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PROVINCIAL INSOLVENCY ACT

Ministry of Law and Justice

Act nº 5 of 1920


  • Part I
  • Part II
  • Part III
  • Part IV
  • Part V
  • Part VI
  • Part VII
  • Schedules
  • Act nº 5 of 1920

Preamble

THE PROVINCIAL INSOLVENCY ACT, 1920

[Act, No.5 of 1920]

[AS ON 1957]

[25th February, 1920]

PREAMBLE

An Act to consolidate and amend the Law relating to Insolvency [The words in the Provinces of India omitted by the A.O.1950] as administered by Courts having jurisdiction outside the Presidency-towns [The words and the town of Karachi rep. by the A.O.1948.In the long title the word Karachi had been subs. by the A.O.1937 for Rangoon. In the preamble the words town of Karachi had been subs. by the A.O.1937 for towns of Rangoon and Karachi which had been subs .by Act 9 of 1926, s.11, for town of Rangoon].

WHEREAS it is expedient to consolidate and amend the law relating to insolvency [The words "in the Provinces of India" omitted by the A.O.1950] as administered by Courts having jurisdiction outside the Presidency-towns [The words "and the town of Karachi" rep. by the A.O.1948.In the long title the word "Karachi" had been substituted by the A.O.1937 for "Rangoon".In the preamble the words "town of Karachi" had been subs.by the A.O.1937 for "towns of Rangoon and Karachi" which had been substituted by Act 9 of 1926, section 11, for "town of Rangoon"]; It is hereby enacted as follows:

Section 1. Short title and extent

(1) This Act may be called the Provincial Insolvency Act, 1920.

(2) It extends to [Substituted by the A.O.1950 for "all the Provinces of India except"] [the whole of India except [Substituted by the Adaptation of Laws (No.3) Order, 1956, for "Part BStates"] [the territories which, immediately before the 1st November, 1956, were comprised in Part BStates] and] the Scheduled Districts.

Section 2. Definitions

(1) In this Act, unless there is anything repugnant in the subject or context,

(a) "creditor" includes a decree-holder, "debt" includes a judgment-debt, and "debtor" includes a judgment-debtor;

(b) "District Court" means the principal Civil Court of original jurisdiction in any area outside the local limits for the time being of the Presidency-towns {The following had been subs.by Act 9 of 1926, s.11, for "and of the town of Rangoon":-- "the town of Rangoon and the limits of the ordinary original civil jurisdiction of the Court of the Judicial Commissioner of Sind as defined in section 2 of the Presidency-towns Insolvency Act, 1909" The first four words rep.by the A.O.1937 and the remainder as amended by Act 34 of 1926, s.2 and Sch.Rep by the A.O.1948};

(c) "prescribed" means prescribed by rules made under this Act;

(d) "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;

(e) "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; and

(f) "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, (5 of 1908) and not hereinbefore defined shall have the same meanings as those respectively attributed to them by the said Code.

Part I

Section 3. Insolvency jurisdiction

(1) The District Courts shall be the Courts having jurisdiction under this Act:

Provided that the State Government may, by notification in the Official 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.

(2) For the purposes of this Act, a Court of Small Causes shall be deemed to be subordinate to the District Court.

Section 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.

Section 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, High Courts and District Courts, in regard to proceedings under this Act in Courts subordinate to them, shall have the same powers and shall follow the same procedure as they respectively have and follow in regard to civil suits.

Part II

Section 6. Act of insolvency

Acts of insolvency

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

(a) if, in 2 [India] or elsewhere, he makes a transfer of all or substantially all his property to a third person for the benefit of his creditors generally;

(b) if, in 2 [India] or elsewhere, he makes a transfer of his property or of any part thereof with intent to defeat or delay his creditors;

(c) if, in 2 [India] or elsewhere, 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 as insolvent;

(d) if, with intent to defeat or delay his creditors,-

(i) he departs or remains out of 3 [the territories to which this Act extends],

(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.

4 [(2) Without prejudice to the provisions of sub-section (1), a debtor commits an act of insolvency if a creditor, who has obtained a decree or order against him for the payment of money (being a decree or order which has become final and the execution whereof has not been stayed), has served on him a notice (hereafter in this section referred to as the insolvency notice) as provided in sub-section (3) and the debtor does not comply with that notice within the period specified therein :

Provided that where a debtor makes an application under sub-section (5) for setting aside an insolvency notice -

(a) in a case where such application is allowed by the District Court, he shall not be deemed to have committed an act of insolvency under this sub-section; and

(b) in a case where such application is rejected by the District Court, he shall be deemed to have committed an act of insolvency under this sub-section on the date of rejection of the application or the expiry of the period specified in the insolvency notice for its compliance, whichever is later :

Provided further that no insolvency notice shall be served on a debtor residing, whether permanently or temporarily, outside India, unless the creditor obtains the leave of the District Court therefor.

