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PRESIDENCY TOWNS INSOLVENCY ACT, 1909

PRESIDENCY TOWNS INSOLVENCY ACT, 1909

3 OF 1909

"The object of this Bill is to amend the Law of Insolvecy in force in the Presidency-towns and in the town of Rangoon. That law is at present contained in Insolvency Act, 1848 ( 11 and 12 Vict. C. 21 ) a statute framed on the same lines as the English Acts before 1869. Those Acts were long since found inadequate in England; they were superseded by the Bankruptcy Act, 1869 and the law was again recast and re-enacted by the existing Act of 1883. In India however no amendment has been made although for many years past it has been generally admitted that the present Act is altogether out of date and ineffective. As long ago as 1870 Sir James Stephen introduced a Bill to repeal the existing law and to substitute for it an Insolvency Law based on English Bankruptcy Act, 1869. This Bill was applicable to the whole of India. It was considered to be too complicated for the mufassal and was withdrawn. In 1883 the present Bankruptcy Act was passed in England and Sir C. Ilbert proposed to the Government of India to introduce a Bill based on the lines of that Act to supersede the Statute of 1848. The proposal to pass an entirely new enactment met with general approval. It was supported by the various Chambers of Commerce and by the High Courts, accepted by the Government of India and approved by the Secretary of State. A Bill was drafted accordingly and was introduced in the Legislative Council at Simla on the 20th May, 1886. This Bill followed with some exactness the English Act and contained provisions taken from that Act which were commonly thought to go somewhat beyond the needs of India. For some reason it was not immediately proceeded with; indeed, no further step was taken until 1899, when the Bill was referred to a Select Committee who reported that as drafted it was too complicated to suit Indian conditions and advised that it should be modified. Nothing has been done since. Meantime the commercial communities have not ceased to urge reform. In 1902 in commenting on Code of Civil Procedure, 1908 Bill, the Bengal Chamber of commerce expressed their disappointment that no indication of any intended amendment of the Insolvency Law in the Presidency-towns was put forward. They observed that the necessity for a new law was increasing and that in the public interests and particularly in the interests of the trading community, the desired amendment should no longer be delayed within the last year they have made a similar representation, and it cannot be doubted that their opinion is shared by the Chartered High Courts and by the representatives of commerce in the other Presidency-towns. In the last session of the Legislative Council an Act was passed dealing with insolvency in the mufassal on modern lines, but that Act has no application to the presidency-towns or to Rangoon. The main defect of the existing law lies in the absence of any adequate powers to compel the production of assets. primary Object of the Act, 1847 was the protection of debtors; the provision it makes for the discovery of the property of insolvents is treated as of secondary importance and has long since been found insufficient to prevent fraud. The protection of honest debtors should be one of the objects of every Insolvency Law, although it is of less importance now than 'it was in 1848, when imprisonment for debt was more frequent. But it is equally important in the interests of commerce that creditors should not be defrauded and that dishonest debtors should not be able to make use of insolvency proceedings merely to free themselves from their liabilities while preserving their assets more or less intact. The present Bill follows the general lines of the English Act, but there are important simplifications introduced to meet the different conditions of India. It continues the existing protection for debtors but, at the same time, sets up a machinery by which the whole of the assets of an insolvent should be secured for the benefit of the creditors. The details of this machinery are for consideration, but it is thought that there will be general agreement as to the desirability of a new law on the lines of the Bill. The first point of substance to which it is desired to invite attention is the question of the stage of which there should be adjudication. Under the Act of 1848 adjudication takes place on the presentation of a petition. The Bill of 1886, following the English law, provided for a receiving order in the first instance, but the Committee of 1892 reported that the interposition of a receiving order with all the legal and other complications attendant on it, between the presentation of a petition and adjudication was undesirable . This view has been adopted in the present draft; there is no provision in it for any receiving order, adjudication is to be made, as under the existing law, on petition. This adjudication will be made as of course on all debtors petitions and all creditors' petitions which are dropped. The Provincial Insolvency Act proceeds on an alternative cause and provides for adjudication after a hearing of the petition at which the creditors may appear and cross-examine the debtor. The conditions in the Presidency-towns, however, differ from those in the mufassal and there is less danger of adjudication being made on insufficient materials. The second stage under the Bill will be a meeting of the creditors and a public examination of the debtor by the Court. These two provisions should enable the creditors to obtain full information as to the dealings of the insolvent and the assets of his estate. The third and last stage will be the discharge. This cannot be granted until after the public examination ofthe insolvent has been concluded and may be refused or suspended if the insolvent is found to have been guilty of misconduct. An order of adjudication operates of itself to release the debtor from prison; it is no longer necessary therefore to retain the provisions of the present Act relating to applications for personal discharge. Provisions have been made