.
ACT II OF 1956
THE INSOLVENCY ACT,
1955
An Act to
consolidate and amend the law relating to insolvency.
Preamble.-Whereas it is expedient to consolidate
and amend the law relating to insolvency;
Be it enacted in the Sixth Year of the Republic of
India as follows:-
1.
Short title extent and commencement.-(1) This Act may be called
the [********]
insolvency Act, 1955.
[
"(2) It extends to the whole of the State of Kerala"]
(2)
It shall come into force on such date as the Government may, by
notification in the Gazette, appoint.
2.
Definitions.-(1) In this Act, unless the context otherwise
requires,
(a) “Collector”
means the Chief Officer in charge of the revenue administration of the district
and includes an acting or officiating Collector and also any officer appointed
by the Government to exercise the functions of the Collector;
(b) “creditor”
includes a decree-holder, “debt” includes a judgment-debt, and “debtor”
includes a judgment-debtor;
(c) “District
Court” means the principal Civil Court of original jurisdiction;
(d) “prescribed”
means prescribed by rules made under this Act;
(e) “property”
includes any property over which or the profits of which any person has a
disposing power which he may exercise for his own benefit;
(f) “secured
creditor” means a person holding a mortgage, charge or lien on the property of
the debtor or any part thereof as a security for a debt due to him from the
debtor;
[“(g)
“State” means the State of Kerala ;"] and
(g) “transfer
of property” includes a transfer of any interest in property and the creation
of any charge upon property.
(2)
Words and expressions used in this Act and defined in the Code of Civil
Procedure, 1908, and not hereinbefore defined shall have the same meanings as
those respectively attributed to them by the said Code.
PART I.
CONSTITUTION AND
POWOEORS OF COURT.
3.
Insolvency jurisdiction.-The District Courts shall be the Courts
having jurisdiction under this Act:
Provided that the Government may, by notification in the Gazette, invest any
Court subordinate to a District Court with jurisdiction in any class of cases,
and any Court so invested shall within the local limits of its jurisdiction has
concurrent jurisdiction with the District Court under this Act.
4. Power
of Courts to decide all questions arising in insolvency.-(1)Subject to the
provisions of this Act, the Court shall have full power to decide all questions
whether of title or priority, or of any nature whatsoever, and whether
involving matters of law or of fact, which may arise in any case of insolvency
coming within the cognizance of the Court, or which the Court may deem it
expedient or necessary to decide for the purpose of doing complete justice or
making a complete distribution of property in any such case.
(2)
Subject to the provisions of this Act and notwithstanding anything
contained in any other law for the time being in force, every such decision
shall be final and binding for all purposes as between, on the one hand, the
debtor and the debtor’s estate and, on the other hand, all claimants against
him or it and all persons claiming through or under them or any of them.
(3)
Where the Court does not deem it expedient or necessary to decide any
question of the nature referred to in sub-section (1), but has reason to
believe that the debtor has a saleable interest in any property, the Court may
without further inquiry sell such interest in such manner and subject to such
conditions as it may think fit.
5.
General powers of Courts.-(1) Subject to the provisions of this
Act, the Court, in regard to proceedings under this Act, shall have the same
powers and shall follow the same procedure as it has and follows in the
exercise of original civil jurisdiction.
(2)
Subject as aforesaid, the High Court and the District Courts, in regard
to proceedings under this Act in Courts subordinate to them, shall have the
same powers and shall follow the same procedure as they respectively have and
follow in regard to civil suits.
PART II
PROCEEDINGS FROM ACT
OF INSOLVENCY TO DISCHARGE
Act of Insolvency.
6.
Acts of insolvency.-A debtor commits an act of insolvency in each
of the following cases, namely;-
(a) if
he makes a transfer of all or substantially all his property to a third person
for the benefit of his creditors generally;
(b) if he
makes a transfer of his property or of any part thereof, with intent to
defeat or delay his creditors;
(c) if
he makes any transfer of his property or of any part thereof, which would,
under this or any other enactment for the time being in force, be void as
fraudulent preference if he were adjudged an insolvent;
(d) if,
with intent to defeat or delay his creditors-
(i)
he departs or remains out of the State,
(ii)
he departs from his dwelling-house or usual place of business or
otherwise absent himself,
(iii)
he secludes himself so as to deprive his creditors of the means of
communicating with him;
(e) if
any of his property has been sold in execution of the decree of any Court for
the payment of money;
(f) if
he petitions to be adjudged an insolvent under the provisions of this Act;
(g) if
he gives notice to any of his creditors that he has suspended, or that he is
about to suspend, payment of his debts; or
(h) if
he is imprisoned in execution of the decree of any Court for the payment of
money.
Explanation.-For
the purposes of this section the act of an agent may be the act of the
principal.
Petition
7.
Petition and adjudication.-Subject to the conditions specified in
this Act, if a debtor commits an act of insolvency, an insolvency petition may
be presented either by a creditor or by the debtor, and the Court may on such
petition make an order (hereinafter called an order of adjudication) adjudging
him an insolvent.
Explanation.-The
presentation of a petition by the debtor shall be deemed an act of insolvency
within the meaning of this section, and on such petition the Court may make an
order of adjudication.
8. Exemption
of corporation, etc., from insolvency proceedings.-No insolvency petition
shall be presented against any corporation or against any association or
company registered under any enactment for the time being in force.
9.
Conditions on which creditor may petition.-(1) A creditor shall
not be entitled to present an insolvency petition against a debtor unless-
(a) the debt
owing by the debtor to the creditor, or if two or more creditors join in the
petition, the aggregate amount of debts owing to such creditors, amounts to
five hundred rupees, and
(b) the debt
is a liquidated sum payable either immediately or at some certain future time,
and
(c) the act of
insolvency on which the petition is grounded has occurred within three months
before the presentation of the petition:
Provided
that where the said period of three months referred to in clause (c) expires on
a day when the Court is closed, the insolvency petition may be presented on the
day on which the Court reopens.
(2) If
the petitioning creditor is a secured creditor he shall in his petition either
state that he is willing to relinquish his security for the benefit of the
creditors in the event of the debtor being adjudged insolvent, or give an
estimate of the value of the security. In the latter case, he may be admitted
as a petitioning creditor to the extent of the balance of the debt due to him
after deducting the value so estimated in the same way as if he were an
unsecured creditor.
