LexThe Travancore-Cochin Insolvency Act, 1956 (No.2 of 1956)
Kerala · state statute
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THE~¥A-NOOR-Ese0eHI~INSOLVENCY ACT, 1955
(IT of 1956)
Preamble.
Sections.
CoNTENTS.
1. Short title, extent and commencement.
2. Definitions.
PART I.
CONSTITUTION AND POWERS OF COURT.
3. Insolvency jurisdiction.
4. Power of Court to decide all questions arising in
insolvency.
5. General powers of Courts.
PART IT.
PROCEEDINGS FROM ACT OF INSOLVENCY TO DISCHARGE.
ACT OF INSOLVENCY.
6. Acts of insolvency.
Petition.
7. Petition and adjudication.
8. Exemption of corporation etc., from insolvency pro
ceedings.
9. Conditions on which creditor may petition.
10. Conditions on which debtor may petition.
11. Court to which petition shall be presented.
12. Verification of petition.
13. Contents of petition.
14. Withdrawal of petitions.
15. Consolidation of petitions.
16. Power to charge carriage of proceedings.
17. Continuance of proceedings on death of debtor.
18. Procedure for admission of petition.
19. Procedure on admission of petition.
20. Appointment of interim receiver.
21. Interim proceedings against debtor.
22. Duties of debtors.
23. Release of debtors.
24. Procedure at hearing.
25. Dismissal of petitions.
26. Award of compensation.
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ORDER OF ADJUDICATION.
27. Order of adjudication.
28. Effect of an order of adjudication.
29. Insolvent's property to comprise certain capacity.
30. Stay of pendmg proceedings.
31. PublicatiOn of order of adJudication.
PROCEEDINGS CONSEQUENT ON ORDER OF ADJUDICATION.
32. Protection order.
33. Power to arrest after adjudication.
34. Schedule of creditors.
35. Debts provable under the Act.
ANNULMENT OF ADJUDICATION.
36. Power to annul adjudication of insolvency.
37. Power to cancel one of concurrent orders of adjudi- v I
cation.
38. Proceedings on annulment.
COMPOSITIONS AND SCHEMES OF ARRANGEMENT.
39. Compositions and schemes of arrangement.
40. Order on approval.
41. Power to re-adjudge debtor insolvent.
DISCHARGE.
42. Discharge.
43. Cases in which Court must refuse an absolute di!-
charge.
44. Adjudication to be annulled
discharge.
on failure to apply for
45. Effect of order of discharge.
PART ill. 'ft.
ADMINISTRATION OF PROPERTY.
METHOD OF PROOF OF DEBTS.
46. Debt payable at future time.
47. Mutual dealings and set off.
48. Secured creditors.
49. Interest.
50. Mode of proof.
51. Disallowance and reduction of entries in schedule.
EFFECT OF INSOLVENCY ON ANTECEDENT TRANSACTIONS.
52. Restriction of rights of creditor under execution.
53. Duties of Court executing decree as to property
taken in execution.
54. Avoidance of voluntary transfer.
55. A voidance of preference in certain cases.
56. By whom petitions for annulment may be made.
57. Protection of bonafide transactions.
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58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
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REALISATION OF PROPERTY.
Appointment of receiver.
Power to appomt Official Receivers.
Power of Court if no receiver appointed.
Duties and powers of receiver.
Power to require informatiOn regarding insolvent's
property.
Special provisions in regard to immovable property.
DISTRIBUTION OF PROPERTY.
Priority of debts.
Calculation of dividends.
Right of creditor who has not proved debt before
declaration of a dividend.
Fmal dividend.
No suit for dividend.
Management by and allowance to insolvent.
Right of insolvent to surplus.
Committee of inspection.
APPEAL TO COURT AGAINST RECEIVER.
Appeal to Court agamst receiver.
PART IV.
PENALTIES.
73. Offences by debtors.
7 4. Procedure on charge under Section 73.