for compositions and schemes of arrangement which are, it. is hoped, of a practical, character. The distinction between traders and non-traders has been abolished. Under the Act there is power to appoint special assignees, but it is believed that this power has never in fact beep exercised in recent years. The object of it is to secure for the creditors some control over the proceedings in insolvency, but the fact that it is not made use of appears' to show that it is ineffective for that purpose. It is proposed therefore, for consideration, that the power to appoint special assignees should not be retained, but that there should be power to appoint a committee of creditors to supervise proceedings in cases in which it may be desirable to do so. This procedure is new to Indian law and for that reason it seems inexpedient, in the first instance, to define with any exactness the extent of the control which should be given to such committees. It is thought better to Lave the matter to roles, in order that advantage may be taken of experience. Under the English system the supervising authority for bankruptcy proceedings is the Board of Trade, but ] India we have nothing corresponding to that body; powers of supervision must therefore be left to the Courts.......surrenuering any practical advantage by giving up the position we hold under the 1848 Act. In any case we cannot allow this consideration to be a perpetual bar to the reform of Insolvency Law in India." -Gaz, of Ind., 1908, Part V, page 275. "If this Bill be passed into law it will be necessary to repeal the 1848 Act, and this raise a question which deserves consideration. The present Act is an Act of the imperial Parliament and a vesting order made under it vests in the assignee by direct operation all the real and personal estate and effects of the insolvent in whatever part of the King's dominions they may be situate or accrue; and a discharge under the Act has effect in every part of those dominions. The Act is one of those which it is within the competency of the Legislative Council of the Governor-General to repeal, but if it be repealed and an Indian Act be substituted, it follows that these advantages must at least for the most part be abandoned, since an Act of the Indian Legislature cannot operate for this purpose outside the limits of India. In 1886 it was proposed that an Act of the Imperial Parliament should be obtained to give this authority to insolvency proceedings in India, but no such Act has as yet been passed. It is believed, however, that the advantages conferred by the Act of 1848 are of no real value, since experience has shown that in practically every case in which there are assets in both countries concurrent proceedings are instituted in England and in India. It may be that the Imperial Parliament will. at some future date, pass an enactment to give direct effect to Indian and Colonial insolvency proceedings in all parts of the Empire, but meantime it would appear that we are not Court. We have carefully considered it, but for reasons which we will proceed to state we do not think that it should prevail. The law of insolvency now in force in the Presidency-towns, the Act of 1848, is an enactment of the Imperial Parliament; it has effect therefore throughout the British Dominions. But this Bill, if it becomes law, will be an Act of the Indian Legislature and can therefore only operate in British India; it follows that a vesting order and an order of discharge cannot be given the same scope under this Bill as they have under the present law. On the other hand, if we are to wait for Imperial legislation, the amendment of the law may have to be postponed indefinitely. The question for the consideration of Council is whether we shall gain more by passing the Bill into law than we shall lose by giving up the advantages of an Imperial Act. We append to our report a note by our colleague [not reproduced here], the Honourable Mr. Macleod, the Official Assignee of Bombay, in which this question is discussed in detail, and we agree in his conclusion that the Bill should be passed at once. We think that the Imperial Parliament might well be asked hereafter to enact a short Act to give the same wide effect to vesting orders and discharges made under the Bill after it becomes law as is given under the present Insolvency Act; but we do not think that the amendment of the law in India should wait upon Imperial legislation for we are unanimously of opinion that the advantages to be gained under the Bill will altogether outweigh any disadvantages that may be suffered by giving up the present Act. If the law in the Presidency-towns rests on the authority of the Indian Legislature alone, we shall at least be in no worse position than other British Colonies, and we believe that no difficulty has hitherto been found in giving effect to bankruptcy proceedings in any one of those colonies either in the United Kingdom or elsewhere in the British dominions. We venture to think that in the discussions on this subject the wide scope of S.117 of the Bankruptcy Act of 1883 [46 and 47 Vict. C. 521 has been overlooked. That section has effect throughout the British Empire and is binding on every British Court. It provides that all British Courts having jurisdiction in insolvency shall severally act in aid of and be auxiliary to each other in all matters of bankruptcy, and it enacts that 'An order of the Court seeking aid, with a request to another of the said Courts shall be deemed sufficient to enable the latter Court to exercise, in regard to the matters directed by the order, such jurisdiction as either the Court which made the request, or the Court to which the request is made, could exercise in regard to similar matters within their respective jurisdiction.' This provision is in wide terms and we are of opinion that under it the assignee of an insolvent estate in India would have facilities for collecting assets in any place in the British dominions sufficient for all practical purposes. The effect of it has "not, we think, been sufficiently explained hitherto, and we are not without hopes that further consideration of the powers