Section 068 in The Provincial Insolvency Act, 1920
068.
Statement of Objects and Reasons.-The object of this Bill is to amend the Provincial Insolvency Act, 1907 (III of 1907), which contains the Law of Insolvency in force in British India outside the Presidency towns and the town of Rangoon. The Act came into force on the 1st January, 1908, and since then with the exception of a few unimportant amendments made in 1914, it has not been amended. Ten years' experience of the practical working of the Act has brought to light many defects which have from time to time provoked criticism from most of the local Governments and not a few of the Judges who have had to administer its provisions. Numerous suggestions for the amendment of the Act on various points have also been received from time to time from the commercial communities and members of the legal profession.The chief indictment of the Act is that it lends itself to the protection of fraudulent debtors, that it subjects an undischarged insolvent to little or no practical inconvenience, and that its provisions for the punishment of fraudulent insolvents are not effective in practice.One of the principal defects in the existing law arises from the fact that the conduct of debtor in many cases never comes under the scrutiny of the Court. The stage at which the misconduct of the debtor should come before the Court and at which most of the provisions affecting a fraudulent insolvent would operate, is when he applies for his discharge. But there is nothing in the Act which requires him to apply for his discharge, and in practice such applications are rare. To remedy this unsatisfactory state of the law, it is proposed to include in the Act provisions which will compel an insolvent to apply to the Court within a prescribed period for his discharge or to lose the protection afforded by the insolvency proceedings. The Court will have power to extend the prescribed period and, when the adjudication order is annulled owing to the failure of the insolvent to apply in time for his discharge, a fresh petition on the same facts will be barred. These proposed changes are affected by the proviso to proposed new section 6-C in clause 4 of the Bill, new sub-section (1-A)(ii) in clause 10, the amendments in clause 11(1), (3) and (4), and the amendments in clause 20.It is now settled law that under the Act, as it stands, it is not open to the Court to reject the petition of a debtor on the ground that the application is an abuse of the law. While admitting that the object of an insolvency law is to deal with all insolvents, whether honest or not and that no applicant who is in fact insolvent should be liable to have his petition dismissed in limine, it seems reasonable that the Court should have discretion as to the amount of protection to be afforded to a petitioning debtor in each individual case, the debtor being required to show that he is in fact unable to pay his debts, and that he has not concealed his property. These changes in the existing law are effected by the amendment in clauses 9 and 10(2) and clause 12, which inserts a new section 16-A as to protection orders on the lines of section 25 of the Presidency-Towns Insolvency Act, 1909.A further defect in the Act is the absence of provisions sufficiently defining the power of Courts to decide questions of law and fact arising in insolvency proceedings. In certain cases, e.g., those mentioned in sections 18(3), 36 and 37, the Court is empowered to pass orders, and section 47 defines the general powers of the Court in regard to proceedings under the Act, but nowhere is a general power conferred on the Court to deal with and decide important questions of law and fact (e.g., a question of title to property) which may arise in the insolvency proceedings. This question has recently been the subject of conflicting decisions in the Allahabad and the Calcutta High Courts. In Nilmoni Choudhury v. Durga Charan Choudhury (22 Cal.W.N. 704), the Calcutta High Court dissenting from the Allahabad High Court held that the Insolvency Court has no such power, and that a question of title to the property should be tried in a separate suit. It is obviously desirable that this conflict between the two High Courts should be terminated and having regard to the prevalence of benami transactions in India and the importance of arming Courts with adequate powers for the speedy realisation of assets in the interests of creditors, the Government of India are of opinion that the Court should be given full power to decide all questions raised in insolvency proceedings. Clause 3 of the Bill accordingly enacts a provision on the lines of section 7 of the Presidency Towns-Insolvency Act.Proceedings instituted against fraudulent insolvents are frequently infructuous. This is largely due to the lack of precision in the Act as to the procedure to be adopted by the Court which desires to take action. The wording of sub-section (2) of section 43 is unduly vague, regard being had to the fact that it constitutes a criminal offence, and experience has shown that it frequently creates difficulties. It is proposed that the penal provisions of existing section 43 should be amended on the lines of section 103 of the Presidency-Towns Insolvency Act, and that the procedure to be followed on a charge should be defined on the lines of section 104 of that Act. It is proposed to embody these provisions in the two separate sections 43-A and 43-B inserted by clause 19 of the Bill, which also inserts a new section 43-C containing provisions similar to those of section 105 of the Presidency-Towns Insolvency Act. It seems desirable to make it clear that a dishonest insolvent who has been guilty of an offence under the Act can be proceeded against even after he has obtained his discharge, or after a composition submitted by him has been accepted.A summary administration of petty insolvencies is, now largely governed by rules made by the High Courts under section 51(2)(c) of the Act, but it seems desirable that the Act itself should contain more detailed provisions than at present, and that further simplification of procedure should be effected. It is proposed therefore that, in addition to any further modifications to be made by rules, section 48 should contain certain definite provisions, and it is thought that, if these changes are made, it would be well to confine summary administration to cases where the assets do not exceed Rs. 200 instead of the existing limit of Rs. 500, and to reserve a discretion to the Court to direct the ordinary procedure to be followed in cases where it thinks such a course desirable.These amendments will, it is hoped, go far to check the abuses rendered possible by the defects in the existing law.Amendment Act 28 of 1978-Statement of Objects and Reasons.-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 the Limitation Act, 1908 has recommended that the most effective way of instilling a healthy fear in the mind of the 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 the 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 reopened under any law relating to relief of indebtedness or that the decree is not executable under any such law.[25 th February , 1920]...An Act to consolidate and amend the Law relating to Insolvency [* *] [The words "in the Provinces of India" omitted by A.O.1950.] as administered by Courts having jurisdiction outside the Presidency-towns [**] [The words "and the town of Karachi" repealed by A.O.1948.].Whereas it is expedient to consolidate and amend the law relating to insolvency [* *] [The words "in the Provinces of India" omitted by A.O.1950.]as administered by Courts having jurisdiction outside the Presidency-towns [* *] [The words "and the town of Karachi" repealed by A.O.1948.]; It is hereby enacted as follows: -
