I am writing on behalf of a friend who owns a proprietorship business in Andhra Pradesh. Unfortunately, his business has been experiencing significant losses and is currently facing a shutdown. He has loans totaling approximately ₹30 lakhs, comprising both bank loans and private (hand) loans, with ongoing EMIs. Due to financial constraints, he is unable to pay the EMIs, and his family is facing harassment from recovery agents representing both the banks and private lenders. He has been advised to explore filing for insolvency/bankruptcy under the applicable laws, given that his business operates as a proprietorship. We are seeking guidance on the process and advice on the best course of action in this situation. Specifically, we are looking for a way to provide him with some breathing space to eventually resume his EMI payments. Your assistance and advice on the steps forward would be greatly appreciated.
You can file petition under the provisions of insolvency act for being declared an insolvent
2) you have to submit list of your creditors to whom you owe money
3)The court may make an order of adjudication if the debtor proves that he is unable to pay his debts.
4) your assets vest in the official assignee
Thank you for your detailed response, Ajay Sir. I have a couple of quick follow-up questions: 1. Approximately how long does the entire process—filing the petition and being declared insolvent—typically take? 2. Regarding point #4 in your response, does this mean that assets such as property, vehicles, etc., will need to be deposited with the court as part of the process? I’d appreciate your clarification on these points. Thank you again for your guidance!
To save from harassment for loan default one need not file insolvency case alone. For that also the default amount should be 1cr or more.
The borrower can lodge complaint with Police to stop such illegal harassments.
At the same time it is advisable to settle the dispute by one time settlement. The default amount is to be paid.
it depends upon the pendency of cases in your city,
2) you have to submit list of your assets to the court .you cannot sell your assets
3) assets are deposited in court and distributed among your creditors
You need to file the insolvency petition first in civil court. The assets of you have will be adjusted to your debts as per any claim of the creditors. It may take time but you will not be harassed
File insolvency petition in the Court of Small Causes. Insolvency petition is an application filed in Court giving details of all your lenders/banks/creditors and your debtors. You can pray to the Court that you are due a certain amount to you creditors but you have lost your business and cannot pay. The Court can recover your due amount from your debtors, if any, and pay to the creditor. The Court will also direct all your creditors not to harass you even if the creditors are not paid. Once order is passed by Court no creditor can force you to pay anything.
A person files for insolvency in India when they are unable to pay their debts.
Purpose of insolvency Protect the debtor, Distribute property among creditors, Discharge the debtor from creditor demands, and Treat all creditors equitably.
A company is insolvent when it does not have enough assets to meet all its debts or is unable to pay its debts when they fall due. When a company becomes insolvent, it must follow an insolvency procedure, such as administration or liquidation.
If you file an insolvency petition the following may happen:
First, an insolvent person is adjudicated and protected. Second, the arrangement is made to realize and equitably distribute the property of the person amongst the creditors most expeditiously and economically. Third, the insolvent person is discharged from the demands of creditors.
In case a debtor petition, the debtor should appear before Master court and on adjudication of debtor, the same day he has to appear before the Official Assignee and record his statement. Within 30 days thereafter he shall file schedule of debtors affairs. If it is in order, notice to all creditors is ordered by master. After service of notice the case will be posted before JR(OS) for Public Examination for cross checking by Official Assignee and others creditors if he owns any other property in his name or his spouse or other relatives. Within 18 months from date of Adjudication he has to file discharge application before Hon'ble judge. If he fails to do in time he has to file it with delay application. Even if he fails to file discharge application, the Hon'ble Judge has powers to annul the Adjudication order..After disbursement of final dividend, if any surplus amount is available in the estate of the insolvent, it should be collected from the office of the Official Assignee after getting order from the Hon'ble Court.
Dear Client,
I do understand that your friend is passing through great pain, and I appreciate your consideration to find a solution for him. Insolvency or bankruptcy is a real option for someone, such as a sole proprietorship, that does not know how to face the huge pressure of debts. Since it is a sole proprietorship, the debts owned by the entity would be personal debts on part of the owner, thereby allowing the sole proprietorship to file under the Code of 2016, Insolvency and Bankruptcy for Individual Insolvency.
Under the provisions of the IBC, those individuals who are unable to repays their money may file for insolvency with the assistance of Section 94. Your friend will need to apply to the Debt Recovery Tribunal, which is the relevant forum for individual insolvency cases. The application must include details of all debts (bank and private loans), verification of financial difficulty (through evidence such as losses from operations or default on EMIs), list of creditors, amount owed to each, and harassment details, if any. Once the application is admitted, a stay order will remain in effect, halting at once all recovery actions. This would henceforth stop any reinstatement on account of harassment by debt recovery agents. Within this period, the resolution professional will try to restructure the debt by reducing the EMIs or extending the repayment term. If restructuring efforts fail, the DRT may declare bankruptcy, liquidate the available assets for repayment, and discharge the owner from any remaining debts.
Or else, should he not aim at such an option, further efforts can be put in to get other remedial measures. He can negotiate directly with creditors for a moratorium, lower interest rates, or revising loan terms. Under the RBI framework for resolution of stressed assets, it is open for banks to extend certain relief options to desperate borrowers. In case recovery agents operate using illegal means or resort to harassment, it would be prudent to file a complaint with the police for follow-up of his complaints.
This would be advisable for your friend to consult an experienced attorney with respect to matters of IBC so as to have his case properly analyzed and prepare necessary filings. Properly maintaining documents for claims, payments, and evidence through corroboration that losses occurred in business will greatly assist in litigation. Due to that, it appears that filing for insolvency or restructuring, one way or another, would provide a breather for your friend at least in stabilizing his financial position to be able to repay. Please do not hesitate to reach out to me if you need any further assistance or clarification.
Insolvency Filing:
File under the Provincial Insolvency Act, 1920 in the District Court. This will help get an interim stay on recovery actions, providing immediate relief.
Process Duration:
Asset Handling:
Assets like property/vehicles must be disclosed. The court may liquidate them to repay creditors, but essential assets for livelihood are usually protected.
Relief from Harassment:
Alternative Solution:
Negotiate with creditors for settlement or EMI restructuring to avoid legal proceedings.
For detailed, personalized advice, consider a phone consultancy. Hope you find the information helpful. You are free to contact me for further discussion. If you could spare two minutes to write a review, it would be greatly appreciated and bring immense happiness to read it. Thank you. Shubham Goyal.