which it conrers may modify the opinions of those who have entertained doubts as to the advisability of repealing the existing Act. We have inserted a clause (126) in the Bill to call the attention of Courts in India to this section and to make it incumbent on them to give effect to it. The Madras Chamber of Commerce and the Solicitors' Association of that town have pointed out that under the Bill as introduced some question might arise as to the limits of the jurisdiction of the Courts acting under it. We have amended the wording to meet this point. It has been suggested that the Bill should be extended to Karachi, but Provincial Insolvency Act, 1920 is now in force and under it there is for the first time a law of insolvency in that town as in the other trading centres in the mufassal. The Act has been in operation for twelve months and we have not heard that it has been found inadequate; but in any case we would not advise an alteration of the law after so short a trial. If hereafter it be found desirable to extend this Bill to Karachi or other trading centres, it can easily be done. We desire to point out that one effect of the Bill is to enable the Chief Justice to delegate responsible duties to the Registrar or other officer of the Court. If that is done we think that it will be necessary to appoint a trained lawyer to carry out these duties. The number of clauses in the Bill in its present form has been increased. This is due to the fact that we have broken up some of the clauses in the Bill as introduced which were unduly long and cumbersome. The particular amendments which we recommend will be found dealt with in detail in the Appendix to this report. [This Appendix is omitted.]. The main points on which changes have been made are these: (a) Under the Bill as introduced adjudication was to be made on creditors' petitions only after service of the petition on the debtor. We think that the present practice should be maintained and that adjudication should be made ex parte unless the Court thinks fit to direct service, (b) Exception was taken by the High Court of Calcutta and Bombay to the provision that adjudication should operate to release debtors from imprisonment. We accept their view and have struck out this provision; and we have inserted a clause to enable a debtor to apply to the Court, as now for a protection order from arrest, (c) The provision as to the first meeting of creditors was compulsory under the Bill. We think that such meetings should be called only when directed by the Court, and we have introduced an amendment to give effect to that view. A Schedule with rules for meetings has been added (d) The title of the official assignee is made to relate back to the act of insolvency instead to the date of presentation of the petition, (e) The existing criminal jurisdiction of the Insolvency Court has been maintained but directions have been given as to the procedure to be followed. Among minor changes we have struck out those provisions which related to acts done after notice of the act of insolvency. The Committee which has recently sat to examine the Bankruptcy Law in England point out that a provision of this Character must introduce an elements of uncertainty into business transactions, and we agree with their view. We suggest that to constitute an act of insolvency property must be sold, or attached for 21 days instead of being merely attached; and we have made the list of excepted articles the same as in the present Act, We have added provisions for the execution of warrants of the Insolvency Court. We have had before us the Report of the English Committee on Bankruptcy to which reference has been made and, in framing the amendments to the Bill, have given full consideration to their suggestions. We recommend that the Bill, if it is passed in the present session, should not come into force until the 1st January, 1910, in order that Courts and practitioners may have an opportunity of making themselves acquainted with the changes in law effected by it ............." -Gaz. of Ind., 1909, Part V, page 3. Amending Act 28 of 1978.- The difficulties experienced by a litigant in India in executing even a simple money decree have been commented upon by the Privy Council as well as by the Law Commission and the Expert Committee on Legal Aid. The Law Commission in its Third Report on Limitation Act, 1908, has recommended that the most effective way of instilling a healthy fear in the mind of dishonest judgment-debtor would be to enable the Court to adjudicate him an insolvent if he does not pay the decretal amount after notice by the decree-holder, by specifying a period within which it should be paid, on the lines of the amendment made to the Presidency-towns Insolvency Act, 1909 in Bombay. This recommendation was reiterated by the Law Commission in its Twenty Sixth Report on Insolvency Laws. 2. The Expert Committee on Legal Aid was also of the view that the above recommendation of the Law Commission should be implemented immediately without waiting for the enactment of a comprehensive law of insolvency. 3. It is, therefore, proposed to amend the Presidency-towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920, to add a new act of insolvency, namely, that a debtor has not complied with the insolvency notice served on him by a creditor, who has obtained a decree or order against him for the payment of money, within the period specified in the notice. If the amount shown in the insolvency notice is not correct, it would be invalidated if the debtor gives notice to the creditor disputing the amount. The debtor can, however, apply to the Court to have the insolvency notice set aside on the ground, among others, that he is entitled to have the decree re-opened under any law relating to relief of debtedness or that the decree is not executable under any such law. 4. The Bill seeks to achieve the above objects- Gaz.of Ind., 18-3-1978, pt. II, S .2, Ext., p. 188. An Act to amend the Law of Insolvency in the Presidency towns b [* * *]. WHEREAS it is expedient to amend the law relating to insolvency in the Presidency-towns c [* * *] ; It is hereby enacted as follows :-