10. Conditions
on which debtor may petition.-(1) A debtor shall not be entitled to present
an insolvency petition, unless he is unable to pay his debts; and
(a) his
debts amount to five hundred rupees; or
(b) he is
under arrest or imprisonment in execution of the decree of any Court for the
payment of money; or
(c) an
order of attachment in execution of such a decree has been made, and is
subsisting, against his property.
(2)
A debtor in respect of whom an order of adjudication made under this Act
has been annulled, owing to his failure to apply, or to prosecute an
application for his discharge, shall not be entitled to present an insolvency
petition without the leave of the Court by which the order of adjudication was
annulled. Such Court shall not grant leave unless it is satisfied either that
the debtor was prevented by any reasonable cause from presenting or prosecuting
his application, as the case may be or that the petition is founded on facts
substantially different from those contained in the petition on which the order
of adjudication was made.
11. Court to
which petition shall be presented.-Every insolvency petition shall be
presented to a Court having jurisdiction under this Act in any local area in
which the debtor ordinarily resides or carries on business, or personally works
for gain, or if he has been arrested or imprisoned, where he is in custody:
Provided that no objection
as to the place of presentment shall be allowed by any Court in the exercise of
appellate or revisional jurisdiction unless such objection was taken in the
Court by which the petition was heard at the earliest possible opportunity, and
unless there has been a consequent failure of justice.
12. Verification
of petition.-Every insolvency petition shall be in writing and shall be
signed and verified in the manner prescribed by the Code of Civil Procedure,
1908, for signing and verifying plaints.
13. Contents
of petition.-(1) Every insolvency petition presented by a debtor shall
contain the following particulars namely:-
(a) a
statement that the debtor is unable to pay his debts;
(b) the
place where he ordinarily resides or carries on business or personally works
for gain, or if he has been arrested or imprisoned, the place where he is in
custody;
(c) the
Court (if any) by whose order he has been arrested or imprisoned, or by which
an order has been made for the attachment of his property, together with
particulars of the decree in respect of which any such order has been made;
(d) the
amount and particulars of all pecuniary claims against him, together with the
names and residences of his creditors so far as they are known to, or can by
the exercise of reasonable care and diligence be ascertained by him;
(e) the
amount and particulars of all his property, together with—
(i)
a specification of the value of all such property not consisting of
money;
(ii)
the place or places at which any such property is to be found; and
(iii)
a declaration of his willingness to place at the disposal of the Court
all such property save in so far as it includes such particulars (not being his
books of account) as are exempted by the Code of Civil Procedure, 1908, or by
any other enactment for the time being in force from liability to attachment
and sale in execution of the decree;
(f) a
statement whether the debtor has on any previous occasion filed a petition to
be adjudged an insolvent, and (where such a petition has been filed)-
(i)
if such petition has been dismissed, the reasons for such dismissal; or
(ii)
if the debtor has been adjudged an insolvent, concise particulars of the
insolvency, including a statement whether any previous adjudication has been
annulled and, if so, the grounds therefor.
(2)
Every insolvency petition presented by a creditor or creditors shall set
forth the particulars regarding the debtor specified in clause (b) of
sub-section (1) and shall also specify-
(a) the
act of insolvency committed by such debtor together with the date of its
commission; and
(b) the
amount and particulars of his or their pecuniary claim or claims against such
debtor.
14. Withdrawal
of petitions.-No petition, whether presented by a debtor or by a creditor,
shall be withdrawn without the leave of the Court.
15. Consolidation
of petitions.-Where two or more insolvency petitions are presented against
the same debtor, or where separate petitions are presented against joint
debtors, the Court may consolidate the proceedings or any of them, on such
terms as the Court think fit.
16. Power to
charge carriage of proceedings.-Where the petitioner does not proceed with
due diligence on his petition, the Court may substitute as petitioner any other
creditor to whom the debtor may be indebted in the amount required by this Act
in the case of the petitioning creditor.
17. Continuance
of proceedings on death of debtor.-If a debtor by or against whom an
insolvency petition has been presented dies, the proceedings in the matter
shall, unless the Court otherwise orders, be continued so far as may be
necessary for the relialisation and distribution of the property of the debtor.
18. Procedure
for admission of petition.-The procedure laid down in the Code of Civil
Procedure, 1908, with respect to the admission of plaints, shall, so far as it
is applicable, be followed in the case of insolvency petitions.
19. Procedure
on admission of petition.-(1) Where an insolvency petition is admitted, the
Court shall make an order fixing a date hearing the petition.
(2)
Notice of the order under sub-section (1) shall be given to creditors in
such manner as may be prescribed.
(3)
Where the debtor is not the petitioner, notice of the order under
sub-section (1) shall be served on him in the manner provided for the service
of summons.
20. Appointment of interim
receiver.-The Court when making an order admitting the petition may, and
where the debtor is the petitioner ordinarily shall, appoint an interim
receiver of the property of the debtor or of any part thereof, and may direct
him to take immediate possession thereof or of any part thereof, and the
interim receiver shall thereupon have such of the powers conferable on a
receiver appointed under the Code of Civil Procedure, 1908, as the Court may
direct. If an interim receiver is not so appointed, the Court may make such
appointment at any subsequent time before adjudication, and the provisions of
this section shall apply accordingly.
21. Interim
proceedings against debtor.-At the time of making an order admitting the
petition or at any subsequent time before adjudication the Court may either of
its own motion or on the application of any creditor make one or more of the
following orders, namely:-
1)
orders the debtor to give reasonable security for his appearance until
final orders are made upon the petition, and direct that, in default of giving
such security, he shall be detained in the civil prison;
2)
order the attachment by actual seizure of the whole or any part of the
property in the possession or under the control of the debtor, other than such
particulars (not being his books of account) as are exempted by the Code of
Civil Procedure, 1908, or by any other enactment for the time being in force from
liability to attachment and sale in execution of a decree;
3)
order a warrant to issue with or without ball for the arrest of the
debtor and direct either that he be detained in the civil prison until the
disposal of the petition, or that he be released on such terms as to security
as may be reasonable and necessary:
Provided that an order under
clause (2) or clause (3) shall not be made unless the Court is satisfied that
the debtor, with intent to defeat or delay his creditors or to avoid any process
of the Court,-
(i)
has abscounded or has departed from the local limits of the jurisdiction
of the Court, or is about to abscond or to depart from such limits, or is
remaining outside them, or
(ii)
has failed to disclose or has concealed, destroyed, transferred or
removed from such limits, or is about to conceal, destroy, transfer or remove
from such limits, any documents likely to be of use of his creditors in the
course of the hearing, or any part of his property other than such particulars
as aforesaid.