75. Crimmal liability after discharge or composition.
76. Undischarged insolvent obtaining credit.
77. Disqualifications of insolvent.
PART V.
SUMMARY ADMINISTRATION.
78. Summary administration.
79. Appeals.
80. Costs.
PART VI.
APPEALS.
PART VII.
MISCELLANEOUS.
81. Courts to be auxiliary to each other.
82. Limitation.
83. Power to make rules.
84. Delegation of powers to Official Receivers.
R5. Power of Government to bar application of certain
provisions to certam Courts
86. Repeal.
34-781
Schedule I.
Schedule IT.
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• f< Q.!h.....b CN:. >vie ACT II OF 1956. No 'f L d.,J · •
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THE~A:V ~~ORE-COCHIN )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 1. Short title, extent and cW1tmencement.-(1) This Act
.,j(- may be called th ,.. _ _ _ -~ l!lSQlYenrv...r"---'--!~
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(3) It shall come into force on ,such date as the Govern-
ment may, by notification in the Gazette, appoint. ft.
2. Definitions.- ( 1) In this Act, unless the context other
wise 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 mort
gage, charge or hen on the property of the debtor or any part
thereof as a security for a debt due to him from the debtor;
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00 --rransfer of property" inchides-a -transfer of any
interest in property and the creation of any charge upon pro
perty.
r • Published m the Gazette dated 21st February 1956, Part I, Sertlo; 1ft.
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(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 POWERS 01<' COURT.
3. Insolvency JUTUJdictiort.-The District Courts shall be the
Courts having jurisdiction under this Act:
Provided that the Government may, by notification in the
Gazette, mvest any Court subordinate to a District Co~rt with
jurisdiction in any class of cases, and any Court so mvested
shall withm the local hmits of its jurisdiction have concurrent
jurisdiction with the District Court under this Act.
4. Power of Court to decide all questions aristng in insol
vency.-{!) 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 insol
vency 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 distri
bution of property in any such case.
(2) Subject to the provisions of this Act and notwith
standing 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 deb
tor'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 neces
sary 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 Co,urt 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 proce
dure 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 sub
ordinate to them, shall have the same powers and shall follow
the same procedure as they respectively have and follow in
regard to civil suits.
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PART II.
PROCEEDINGS FROM AcT OF INSOLVENCY TO DISCHARGE
Act of Insolvency.
6. Acts of insolvency.-A debtor commits an act of insol
vency in each of the following cases, namely;-
(a) if he makes a transfer of all or substant!ally al~ 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 enactme~t
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,
( 1i) he departs from his dwelling-house or usual place
of busmess or otherwise absents h1mself,
(ui) 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 executign 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) 1f 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. Petttion and adjudicatwn.-SubJect to the conditions
specified in this Act, If a debtor commits an act of insolvency,
an msolvency 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 adjudlCation) adjudging
him an msolvent.
E~;planation.-The presentation of a petition by the debtor
shall be deemed an act of Insolvency withm the meaning of this
section, and on such petitiOn the Court may make an order of
adjudication .
. 8. Exe111:ptwn of corpo_r~twn1 etc.1 from insolvency proceed
mgs.-N? msolven~y petition sh~ll .be presented against any
corporation or agamst any associatiOn or company registered
under any enactment for the time being in force.
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9. Conditions on which creditor may petition.-~~) A cr~di~
tor shall not be entitled to present an insolvency petition agamst
a debtor unless-
(a) the debt owmg by the debtor to the creditor, or if
two or more creditors join in the petltion, the aggregate amount
of debts owing to such creditors, amounts to five hundred
rupees, and
(b) the debt is a liquidated sum payable either nnmedi
ately or at some eertain future time, and
(c) the act of insolvency on which the petition is
grounded has occurred withm three months before the presen
tation of the petition:
Provided that where the said period of three months refer
red 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 caRe, 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 petttion.-(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
n 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 Ms 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 satis
fied either that the debtor was prevented by any reasonable
cause from presenting or prosecuting his appli.cation, as the
case may be or that the petition is founded on facts substan
tially different from those contained in the petition on which
the order of adjudication was made.