PART 1 : CONSTITUTION AND POWERS OF COURT

SECTION 1 : Short title and commencement

(1) This Act may be called The (Presidency-Towns Insolvency Act, 1909) .

(2) It shall come into force on the first day of January, 1910.

SECTION 2 : Definitions

In this Act, unless there is anything repugant in the subject or context,-

(a) "creditor" includes a decree-holder;

(b) "debt" includes ajudgment-debt, and "debtor" includes ajudgment-debtor; 3 (a) [a] The word 'and' was omitted by the Repealing and Amending Act, 1960 (58 of 1960), Section 2 and Schedule II (16-12-1960). [* * * * * * * *]

(c) "official assignee" includes an acting official assignee 3 (a) [a] The word 'and' was omitted by the Repealing and Amending Act, 1960 (58 of 1960), Section 2 and Schedule II (16-12-1960).(and a deputy official assignee, whether permanent or acting];

(d) "prescribed" means prescribed by rules;

(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) "rules" means rules made under this Act;

(g) "secured creditor" includes a landlord who under any enactment for the time being in force has a charge on land for the rent of that land;

(h) "the Court" means the Court exercising jurisdiction under this Act; 3 (a) [a] The word 'and' was omitted by the Repealing and Amending Act, 1960 (58 of 1960), Section 2 and Schedule II (16-12-1960).[*].

(i) "transfer of property" includes a transfer of any interest therein and any charge created thereon;

3 (a) [a] The word 'and' was omitted by the Repealing and Amending Act, 1960 (58 of 1960), Section 2 and Schedule II (16-12-1960).[(j) "States" means all the territories [which immediately before the 1st November, 1956, were comprised] within Part A States and Part C States.]

SECTION 3 : Courts having jurisdiction in insolvency

The Courts having jurisdiction in insolvency under this Act shall be 3 (a) [a] Substituted for the original Cls. (a) and (b) by A.C.A.O., 1948[the High Courts at Calcutta, Madras and Bombay.]

SECTION 4 : Jurisdiction to be exercised by a single Judge

All matters in respect of which jurisdiction is given by this Act shall be ordinarily transacted and disposed of by or under the direction of one of the Judges of the Court, and the Chief Justice 3 (a) [a] The words 'or Judicial Commissioner' were repealed by A.C.A.O., 1948 (23-3-1948). [* * *] shall, from time to time, assign a Judge for that purposes.

SECTION 5 : Exercise of jurisdiction in Chambers

Subject to the provisions of this Act and of rules, the Judge of a Court exercising jurisdiction in insolvency may exercise in chambers the whole or any part of his jurisdiction.

SECTION 6 : Delegation of powers to officers of Court

( 1 ) The Chief Justice 3 (a) [a] The words 'or Judicial Commissioner' were omitted by A.C.A.O., 1948 '(23-3-1948). [* * *] may, from time to time, direct that, in any matters in respect of which jurisdiction is given to the Court by this Act, an officer of the Court appointed by him in this behalf shall have all or any of the powers in this section mentioned; and any order made or act done by such officer in the exercise of the said powers shall be deemed the order or act of the Court.