22. Duties
of debtors.-The debtor shall on the making of an order admitting the
petition produce all books of account, and shall at any time thereafter give
such inventories of his property, and such lists of his creditors and debtors
and of the debts due to and from them, respectively, submit to such examination
of respect of his property or his creditors, attend at such times before the
Court or receiver, execute such instruments, and generally do all such acts and
things in relation to his property as may be required by the Court or receiver,
or as may be prescribed.
23. Release
of debtors.-(1) At the time of making an order admitting the petition or at
any subsequent time before adjudication, the Court may, if the debtor is under
arrest or imprisonment in execution of the decree of any Court for the payment
of money, order his release on such terms as to security as may be reasonable
and necessary.
The Court may
at any time order any person who has been released under this section to be
re-arrested and recommitted to the custody from which he was released.
(2)
At the time of making any order under this section, the Court shall
record in writing its reasons therefor.
24. Procedure
at hearing.- (1) On the day fixed for the hearing of the petition, or on
any subsequent day to which the hearing may be adjourned, the Court shall
require proof of the following matters, namely:-
(a) that
the creditor or the debtor, as the case may be, is entitled to present the
petition:
Provided that, where
the debtor is the petitioner, he shall for the purpose of proving his inability
to pay his debts, be required to furnish only such proof as to satisfy the
Court that there are prima facie grounds for believing the same and the
Court, if and when so satisfied, shall not be bound to hear any further
evidence thereon;
(b) that
the debtor, if he does not appear on a petition presented by a creditor, has
been served with notice of the order admitting the petition; and
(c) that
the debtor has committed the act of insolvency alleged against him.
(2) The Court shall also
examine the debtor, if he is present, as to his conduct, dealings and property
in the presence of such creditors as appear at the hearing and the creditors
shall have the right to question the debtor thereon.
(3) The
Court shall, if sufficient cause is shown, grant time to the debtor or to any
creditor to produce any evidence with appears to it to be necessary for the
proper disposal of the petition.
(4) A
memorandum of the substance of the examination of the debtor and of any other
oral evidence given shall be made by the judge, and shall form part of the
record of the case.
25. Dismissal of petitions.-
(1) In the case of a petition presented by a creditor, where the Court is not
satisfied with the proof of his right to present the petition or of the service
on the debtor of notice of the order admitting the petition or of the alleged
act of insolvency, or is satisfied by the debtor that he is able to pay his
debts, or that for any other sufficient cause no order ought to be made, the
Court shall dismiss the petition.
(2) In
the case of a petition presented by a debtor, the Court shall dismiss the
petition if it is not satisfied of his right to present the petition.
26. Award of compensation.-
(1) Where a petition presented by a creditor is dismissed under sub-section (1)
of section 25, and the Court is satisfied that the petition was frivolous or
vexatious, the Court may, on the application of the debtor award against such
creditor such amount, not exceeding one thousand rupees, as it deems a reasonable
compensation to the debtor for the expense or injury occasioned to them by the
petition and the proceedings thereon, and such amount may be realised as if it
were a fine.
(2) An award under this section shall bar any suit
for compensation in respect of such petition and the proceedings thereon.
Order of
Adjudication.
27. Order of adjudication.-
(1) If the Court does not dismiss the petition, it shall make an order of
adjudication, and shall specify in such order the period within which the
debtor shall apply for his discharge.
(2) The Court may, if sufficient cause is shown,
extend the period within which the debtor shall apply for his discharge, and in
that case shall publish notice of the order in such manner as it thinks fit.
28. Effect of an order of adjudication
.-(1) On the making of an order of adjudication, the insolvent shall aid to the
utmost of his power in the realisation of his property and the distribution of
the proceeds among his creditors.
(2) On
the making of an order of adjudication, the whole of the property of the
insolvent shall vest in the Court or in a receiver as hereinafter provided, and
shall become divisible among the creditors, and thereafter, except as provided
by this Act, no creditor to whom the insolvent is indebted in respect of any
debt provable under this Act shall during the pendency of the insolvency
proceedings have any remedy against the property of the insolvent in respect of
the debt, or commence any suit or other legal proceeding, except with the leave
of the court and on such terms as the Court may impose
(3) For
the purpose of sub-section (2), all goods being at the date of the presentation
of the petition on which the order is made, in the possession, order or
disposition of the insolvent in his trade or business, by the consent and
permission of the tune owner, under such circumstances that he is the reputed
owner thereof, shall be deemed to be the property of the insolvent.
(4) All
property which is acquire by or devolves on the insolvent after the date of an
order of adjudication and before his discharge shall forthwith vest in the
Court or receiver, and the provisions of sub-section (2) shall apply in respect
thereof.
(5) The
property of the insolvent for the purposes of this section shall not include
any property (not being books of account) which is exempted by the Code of
Civil Procedure, 1908, or by any other enactment for the time being in force
from liability to attachment and sale in execution of a decree.
(6) Nothing
in this section shall affect the power of any secured creditor to realise or
otherwise deal with his security, in the same manner as he would have been
entitled to realise or deal with it if this section had not been passed.
(7) An
order of adjudication shall relate back to, and take effect from, the date of
the presentation o the petition on which it is made.
29. Insolvent's property to
comprise certain capacity.- The property of the insolvent shall comprise
and shall always be deemed to have comprised also the capacity to exercise and
to take proceedings for exercising all such powers in or over or in respect of
property as might have been exercised by the insolvent for his own benefit at
the commencement of his insolvency or before his discharge.
30. Stay of pending
proceedings.- Any court in which a suit or other proceeding is pending
against a debtor shall, on proof that an order of adjudication has been made
against him under this Act, either stay the proceeding, or allow it to continue
on such terms as such Court may impose.
31. Publication of order of
adjudication.-Notice of an order of adjudication stating the name, address
and description of the insolvent, the date of the adjudication, the period
within which the debtor shall apply for his discharge, and the Court by which
the adjudication is made, shall be published in the Gazette and in such other
manner as may be prescribed.