11. Court to which petition shall be presented.-Every in
S?lv~ncy petition. shall ~ presented to a Court having juris
diction under this Act m any local area in which the debtor
ordina~ily re.sides or carries on business, or personally works
~or gam, or If he has been arrested or imprisoned, where he is m custody:
io
Provided that no objection as to the place of presentment
shall be allowed by any Court m 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 verifymg plaints.
13. Contents of petition.-(1) Every insolvency petition
presented by a debtor shall contam the following particulars
namely:-
(a) a statement that the debtor 1s 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 1s in custody;
(c) the Court (lf 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 in
cludes 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;
(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, con
cise particulars of the insolvency, including a statement whe
ther any previous adjudication has been annulled and, if so, the
grounds therefor.
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(2) Every insolvency petition. presented by .a creditor or
creditors shall set forth the particulars regardmg 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 petitwns.-No petition, whether pre
sented by a debtor or by a creditor, shall be withdrawn without
the leave of the Court.
15. Consol~dation of petitions.-Where two or more insol
vency petitions are presented agamst 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 thinks 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 a petitioning creditor.
17. Continuance of proceedtngs 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 in
solvency 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 mak
ing 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. '
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21. Interim proceedings agatnst debtor.-At the time of
making an order admittmg 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 detain
ed m 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 bail 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 absconded 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 con
ceal, destroy, transfer or remove from such limits, any docu
ments likely to be of use to 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 exami
nation in respect of his property or his creditors, attend at
such times before the Court or receiver, execute such instru
ments, 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 adjudi
cation, the Court may, if the debtor is under arrest or impri
sonment 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.
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The Court may at any time order any person who has ~een
released under this section to be re-arrested and recommitted
to the custody from which he was released.
( 3) At the time of making any order under this section,
the Court shall record in writini its reasons therefor.
24. Procedure at hearing. (1) On the day fixed ~or the
hearing of the petition, or on any subsequent d~y 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 SU{!h proof as to satitsfy 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
which 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 pre
sented 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
34/781.
24
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
reahsed as 1f 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 Adjudwation.
27. Order of adjudication. (1) If the Court does not dis
miss 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 permis
sion of the true owner, under such circumstances that he is
the reputed owner thereof, shall be deemed to be the property
ot the insolvent.
( 4) All property which is acquired 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.
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(6) Nothing in this section shall affect the power of any -v
s~cured creditor to realise or otherwise deal with his security,
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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 of the pebtion
on which it is made.
29. Insolveno's property to comprise certain capacity. The
property of the msolvent 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 insol
vency 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
ouch 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
rights 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 deHor has absconded or departed from the
local limits of its jurisdiction with mtent to avoid any obligation
' \...__
26
which has been, or might be, imposed on him by or under thio
Act, order a warrant to issue for his arrest, and on his appear
ing 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 penod which may extend to
three months.
34. Schedule of creditors. (J.) When an order of adjudica
tion has been made under this Act, all persons alleging them
selves to be creditors of the insolvent in respect of debts pro
vable 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, respec
tively, 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 objec-
tions, if any, shall comply with or reject the application. :Jt
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 in8olvency. 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
27
full, the Court shall, on the application of the debtor, or of any
other person interested, by order in writing, annul the adjudi·
cation and the Court may, of its own motion or on application
made by the receiver or any creditor, annul any adjudication
made on the petition of a debtor who was, by reason of the pro
visions of sub-section (2) of Section 10, not entitled to present
such petition.
37. Power to 6ancel one of concurrent orders of adju.dioa
tion. If, m 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 proceedmgs are pendmg 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 other manner as may
be prescribed.
Compositions and Schemes of Arrangement.
39. Composttwns 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 pre
l!cribed.
