The INSOLVENCY ACT, 1955

1
ACT II OF 1956
THE  INSOLVENCY  ACT, 1955
CONTENTS
Preamble.
Sections:
1. Short title, extent and commencement.
2. Definitions.
3. Insolvency jurisdiction.
4. Power of Court to decide all questions arising in insolvency.
5. General powers of Courts.
6. Acts of insolvency.
7. Petition and adjudication.
8. Exemption of corporation etc., from insolvency proceedings.
9.  Conditions on which creditor may petition.
10. Conditions on which debtor may petition.
11. Court to which petition shall be presented.
12. V erification 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.
27.  Order of adjudication.
2
28.  Effect of an order of adjudication.
29.  Insolvent’s property to comprise certain capacity.
30.  Stay of pending proceedings.
31.  Publication of order of adjudication.
32.  Protection order.
33.  Power to arrest after adjudication.
34.  Schedule of creditors.
35.  Debts provable under the Act.
36.  Power to annul adjudication of insolvency.
37.  Power to cancel one of concurrent orders of adjudication.
38.  Proceedings on annulment.
39.  Compositions  and schemes of arrangement.
40.  Order on approval.
41.  Power to re-adjudge debtor insolvent.
42.  Discharge.
43. Cases in which Court must refuse an absolute discharge.
44. Adjudication to be annulled on failure to apply for discharge.
45. Effect of order of discharge.
46. Debt payable at a future time.
47. Mutual dealings and set off.
48. Secured creditors.
49.  lnterest.
50.  Mode of proof.
51.  Disallowance and reduction of entries in schedule.
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.  Avoidance of preference in certain cases.
56.  By whom petitions for annulment may be made.
57.  Protection of bonafide transactions.
58.  Appointment of receiver.
59.  Power to appoint Official Receivers.
60.  Power of Court if no  receiver appointed.
61.  Duties and powers of receiver.
62.  Power to require information regarding insolvent’s property.
63.  Special provisions in regard to immovable property.
3
64.  Priority of debts.
65.  Calculation of dividends.
66.  Right of creditor who has not proved debt before declaration of a dividend.
67.  Final dividend.
68.  No suit for dividend.
69.  Management by and allowance to insolvent.
70.  Right of insolvent to surplus.
71.  Committee of inspection.
72.  Appeal to Court against receiver.
73.  Offences by debtors.
74.  Procedure on charge under Section 73.
75.  Criminal liability after discharge or composition.
76.  Undischarged insolvent obtaining credit.
77.  Disqualifications  of insolvent.
78.  Summary administration.
79.  Appeals.
80.  Costs.
81.  Courts to be auxiliary to each other. 
82.  Limitation.
83.  Power to make rules.
84.  Delegation  of powers to Official  Receivers.
85.  Power of Government to bar application of certain provisions to certain Courts.
86.  Repeal.
----------
4
ACT  II of 1956
THE TRA V ANCORE-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.  Short  title,  extent  and  commencement.—(1)  This  Act  may  be  called  the 1[xxx]
Insolvency Act, 1955.
(2) 2[It extends to the whole of the State of Kerala].
(3) It shall come into force on 3such 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) 4[“State” means the State of Kerala;]
* Received the assent of the President and published in the  Gazette  No. 8 dated 21st  February, 1956.
1.Omitted by Act 18 of 1957 (w.e.f. 01.01.1958).
2.Substituted  by Act 18 of 1957 (w.e.f. 01.01.1958).
3. 01.01.1958  vide Notification No. H(c) 4-28229/57/HD. dated 19-12-1957 published in the Kerala Gazette
No. 52  dated 24.12.1957.
4. Substituted  by Act 18 of 1957 (w.e.f. 01.01.1958).
5
(h) “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 POWERS 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 have concurrent jurisdiction with the
District Court under this Act.
4.  Power of Court 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.
6
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
absents 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.
7
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 re-opens.
(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
8
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 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)—
9
(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 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 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 realisation 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 for 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
10
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) order 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 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 defect 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 conceal, destroy, transfer or remove from such limits, any
documents 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 examination in 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.
11
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.
(2) 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.
(3) 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 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.
12
(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 him 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 true 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 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,
13
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 of 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 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.  
14
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, annul the
15
adjudication 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 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 other 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
16
1[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 annul 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.
1.Substituted  by Act 18 of 1957 (w.e.f. 01.01.1958)
17
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 1[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  2[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 became due, given an undue
preference to any of his creditors;
(h) that the insolvent has on any previous occassion 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.
(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  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
1.Substituted  by Act 18 of 1957 (w.e.f. 01.01.1958)
2. Ibid
18
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  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 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 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 (1), 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.
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
19
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 side 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. lnterest.—(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 adjudcation.
(2) Where a debt which has been proved under this Act  includes interest or any
pecuniary  consideration  in  lieu  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.
20
(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 reducti

Excerpt shown. Open the full act in Lexace.

‹ Prev All Kerala acts Next ›