Proceedings
Consequent on Order of Adjudication.
32. Protection order,-(1)
Any insolvent in respect of whom an order of adjudication has been made may
apply to the Court for protection, and the Court may on such application make
an order for the protection of the insolvent from arrest or detention.
(2) a
protection order may apply either to all the debts of the debtor, or to any of
them as the Court may think proper, and may commence and take effect at and for
such time as the Court may direct, and may be revoked or renewed as the Court
may think fit.
(3) A
protection order shall protect the insolvent from being arrested or detained in
prison for any debt to which such order applies, and any insolvent arrested or
detained contrary to the terms of such an order shall be entitled to his
release:
Provided that no
such order shall operate to prejudice the right of any creditor in the event of
such order being revoked or the adjudication annulled.
(4) Any
creditor shall be entitled to appear and oppose the grant of a protection
order.
33. Power to arrest after
adjudication.-At any time after an order of adjudication has been made, the
Court may, if it has reason to believe on the application of any creditor or
the receiver that the debtor has absconded or departed from the local limits of
its jurisdiction with intent to avoid any obligation which has been, or might
be, imposed on him by or under this Act, order a warrant to issue for his
arrest, and on his appearing or being brought before it, may, if satisfied
that he was absconding or had departed with such intent, order his release on
such terms as to security as may be reasonable or necessary or, if such
security is not furnished, direct that he shall be detained in the civil prison
for a period which may extend to three months.
34. Schedule of creditors.-(1)
When an order of adjudication has been made under this Act, all persons
alleging themselves to be creditors of the insolvent in respect of debts provable
under this Act shall tender proof of their respective debts by producing
evidence of the amount and particulars thereof, and the Court shall, by order,
determine the persons who have proved themselves to be creditors of the
insolvent in respect of such debts, and the amount of such debts, respectively,
and shall frame a schedule of such persons and debts:
Provided that, if, in the opinion of the
Court, the value of any debt is incapable of being fairly estimated, the Court
may make an order to that effect, and thereupon the debt shall not be included
in the schedule.
(2) A copy of every such schedule shall be
posted in the Court-house.
(3) Any
creditor of the insolvent may, at any time before the discharge of the
insolvent, tender proof of his debt and apply to the Court for an order
directing his name to be entered in the schedule as a creditor in respect of
any debt provable under this Act, and not entered in the schedule, and the
Court, after causing notice to be served on the receiver and the other
creditors who have proved their debts, and hearing their objections, if any,
shall comply with or reject the application.
35. Debts provable under the
Act.-(1) Debts which have been excluded from the schedule on the ground
that their value is incapable of being fairly estimated and demands in the
nature of unliquidated damages arising otherwise than by reason of a contract
or a breach of trust shall not be provable under this Act.
(2) Save as provided by sub-section (1), all debts
and liabilities, present or future, certain or contingent, to which the debtor
is subject when he is adjudged an insolvent, or to which he may become subject
before his discharge by reason of any obligation incurred before the date of
such adjudication, shall be deemed to be debts provable under this Act.
Annulment
of Adjudication.
36. Power to annul
adjudication of insolvency.-Where, in the opinion of the Court, a debtor
ought not to have been adjudged insolvent, or where it is proved to the
satisfaction of the Court that the debts of the insolvent have been paid in
full, the Court shall, on the application of the debtor, or of any other person
interested, by order in writing, annual the adjudication and the Court may, of
its own motion or on application made by the receiver or any creditor, annual
any adjudication made on the petition of a debtor who was, by reason of the
provisions of sub-section (2) of Section 10, not entitled to present such
petition.
37. Power to cancel one of
concurrent orders of adjudication- If, in any case in which an order of
adjudication has been made, it shall be proved to the Court by which such order
was made that insolvency proceedings are pending in another Court against the
same debtor, and that the property of the debtor can be more conveniently distributed
by such other Court the Court may annul the adjudication or stay all
proceedings thereon.
38. Proceedings on
annulment.-(1) Where an adjudication is annulled, all sales and
dispositions of property and payments duly made, and all acts theretofore done,
by the Court or receiver shall be valid; but, subject as aforesaid, the
property of the debtor who was adjudged insolvent shall vest in such person as
the Court may appoint, or in default of any such appointment shall revert to
the debtor to the extent of his right or interest therein on such conditions,
if any as the Court may, by order in writing, declare.
(2) Notice of every order annulling an adjudication
shall be published in the Gazette and in such order manner as may be
prescribed.
Compositions
and Schemes of Arrangement.
39. Compositions and schemes
of arrangement.- (1) Where a debtor, after the making of an order of
adjudication, submits a proposal for a composition in satisfaction of his debts
or a proposal for a scheme of arrangement of his affairs, the Court shall fix a
date for the consideration of the proposal, and shall issue a notice to all
creditors in such manner as may be prescribed.
(2) If, on the
consideration of the proposal, a majority in number and three-fourths in value
of all the creditors whose debts are proved and who are present in person or by
pleader, resolve to accept the proposal, the same shall be deemed to be duly
accepted by the creditors.
(3) The debtor
may at the meeting amend the terms of his proposal if the amendment is, in the
opinion of the Court, calculated to benefit the general body of creditors.
(4) Where the
Court is of opinion, after hearing the report of the receiver, if a receiver
has been appointed, and after considering any objections which may be made by
or on behalf of any creditor, that the terms of the proposal are not reasonable
or are not calculated to benefit the general body of creditors, the Court shall
refuse to approve the proposal.
(5) If any
facts are proved on proof of which the Court would be required either to
refuse, suspend or attach conditions to the debtor's discharge, the Court shall
refuse to approve the proposal unless it provides reasonable security for
payment of not less than [thirty-seven
naye paise] in the rupee on all the unsecured debts provable against the
debtor's estate.
(6) No
composition or scheme shall be approved by the Court which does not provide for
the payment in priority to other debts of all debts directed to be so paid in
the distribution of the property of an insolvent.
(7) In any
other case the Court may either approve or refuse to approve the proposal.
40. Order on approval.-If
the Court approves the proposal, the terms shall be embodied in an order of the
Court, and the order of adjudication shall be annulled, and the provisions of
Section 38 shall apply, and the composition or scheme shall be binding on all
the creditors so far as relates to any debt due to them from the debtor and
provable under this Act.