(2) The powers referred to in sub-section (1) are the following, namely :-

(a) to hear insolvency petitions presented by debtors, and to make orders of adjudication thereon;

(b) to hold the public examination of insolvents;

(d) to hear and determine any unopposed or ex parte application;

(e) to examine any person summoned by the Court under (section 36);

(3) An officer appointed under this section shall not have power to commit for contempt of Court.

SECTION 7 : Power of Court to decide all questions arising in insolvency

Subject to the provisions of this Adt, the Court shall have full power to decide all questions of priorities, and all other questions whatsoever, whether of law or 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 : 3 (a) [a] Inserted by the Presidency-Towns Insolvency (Amendment) Act, 1927 (19 of 1927), Section 3. [Provided that, unless all the parties otherwise agree, the power hereby given shall, for the purpose of deciding any matter arising under (section 36) , be exercised only in the manner and to the extent provided in that section.]

SECTION 8 : Appeals in insolvency

(1) The Court may review, rescind or vary any order made by it under its insolvency jurisdiction.

(2). Orders in insolvency matters shall, at the instance of any person aggrieved, be subject to appeal as follows, namely :-

(a) an appeal from an order made by an officer of the Court empowered under (section 6)

shall lie to the Judge assigned under (section 4)

for the transaction and disposal of matters in insolvency and no further appeal shall lie except by leave of such Judge;

(b) save as otherwise provided in clause (a), an appeal from an order made by a Judge in the exercise of the jurisdiction conferred by this Act shall lie in the same way and be subject to the same provisions as an appeal from an order made by a Judge in the exercise of the ordinary original civil jurisdiction- of the Court.

PART 2 : PROCEEDINGS FROM ACT OF INSOLVENCY TO DISCHARGE

SECTION 9 : Acts of insolvency

3 (b) [b] S. 9 (excluding Explaination) re-numbered as sub-section ( 1 ) and sub-sections (2) to (5) inserted by the Insolvency Laws (Amendment) Act. 1978 (28 of 1978), S. 2(1-8-1979). Maharashtra: In its application to the State of Maharashtra, after clause (h) of tion 9, insert the following, namely :- "(i) if, after a creditor has served an insolvency notice on him' under this Act in respect of a decree or an order for the payment of any amount due to such creditor, the execution of which is not stayed, he does not, within the period specified in the notice which shall not be less than one month, either comply with the requirements of the notice or satisfy the Court that he has a counter claim or set off which equals or exceeds the decretal amount or the amount ordered to be paid by him and which he could not lawfully set up in the suit or proceeding in which the decree or order was made against him." -Bom. Act 51 of 1948, S. 2 (a) (w.r.e.f. 19-6-1939). Maharashtra: Section 9-A. In its application to the State of Maharashtra, after section 9, the following new section shall be inserted, namely,- "9-A. Insolvency notice.-(1) An insolvency notice under this Act shall be in the prescribed form and shall be served in the prescribed manner. It shall require the. debtor to pay the amount due under the decree or order, or to furnish security for the payment of such amount to the satisfaction of the creditor or his agent, or to satisfy the Court that he has a counter claim or set off which equals or exceeds the decretal amount or the amount ordered to he paid by him and which he could not lawfully set up in the suit or proceeding in which the decree or order was made aganist him and shall state the consequence of non-compliance with the notice. (2) Such notice shall not be invalidated by reason only that the sun) specified in the notice as the amount due exceeds the amount actually due, unless the debtor within the time allowed for payment gives notice to the creditor that he diputes the validity of the notice on the ground of such misstatement, but if the debto does not give such notice, he shall be deemed to have complied with the insolvency notice if within the time allowed he take such steps as would have constituted a compliance with the notice had the actual amount due been correctly specified therein. - Bom. Act 15 of 1939, S. 2(b) (19-6-1939) as amended by 51 of 1948, S. 2(b) (w.r.e.f. 19-6-1939).

[(1 )] A debtor commits an act of insolvency in each of the following cases, namely:-

(a) if, in the 3 (a) [a] Substituted for the words "Provinces" by A.L.O., 1950.'

[States] or elsewhere, he makes a transfer of all or substantially all his property to a third person for the benefit of his creditors generally;

(b) if, in the 3 (a) [a] Substituted for the words "Provinces" by A.L.O., 1950.'

[States] or elsewhere, he makes a transfer of his property or of any part thereof with intent to defeat or delay his creditors;

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