(3) An insolvency notice under sub-section (2) shall -

(a) be in the prescribed form;

(b) be served in the prescribed manner;

(c) specify the amount due under the decree or order and require the debtor to pay the same or to furnish security for the payment of such amount to the satisfaction of the creditor or his agent;

(d) specify for its compliance a period of not less than one month after its service on the debtor or, if it is to be served on a debtor residing whether permanently or temporarily, outside India, such period (being not less than one month) as may be specified by the order of the District Court granting leave for the service of such notice;

(e) state the consequences of non-compliance with the notice.

(4) No insolvency notice shall be deemed to be invalid by reason only that the sum specified therein as the amount due under the decree or order exceeds the amount actually due, unless the debtor, within the period specified in the insolvency notice for its compliance, gives notice to the creditor that the sum specified in the insolvency notices does not correctly represent the amount due under the decree or order :

Provided that if the debtor does not give any such notice as aforesaid, he shall be deemed to have complied with the insolvency notice if, within the period specified therein for its compliance, he takes such steps as would have constituted a compliance with the insolvency notice had the actual amount due been correctly specified therein.

(5) Any person served with an insolvency notice may within the period specified therein for its compliance, apply to the District Court to set aside the insolvency notice on any of the following grounds, namely :-

(a) that he has a counter-claim or set-off against the creditor which is equal to or is in excess of the amount due under the decree or order and which he could not under any law for the time being in force, prefer in the suit or proceeding in which the decree or order was passed;

(b) that he is entitled to have the decree or order set aside under any law providing for the relief of indebtedness and that-

(i) he has made an application before the competent authority under such law for the setting aside of the decree or order; or

(ii) the time allowed for the making of such application has not expired;

(c) that the decree or order is not executable under the provisions of any law referred to in clause (b) on the date of the application.]

Explanation - For the purposes of this section the act of an agent may be the act of the principal.]

1. Section 6 renumbered as subsection (1) by the Insolvency Laws (Amendment ) Act w.e.f 1-9-79. Prior to Amendment Section 6 Stood as follows "[Acts of insolvency.- A debtor commits an act of insolvency in each of the following cases, namely:-

(a) if, in [Substituted by the A.O.1950 for "the Provinces"] [India] or elsewhere, he makes a transfer of all or substantially all his property to a third person for the benefit of his creditors generally;

(b) if, in [Substituted by the A.O.1950 for "the Provinces"] [India] or elsewhere, he makes a transfer of his property or of any part thereof with intent to defeat or delay his creditors;

(c) if, in [Substituted by the A.O.1950 for "the Provinces"] [India] or elsewhere, 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 a 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 [Substituted by the Adaptation of Laws (No.3) Order, 1956, for "Part A States and Part C States"] [the territories to which this Act extends],

(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. [In the application of the Act to Bombay, a new clause (i) has been inserted here by the Presidency Towns Insolvency and the Provincial Insolvency (Bombay Amendment) Act, 1939 (Bom.15 of 1939), section 3.]

Explanation.-For the purposes of this section the act of an agent may be the act of the principal. [In the application of the Act to Bombay, a new section 6A has been inserted here by the Presidency Towns Insolvency and the Provincial Insolvency (Bombay Amendment) Act, 1939 (Bom.15 of 1939), section 3.]]"

2. Substituted for words " the Provinces" by A.L.O 1950, w.e.f 26-1-1950

3. Substituted for words "Part A States and Part C States" by 3 A.L.O.1956 w.e.f 1-11-56

4. Sub section 2,3,4 and 5 to section 6 inserted by the Insolvency Laws (Amendment ) Act w.e.f 1-9-79.


Section 7. Petition and adjudication

Subject to the conditions specified in this Act, if a debtor commits an act of insolvency, an insolvency petition may be presented either by a creditor or by the debtor, and the Court may on such petition make an order (hereinafter called an order of adjudication) adjudging him an insolvent.

Explanation.The presentation of a petition by the debtor shall be deemed an act of insolvency within the meaning of this section, and on such petition the Court may make an order of adjudication.

Section 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.

Section 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:

{Added by Act 3 of 1950, s.6} [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.

Section 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 {In the C.P., read "two hundred rupees", see the Provincial Insolvency (C.P.Amendment) Act, 1936 (C.P.2 of 1936), s.2} five hundred rupees; or {In the application of the Act to the Punjab, a new clause (aa) has been ins.here by the Punjab Relief of Indebtedness Act, 1934 (Pun.7 of 1934), s.3.}

(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 {Subs.by Act 11 of 1927, s.4, for "made under this Act"}[whether made under the Presidency-towns Insolvency Act, 1909 (3 of 1909), or under this Act] has been annulled, owing to his failure to apply, or to prosecute an application for his discharge, shall not be entitled to present an insolvency petition without the leave of the Court by which the order of adjudication was annulled.Such Court shall not grant leave unless it is satisfied either that the debtor was prevented by any reasonable cause from presenting or prosecuting his application, as the case may be, or that the petition is founded on facts substantially different from those contained in the petition on which the order of adjudication was made.

Section 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.

Section 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 (5 of 1908), for signing and verifying plaints.