41. Power to re-adjudge
debtor insolvent.-If default is made in the payment of any instalment due
in pursuance of the composition or scheme, or if it appears to the Court that
the composition or scheme cannot proceed without injustice or undue delay, or
that the approval of the Court was obtained by fraud the Court may, if it thinks
fit, re adjudge the debtor insolvent and annual the composition or scheme but
without prejudice to the validity of any transfer or payment duly made or of
anything duly done under or in pursuance of the composition or scheme. When a
debtor is re-adjudged insolvent under this section, all debts provable in other
respects which have been contracted before the date of such re-adjudication
shall be provable in the insolvency.
Discharge.
42. Discharge.-(1) A
debtor may, at any time after the order of adjudication and shall, within the
period specified by the Court, apply to the Court for an order of discharge,
and the Court shall fix a day, notice whereof shall be given in such manner as
may be prescribed, for hearing such application, and any objections which may
be made thereto.
(2) Subject to
the provisions of this section, the Court may, after considering the objections
of any creditor and, where a receiver has been appointed, the report of the
receiver
(a) grant or refuse
an absolute order of discharge; or
(b) suspend the operation
of the order for a specified time; or
(c) grant an order
of discharge subject to any conditions with respect to any earnings or income
which may afterwards become due to the insolvent, or with respect to his after
acquired property.
43. Cases in which Court must
refuse an absolute discharge,-(1) The Court shall refuse to grant an
absolute order of discharge under section 42 on proof of any of the following
facts namely:-
(a) that the
insolvent's assets are not of a value equal to [fifty
naye paise] in the rupee on the amount of his unsecured liabilities, unless he
satisfies the Court that the fact that the assets are not of a value equal to [fifty
naye paise] in the rupee on the amount of his unsecured liabilities has arisen
from circumstances for which he cannot justly be held responsible;
(b) that the insolvent has
omitted to keep such books of account as are usual and proper in the business
carried on by him and as sufficiently disclose his business transactions and
financial position within the three years immediately preceding his insolvency;
(c) that the
insolvent has continued to trade after knowing himself to be insolvent;
(d) that the insolvent has
contracted any debt provable under this Act without having at the time of
contracting it any reasonable or probable ground of expectation (the burden of
proving which shall lie on him that he would be able to pay it;
(e) that the
insolvent has failed to account satisfactorily for any loss of assets or for
any deficiency of assets to meet his liabilities;
(f) that the
insolvent has brought on, or contributed to, his insolvency by rash and
hazardous speculations, or by unjustifiable extravagance in living or by
gambling, or by culpable neglect of his business affairs;
(g) that the
insolvent has, within three months preceding the date of the presentation of
the petition, when unable to pay his debts as they become due, given an undue
preference to any of his creditors;
(h) that the
insolvent has on any previous occasion been adjudged an insolvent or made a
composition or arrangement with his creditors;
(i) that
the insolvent has concealed or removed his property or any part thereof, or has
been guilty of any other fraud or fraudulent breach of trust.
(3) For the
purposes of this section, the report of the receiver shall be deemed to be
evidence; and the Court may presume the correctness of any statement contained
therein.
(4) The powers
of suspending, and of attaching conditions to, an insolvent's discharge may be
exercised concurrently.
44. Adjudication to be
annulled on failure to apply for discharge.-(1) If the debtor does not
appear on the day fixed for hearing his application for discharge or on such
subsequent day as the Court may direct, or if the debtor does not apply for an
order of discharge within the period specified by the Court, the Court may
annual the order of adjudication or make such other order as it may think fit,
and if the adjudication is so annulled, the provisions of Section 38 shall
apply.
(2) Where a debtor has
been released from custody under the provisions of this Act and the order of
adjudication is annulled under sub-section (1), the Court may, if it thinks
fit, recommit the debtor to his former custody, and the officer in charge of
the prison to whose custody such debtor is so recommitted shall receive such debtor
into his custody according to such re-commitment, and thereupon all process
which were in force against the person of such debtor at the time of such
release as aforesaid shall be deemed to be still in force against him as if no
order of adjudication had been made.
45. Effect of order of
discharge.-(1) An order of discharge shall not release the insolvent from-
(a) any debt due to
the Government;
(b) any debt or liability
incurred by means of any fraud or fraudulent breach of trust to which he was a
party;
(c) any debt or
liability in respect of which he has obtained forbearance by any fraud to which
he was a party; or
(d) any liability under an
order for maintenance made under Section 488 of the Code of Criminal
Procedure, 1898,
(2) Save as
otherwise provided by sub-section (1), an order of discharge shall release the
insolvent from all debts provable under this Act.
(5) An order
of discharge shall not release any person who, are the date of the presentation
of the petition, was a partner or co-trustee with the insolvent, or was jointly
bound or had made any joint contract with him or any person who was surety for
him.
PART III
ADMINISTRATION
OF PROPERTY.
Method of
proof of debts.
46. Debt payable at a future
time.- A creditor may prove for a debt not payable when the debtor is
adjudged an insolvent as if it were payable presently, and may receive
dividends equally with the other creditors, deducting therefrom only a rebate
of interest at the rate of six per centum per annum computed from the
declaration of a dividend to the time when the debt would have become payable,
according to the terms on which it was contracted.
47. Mutual dealings and set
off.-Where there have been mutual dealings between an insolvent and a
creditor proving or claiming to prove a debt under this Act, an account shall
be taken of what is due from the one party to the other in respect of such
mutual dealings, and the sum due from the one party shall be set off against
any sum due from the other party, and the balance of the account, and no more, shall
be claimed or paid on either said respectively.
48. Secured creditors.-(1)
Where a secured creditor realises his security he may prove for the balance
due to him, after deducting the net amount realised.
(2) Where a
secured creditor relinquishes his security for the general benefit of the
creditors, he may prove for his whole debt.
(3) Where a
secured creditor does not either realise or relinquish his security, he shall,
before being entitled to have his debt entered in the schedule, state in his
proof the particulars of his security, and the value at which he assesses it,
and shall be entitled to receive a dividend only in respect of the balance due
to him after deducting the value so assessed.
(4) Where a
security is so valued, the Court may at any time before realisation redeem it
on payment to the creditor of the assessed value.
