offences.
- It names the debtors. "Individuals and partnership firms" are the debtors of Part III. Corporate debtors are governed by Part II. For the way the Code divides debtors, see our article on section 2 and the categories of debtor.
- It fixes a threshold. The default must be "not less than one thousand rupees", unless a higher minimum has been notified.
The threshold and the proviso
The threshold is measured by "the amount of the default". The section does not say whether that is the total outstanding to all creditors or the amount owed to one creditor, and it does not explain how interest or charges are counted. The words are quoted as printed and this article adds nothing to them.
The proviso gives the Central Government a power: it "may, by notification, specify the minimum amount of default of higher value which shall not be more than one lakh rupees". Four things follow from the words.
- The power is to raise the minimum, because it speaks of "higher value".
- The ceiling on the raised minimum is "one lakh rupees". The Central Government cannot set it above that.
- The power is exercised "by notification".
- No notification is in the texts consulted. This article therefore states no notified figure. What has actually been notified, and from when, must be checked before relying on the base figure of one thousand rupees.
A comparison with the corporate threshold. Section 4, which opens Part II, applies Part II "to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees", and its proviso allows a higher minimum "which shall not be more than one crore rupees". Section 78 follows the same design on a smaller scale: a printed floor of one thousand rupees, with a notified higher minimum allowed up to one lakh rupees. Our article on section 4 and the corporate threshold discusses the corporate side. The amount actually notified under section 4 must also be checked, as it is not in the texts consulted.
| Feature | Section 4 (corporate debtors) | Section 78 (individuals and firms) |
|---|---|---|
| Printed minimum | One lakh rupees | One thousand rupees |
| Higher minimum | By notification | By notification |
| Ceiling on the higher minimum | Not more than one crore rupees | Not more than one lakh rupees |
Who can be affected
Section 78 itself does not tell the reader which debtors will find Part III open to them in practice. The Code leaves the commencement of its provisions to notification. Section 1(3) says the Code "shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint", with different dates allowed for different provisions. No commencement notification is in the texts consulted, so this article gives no date for Part III and does not say for which class of debtor it has been brought into force. A reader who is an individual or a partner in a firm should check the notifications before taking steps.
Example. Mahesh Kulkarni runs a small trading firm in partnership with his brother. A supplier is owed an amount well above one thousand rupees. Whether the default meets the threshold depends on the figure notified under the proviso, if any, and on whether Part III has been brought into force for his category. Section 78 alone does not answer either question. It starts the inquiry; it does not complete it.
What section 78 does not decide
Section 78 is a gateway, not a complete test. A debtor who is within it still has to meet the requirements of the chapter under which he proceeds. For the fresh start process, those requirements are in section 80, discussed in our article on the fresh start process under section 80. The meaning of terms such as "Adjudicating Authority", "qualifying debt" and "excluded debt" for Part III is set out in section 79, discussed in our article on excluded assets and the qualifying debt test under section 79. Section 79(1) defines the Adjudicating Authority for Part III as "the Debt Recovery Tribunal constituted under sub-section (1) of section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993)"; check the current law for the corresponding provision of that Act.
No rules or regulations on the fresh start process, or on individuals other than personal guarantors and on partnership firms, are in the texts consulted, and this article gives no procedure for them. For the wider picture of Part III, see our overview of individual insolvency under Part III and the guide to debt resolution for individuals.
The Amendment Act, 2026
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026) does not amend section 78. It does amend some later sections of Part III, including sections 96, 99, 106, 121 and 124, and inserts sections 164A and 183A; those are covered in their own articles. 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 of those changes 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 working out whether Part III is open to you?
Before an individual or a partner approaches the Adjudicating Authority, the amount of the default, the notifications on minimum amounts and the category of debtor all need to be checked together. A legal consultation can map your facts to the correct chapter of Part III and flag what still has to be verified.
Key takeaways
- Part III applies to fresh start, insolvency and bankruptcy of individuals and partnership firms.
- The printed minimum default is one thousand rupees.
- The Central Government may notify a higher minimum, not more than one lakh rupees.
- No notification is in the texts consulted; check the amount actually notified.
- Section 78 is a gateway; each chapter has its own conditions.
- The 2026 Amendment Act does not amend section 78.
Read next
- Section 81: application for a fresh start order and the interim moratorium
- Section 94: application by the debtor to initiate the insolvency resolution process
- Excluded assets and the qualifying debt test under section 79
- Individual insolvency under Part III of 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.