(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.
r
-
28
(5) If any facts are proved on proof of which the Court V
would be required either to refuse, suspend or attach condi-
~ t10ns to the debtor's discharge, the Court shall refuse to approve
· · thT Proposal unlEiss it provides reasonable security for payment
Q· h..'1 1 L~ -',(' L' 1 ,., ·r~)ln the rupee on all the unsecured
~ 'the debtor's estate.
~\' (6) No composi on or scheme shall be approved by the
~ Court which does not provide for the payment in priority to
(jl"tl S: ) other debts of all debts directed to be so paid in the distribu
l r 0() ') tion 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 o.f
Section 38 shall apply, and the composition or scheme shall be ~
bindmg on all the creditors so far as relates to any debt due to
em from the debtor and provable under this Act.
41. Power to re-adjudge debtor insolvent. If default is
ade 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 un
due delay, or that the approval of the Court was obtained by
fraud the Court may, if it thinks fit, re-adjudge the debtor in
solvent and annul the composition or scheme but without pre
judice 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 pro
vable in the insolvency.
Discharge. Jr
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 .
~.
c,N.( I I { 5'i)
29
43. Cases in which Court must refuse an absolute dischn.rge.
(1) The Court shall refuse to grant an absolute order of dis-
charge under Section 42 on proof of any of the following facts ,
namely:- Lti~ rw:(~ l":.l-4',~1~ ~.
'ji{t.. a~ that the insolvent's assets are not of a. valuo equal lfi.P{~P::
to ~ " ""J n the rupee on the amount of hiS unsecured ~.,
lia ities, unless he satisfies thegCourt that the fact that tl!e r...J... "jj,.
assets are not of a value equal toOOgbt allA:~in the rupee on ....... 1 rlf....,.Pt
the amount of his unsecured liabilities lias 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 satisfac
torily 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 pre
ceding the date of the presentation of the petition, when unable
to pay his debts as they became due, given an undue prefe
rence to any of his creditors;
(h) that the insolvent has on any prevous occasion
been adjudged an insolvent or made a composition or arrange
ment with his creditors;
(i) that the insolvent has concealed or removed his pro
perty or any part thereof, or has been guilty of any other fraud
or fraudulent breach of trust.
(2) 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.
(3) The powers of suspending, and of attaching condi
tions to, an insolvent's discharge may be exercised concurrently.
44. Adjudication to be annulled on failure to apply for dis
charge. ( 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,
(~I~ • ...r:))
30
the Court may annul 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 m
charge of the prison to whose custody such debtor is so recom
mitted shall receive such debtor into his custody accordmg to
such re-commitment, and thereupon all processes 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 (l), an
order of discharge shall release the insolvent from all debts
provable under this Act.
(3) An order of discharge shall not release any person who,
at 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.
PARTID.
ADMINISTRATION OF PROPERTY.
Method of proof of debt~.
46. Debt payable at a future time. A creditor may prove
for a debt not payable when the debtor is adJudged an insol
vent 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 com
puted 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
__________________________ __)
v
31
!(. PADMAN~~fHt !--·
lusstst:snt St~r~t
Ted. Nr! ~- · _,
shall be set off against any sum due from the other party, and
the balance of the account, and no more, shall be claimed 01
paid on either side respectively.
48. Secured creditors. (1) Where a secured creditor rea
lises his security he may prove for the balance due to him, aftet
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 m the schedule, state m his proof the parti
culars 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 deductmg the value so assessed.
~, ( 4) Where a secunty Is so valued, the Court may at any
~ "'-.t1me befot·e realisatiOn redeem it on payment to the creditor of
t~ assessed value.
"J.5) Where a creditor, after having valued his security
subse~ently realises It, the net amount realised shall be substi
tuted fo)l;;_ the amount of any valuatiOn previously made by the
creditor, ':Yld shall be treated m all respects as an amended
valuatiOn ~de by the creditor
( 6) Wh1 ~re a secured cExcerpt shown. Open the full act in Lexace.