(5) Where a
creditor, after having valued his security subsequently realises it, the net
amount realised shall be substituted for the amount of any valuation previously
made by the creditor, and shall be treated in all respects as an amended
valuation made by the creditor.
(6) Where a
secured creditor does not comply with the provisions of this section, he shall
be excluded from all share in any dividend.
49. Interest.-(1) On any
debt or sum certain whereon interest is not reserved or agreed for, and which
is overdue when the debtor is adjudged an insolvent, and which is provable
under this Act, the creditor may prove for interest at a rate not exceeding
six per centum per annum,-
(a) if the debt or
sum is payable by virtue of a written instrument at a certain time, from the
time when such debt or sum was payable to the date of such adjudication, or,
(b) if the debt or sum is
payable otherwise, from the time when a demand in writing has been made giving
the debtor notice that interest will be claimed from the date of the demand
until the time of payment to the date of such adjudication.
(3) Where a
debt which has been proved under this Act includes interest or any pecuniary
consideration in lie of interest, the interest or consideration shall, for the
purposes of dividend, be calculated at a rate not exceeding six per centum per
annum, without prejudice to the right of a creditor to receive out of the
debtor's estate any higher rate of interest to which he may be entitled after
all the debts proved have been paid in full.
50. Mode of proof.-(1) A
debt may be proved under this Act by delivering, or sending by post in a
registered letter, to the Court an affidavit verifying the debt.
(2) The
affidavit shall contain or refer to a statement of account showing the
particulars of the debt, and shall specify the vouchers (if any) by which the
same can be substantiated. The Court may at any time call for the production
of the vouchers.
51. Disallowance and
reduction of entries in schedule.-(1) Where the receiver thinks that a debt
has been improperly entered in the schedule, the Court may, on the application
of the receiver and after notice to the creditor, and such inquiry (if any) as
the Court thinks necessary, expunge such entry or reduce the amount of the
debt.
(2) The Court
may also, after like inquiry, expunge an entry or reduce the amount of a debt
upon the application of a creditor where no receiver has been appointed, or
where the receiver declines to interfere in the matter or, in the case of a
composition or scheme, upon the application of the debtor.
Effect of
insolvency on antecedent transactions.
52. Restriction of rights of
creditor under execution.-(1) Where execution of a decree has issued
against the property of a debtor, no person shall be entitled to the benefit of
the execution against the receiver except in respect of assets realised in the
course of the execution by sale or otherwise before the date of the admission
of the petition.
(2) Nothing in
this section shall affect the right of a secured creditor in respect of the
property against which the decree is executed.
(3) A person
who in good faith purchases the property of a debtor under a sale in execution
shall in all cases acquire a good title to it against the receiver.
53. Duties of Court executing
decree as to property taken in execution..-Where execution of a decree has
issued against any property of a debtor which is saleable in execution and
before the sale thereof notice is given to the Court executing the decree that
an insolvency petition by or against the debtor has been admitted, the Court
shall, on application, direct the property, if in the possession of the Court
to be delivered to the receiver, but the costs of the suit in which the decree
was made and of the execution shall be a first charge on the property so
delivered, and the receiver may sell the property or an adequate part thereof
for the purpose of satisfying the charge.
54. Avoidance of voluntary
transfer.-Any transfer of property not being a transfer made before and in
consideration of marriage or made in favour of a purchaser or incumbrancer in
good faith and for valuable consideration shall, if the transferer is adjudged
insolvent on a petition presented within two years after the date of the transfer,
be voidable as against the receiver and may be annulled by the Court
55. Avoidance of preference
in certain case.-(1) Every transfer of property, every payment made, every
obligation incurred, and every judicial proceeding taken or suffered by any
person unable to pay his debts as they become due from his own money in favour
of any creditor, with a view of giving that creditor a preference over the
other creditors, shall, if such person is adjudged insolvent on a petition
presented within three months after the date thereof, be deemed fraudulent and
void as against the receiver and shall be annulled by the Court.
(2) This
section shall not affect the rights of any person who in good faith and for
valuable consideration has acquired a title through or under a creditor of the
insolvent.
56. By whom petitions for
annulment may be made.-A petition for the annulment of any transfer under
Section 54 or of any transfer, payment, obligation or judicial proceeding under
Section 55 may be made by the receiver or, with the leave of the Court, by any
creditor who has proved his debt and who satisfies the Court that the receiver
has been requested and has refused to make such petition.
57. Protection of bonafide
transactions.-Subject to the foregoing provisions of this Act with respect
to the effect of insolvency on an execution, and with respect to the avoidance
of certain transfers and preferences, nothing in this Act shall invalidate in
the case of an insolvency-
(a) any payment by
the insolvent to any of his creditors;
(b) any payment or
delivery to the insolvent;
(c) any transfer by
the insolvent for valuable consideration; or
(d) any contract or
dealing by or with the insolvent for valuable consideration:
Provided that any such
transaction takes place before the date of the order of adjudication, and that
the person with whom such transaction takes place has not at the time, notice
of the presentation of any insolvency petition by or against the debtor.
Realisation of property.
58. Appointment of receiver.-(1)
The Court may, at the time of the order of adjudication, or at any time
aftetrwards, appoint a receiver for the property of the insolvent, and such
property shall thereupon vest in such receiver.
(2) Subject to
such conditions as may be prescribed, the Court may-
(a) require the
receiver to give such security as it thinks fit duly to account for what he
shall receive in respect of the property; and
(b) by general or special
order, fix the amount to be paid as remuneration for the services of the
receiver out of the assets of the insolvent
(3) Where the
Court appoints a receiver, it may remove the person in whose possession or
custody any such property as aforesaid is from the possession or custody
thereof:
Provided that nothing
in this section shall be deemed to authorise the Court to remove from the possession
or custody of property any person whom the insolvent has not a present right so
to remove.
(4) Where a
receiver appointed under this section-
(a) fails to submit
his accounts at such periods and in such form as the Court directs; or
(b) fails to pay the balance
due from him thereon as the Court directs; or
(c) Occasions loss
to the property by his wilful default or gross negligence;
the Court may direct his
property to be attached and sold, and may apply the proceeds to make good any
balance found to be due from him or any loss so occasioned by him.
(5) The
provisions of this section shall apply, so far as may be, to interim receivers
appointed under Section 20.
59. Power to appoint Official
Receivers.-(1) The Government may appoint such persons as they think fit (to
be called 'Official Receivers') to be receivers under this Act within such
local limits as they may prescribe.
(2) Where any
Official Receiver has been so appointed for the local limits of the
jurisdiction of any Court having jurisdiction under this Act, he shall be the
receiver for the purpose of every order appointing a receiver or an interim
receiver issued by any such Court, unless the Court for special reasons
otherwise directs.
(3) Any sum
payable under clause (b) of sub-section (2) of section 58 in respect of the
services of an Official Receiver shall be credited to such fund as the
Government may direct.
(4) Every
Official Receiver shall receive such remuneration out of the said fund or
otherwise as the Government may fix in this behalf, and no remuneration
whatever beyond that so fixed shall be received by the Official Receiver as
such.
60. Power of Court if no
receiver appointed.-Where no receiver is appointed the court shall have all
the rights of and may exercise all the powers conferred on, a receiver under
this Act.
61. Duties and powers of
receiver.-Subject to the provisions of this Act, and such other provisions
as may be prescribed the receiver shall, with all convenient speed, realise the
property of the debtor and distribute dividends among the creditors entitled
thereto and for that purpose may-
(a) sell all or any
part of the property of the insolvent;
(b) give receipts for any
money received by him and may, by leave of the Court, do all or any of the
following things, namely:-
(c) carry on the
business of the insolvent so far as may be necessary for the beneficial winding
up of the same;
(d) institute, defend or
continue any suits or other legal proceedings relating to the property of the
insolvent;
(e) employ a pleader
or other agent to take any proceedings or do any business which may be
sanctioned by the Court;
(f) accept as
the consideration for the sale of any property of the insolvent a sum of money
payable at a future time subject to such stipulations as to security and
otherwise as the Court thinks fit;
(g) mortgage or
pledge any part of the property of the insolvent for the purpose of raising
money for the payment of his debts;
(h) refer any
dispute to arbitration, and compromise all debts, claims and liabilities, on
such terms as may be agreed upon; and
(i) divide
in its existing form amongst the creditors, according to its estimated value,
any property which, from its peculiar nature or other special circumstances,
cannot readily or advantageously be sold.
62. Power to require
information regarding insolvent's property.-(1) The Court, if specially
empowered in this behalf by an order of the Government, or any officer of the
Court so empowered by a like order, may, on the application of the receiver or
any creditor who has proved his debt, at any time after an order of adjudication
has been made, summon before it in the prescribed manner any person known or
suspected to have in his possession any property belonging to the insolvent or
supposed to be indebted to the insolvent, or any person whom the Court or such
officer, as the case may be, may deem capable of giving information respecting
the insolvent or his dealings or property, and the Court or such officer may
require any such person to produce any documents in his custody or power
relating to the insolvent or to his dealings or property.
(2) If
any person so summoned, after having been tendered a reasonable sum, refuses to
come before the Court or such officer at the time appointed, or refuses to
produce any such document, having no lawful impediment made known to and allowed
by the Court or such officer, the Court or such officer may, by warrant, cause
him to be apprehended and brought up for examination.
(3) The
Court or such officer may examine any person so brought before it or him
concerning the insolvent, his dealings or property, and such person may be
represented by a legal practitioner.
63. Special provisions in
regard to immovable property.-(1) In any local area in which a declaration
has been made under section 68 of the Code of Civil Procedure, 1908, and is in
force no sale of immovable property paying revenue to the Government or held or
let for agricultural purposes shall be made by the receiver; but after the
other property of the insolvent has been realised, the Court shall ascertain-
(a) the amount
required to satisfy the debts proved under this Act after deducting the moneys
already received;
(b) the immovable property
of the insolvent remaining unsold; and
(c) the incumbrances
(if any) existing thereon;
and shall forward a
statement to the Collector containing the particulars aforesaid; and thereupon
the Collector shall proceed to raise the amount so required by the exercise of
such of the powers conferred on him by paragraph 2 to 10 of the Third Schedule
to the said Code as he thinks fit, and subject to the provisions of those
paragraphs so far as they are applicable, and shall hold at the disposal of the
Court all sums that may come to his hands, by the exercise of such powers.
(2) Nothing
in this Act shall be deemed to affect any provisions of any enactment for the
time being in force prohibiting or restricting the execution of decrees or
orders against immovable property; and any such provisions shall be deemed to
apply to the enforcement of an order of adjudication made under this Act as if
it were such a decree or order.
Distribution of Property.
64. Priority of debts.-(1)
In the distribution of the property of the insolvent there shall be paid in
priority to all other debts-
(a) all debts due to
the Government or to any local authority; and
(b) all salary or wages,
not exceeding forty five rupees in all, of any clerk, servant, or labourer in
respect of services rendered to the insolvent during four months before the
date of the presentation of the petition.
(2) The debts specified
in sub-section (1) shall rank equally between themselves, and shall be paid in
full, unless the property of the insolvent is insufficient to meet them, in
which case they shall abate in equal proportions between themselves.
(3) Subject to the retention
of such sums as may be necessary for the expenses of administration or
otherwise, the debts specified in sub-section (1) shall be discharged forthwith
in so far as the property of the insolvent is sufficient to meet them.
(4) In the case of
partners, the partnership property shall be applicable in the first instance in
the payment of the partnership debts and the separate property of each partner
shall be applicable in the first instance in payment of his separate debts.
Where there is a surplus of the separate property of the partners, it shall be
dealt with as part of the partnership property; and where there is a surplus of
the partnership property, it shall be dealt with as part of the respective
separate property in proportion to the rights and interests of each partner in
the partnership property
(5) Subject to the
provisions of this Act, all debts entered in the schedule shall be paid
rateably according to the amounts of such debts respectively and without any
preference.
(6) Where there is any
surplus after payment of the foregoing debts, it shall be applied in payment of
interest from the date on which the debtor is adjudged an insolvent at the rate
of six per centum per annum on all debts entered in the schedule.
65. Calculation of dividends.-(1)
In the calculation of dividends, the receiver shall retain in his hands
sufficient assets to meet-
(a) debts provable
under this Act and appearing, from the insolvent's statements or otherwise, to
be due to persons resident in places so distant that in the ordinary course of
communication they have not had sufficient time to tender their proofs;
(b) debts provable under
this Act, the subject of claims not yet determined;
(c) disputed proofs
or claims; and
(d) the expenses necessary
for the administration of the estate or otherwise.
(2) Subject
to the provisions of sub-section (1), all money in hand shall be distributed as
dividends.
66. Right of creditor who has
not proved debt before declaration of a dividend.- Any creditor who has not
proved his debt before the declaration of any dividend or dividends shall be
entitled to be paid, out of any money for the time being in the hands of the
receiver, any dividend or dividends which he may have failed to receive before
that money is applied to the payment of any future dividend or dividends; but he
shall not be entitled to disturb the distribution of any dividend declared
before his debt was proved by reason that he has not participated therein.
67. Final dividend.-When
the receiver has realised all the property of the insolvent or so much thereof
as can, in the opinion of the Court, be realised without needlessly protracting
the receivership, he shall declare a final dividend but before so doing, he
shall give notice in the manner prescribed to the persons whose claims to be
creditors have been notified but not proved, that if they do not prove their
claims within the time limited by the notice, he will proceed to make a final
dividend without regard to their claims. After the expiration of the time so
limited, or if the Court, on application by any such claimant, grants him
further time for establishing his claim, then on the expiration of such further
time, the property of the insolvent shall be divided among the creditors
entered in the schedule without regard to the claims of any other persons.
68. No suit for dividend.-No
suit for a dividend shall lie against the receiver, but where the receiver
refuses to pay any dividend, the Court may, on the application of any creditor
who is entered in the schedule, order him to pay it, and also to pay out of his
own money interest thereon for the time that it is withheld and the costs of
the application.
69. Management by and
allowance to insolvent.-(1) The Court may appoint the insolvent himself to
superintend the management of the property of the insolvent or of any part
thereof, or to carry on the trade (if any) of the insolvent for the benefit of
the creditors, and in any other respect to aid in administering the property in
such manner and on such terms as the Court may direct.
(2) The Court
may, from time to time, make such allowance as it may think just to the
insolvent out of his property for the support of himself and his family, or in
consideration of his service if he engaged in winding up his estate; but any
such allowance may, at any time, be varied or determined by the Court..
70. Right of insolvent to
surplus.-The insolvent shall be entitled to any surplus remaining after
payment in full of his creditors with interest as provided by this Act, and of
the expenses of the proceedings taken thereunder.
71. Committee of inspection.-(1)
The Court may, if it thinks fit, authorise the creditors who have proved their
debts to appoint a committee of inspection for the purpose of superintending
the administration of the insolvent's property by the receiver.
(2) The
persons appointed to a committee of inspection shall be creditors who have
proved their debts or persons holding general powers-of-attorney from such
creditors.
(3) The
committee of inspection shall have such powers of control over the proceedings
of the receiver as may be prescribed.
Appeal to
Court against Receiver.
72. Appeal to Court against
receiver.-If the insolvent or any of the creditors or any other person is
aggrieved by any act or decision of the receiver, he may apply to the Court,
and the Court may confirm, reverse or modify the act or decision complained of,
and make such order as it thinks just:
Provided that no application under this section
shall be entertained after the expiration of twenty one days from the date of
the act or decision complained of.
PART IV.
PENALTIES.
73. Offences by debtors.-If
a debtor, whether before or after the making of an order of adjudication,-
(a) wilfully fails
to perform the duties imposed on him by Section 22 or to deliver up possession
of any part of his property which is divisible among his creditors under this
Act, and which is for the time being in his possession or under his control to
the Court or to any person authorised by the Court to take possession of it, or
(b) fraudluently with
intent to conceal the state of his affairs or to defeat the objects of this
Act,-
(i)
has destroyed or otherwise wilfully prevented or purposely withheld the
production of any document relating to such of his affairs as are subject to
investigation under this Act, or
(ii)
has kept or caused to be kept false books, or
(iii)
has made false entries in or withheld entries from or wilfully altered
or falsified any document relating to such of his affairs as are subject to
investigation under this Act, or
(c) fraudulently
with intent to diminish the sum to be divided among his creditors or to give an
undue preference to any of his creditors,-
(i)
has discharged or concealed any debt due to or from him, or
(ii)
has made away with, charged, mortgaged or concealed any part of his
property of any kind whatsoever,
he shall be punishable
on conviction with imprisonment which may extend to one year.
74. Procedure on charge under
Section 73.-Where the Court is satisfied, after such preliminary inquiry,
if any, as it thinks necessary, that there is ground for inquiring into any
offence referred to in Section 73 and appearing to have been committed by the
insolvent, the Court may record a finding to that effect and make a complaint
of the offence in writing to a Magistrate of the First Class having
jurisdiction, and such Magistrate shall deal with such complaint in the manner
laid down in the Code of Criminal Procedure 1898.
75. Criminal liability after
discharge or composition.-Where an insolvent has been guilty of any of the
offence specified in Section 73, he shall not be exempt from being proceeded
against therefor by reason that he has obtained his discharge or that a
composition or scheme of arrangement has been accepted or approved.
76. Undischarged insolvent
obtaining credit.-(1) An undischarged insolvent obtaining credit to the
extent of fifty rupees or upwards from any person without informing such person
that he is an undischarged insolvent shall, on conviction by a Magistrate, be
punishable with imprisonment for a term which may extend to six months, or with
fine or with both.
(2) Where the
Court has reason to believe that an undischarged insolvent has committed the
offence referred to in sub-section (1), the Court, after making any preliminary
inquiry that may be necessary, may send the case for trial to the nearest
Magistrate of the First class, and may send the accused in custody or take
sufficient security for his appearance before such Magistrate; and may bind
over any person to appear and give evidence on such trial.
77. Disqualifications of
insolvent.-(1) Where a debtor is adjudged or re-adjudged insolvent under
this Act, he shall, subject to the provisions of this section, be disqualified
from being appointed or acting as a judicial officer.
(2) The
disqualification which an insolvent is subject to under this section shall be
removed, and shall cease, if-
(a) the order of
adjudication is annulled under Section 36, or
(b) he obtains from the
Court an order of discharge whether absolute or conditional, with a certificate
that his insolvency was caused by misfortune without any misconduct on his part.
(3) The Court
may grant or refuse such certificate as it thinks fit, but any order of
refusal shall be subject to appeal.
PART V
SUMMARY
ADMINISTRATION