The term "Insolvent",in common parlance is
referred as Pauper or Bankrupt. An insolvent is not considered a legal person
for the purpose of enforcement of any obligation committed by him either during
the pendency of insolvency proceedings or after he is adjudged as insolvent.
Adjudication of an Insolvent
In India, jurisdiction of the courts to adjudicate a person
as an insolvent has been conferred by two Acts, namely, the Presidency towns Insolvency
Act, 1909,which is applicable in the Presidency towns in India and the Provincial
Insolvency Act, 1920, applicable in the muffusil areas.
To adjudicate a person as an Insolvent, such a person has
to be a "Debtor" and should have committed an act of insolvency.A
debtor,under these Acts, includes only those who are subjected to Indian laws,either by birth or by domicile including a temporary residence.Thus,a foreigner
cannot be adjudged insolvent by a court in India unless the alleged act of insolvency
was committed or suffered by that person during his personal residence in India.
Minor cannot be adjudged Insolvent
Under Indian Laws, as a minor is not competent to enter
into a contract he cannot be adjudged Insolvent even on his own petition.In
the case of a minor being a partner in a firm consisting of adult and minor
partners and if adjudication order is sought against the firm, the same shall
be binding on the firm/partners except the minor.
Property of insolvent
The expression "Property of an Insolvent", has
been defined as only the property of the insolvent which is divisible amongst
the creditors and not otherwise. It includes any property over which or over
the profits of which any person has the power of alienation which can be exercised
for his own benefit.
The word 'property' includes the right in the property or
things of a person. However, to constitute the property, an insolvent should
have an interest in present to dispose of the same and not such an interest which
may depend upon the fulfillment of certain conditions or contingencies.
Appointment of Official Assignee or
Receiver
Under section 17
of the Presidency Town Insolvency Act or section 28(2) of Provincial Insolvency
Act, 1920, after the order of adjudication, the property of an insolvent vests
in the Official Assignee and becomes divisible amongst the creditors, irrespective
of its situation. However, when an order of adjudication has been passed under
the Presidency Town Insolvency Act,1909, any order of adjudication passed against
the same insolvent by the District Court of another place, at a later date under
Provincial Insolvency Act will not operate since the said property is already vested in the Official Assignee under the Presidency Town Insolvency Act.
Movable and Immovable property
The order of adjudication operates as a statutory transfer
to the Official Assignee of all the property of the insolvent person in India, whether
movable or immovable.Similarly,the movable property of an insolvent situated in
foreign country shall vest with the Official Assignee or Receiver.But,the immovable
property of an insolvent situated in a foreign country,shall be governed by the
law of the country within whose jurisdiction such property is situated.
Divisible and indivisible Properties
The property which is divisible amongst the creditors of
the insolvent can only vest with the Official Assignee or the Receiver, which
may be:
1.Property belonging to an insolvent at the time of commencement
of insolvency proceedings
2.Property which may be acquired by or devolve on the insolvent
after the order of adjudication and before his discharge.
3.Goods in possession, or disposition of the insolvent.
The properties which are not divisible amongst the
creditors of the insolvent falls into two classes:
1.Property held by the insolvent in trust for
any other person
2.Tools of trade, apparel and other similar
property.
Vesting of property in the Official Receiver or Assignee
Immediately upon an order of adjudication by the Court, the
property of the insolvent wherever situated vests in the official assignee/receiver.Till an Official Receiver is appointed by the Court, all the rights and powers
exercisable by the Receiver can be exercised by the Court itself.
Intervention of Official Assignee is must:
The right and interest of an insolvent over the property do
not automatically get transferred in favor of the Official Receiver upon passing
of an adjudication order by the court unless the Official Assignee intervenes
on behalf of the insolvent. Where the official assignee does not intervene and
the insolvent transfers the said property to another person who takes it in good
faith and for value, the transferee acquires a good title to the property.
Powers of the Official Receiver or Assignee
With the order of adjudication, the property of the insolvent
vests in the Official Assignee or the receiver and it is the duty of the assignee
to realize such properties of the insolvent expeditiously and to distribute dividends
to the creditors entitled thereto.However, before exercising the power of realization
of properties of an insolvent, abundant caution has to be exercised by the assignee
to avoid unnecessary litigations.
Under the aforesaid Acts, certain powers have been vested
with the assignee:
1.Power to sell: The Receiver
is empowered to sell the insolvent's property without the consent of the Court.
But the aforesaid Acts do not empower the receiver or the official assignee to
sell anything more than the property of the insolvent which vests in him by
reason of the adjudication.
2.Power in case of mortgaged property: Where
a Receiver is appointed by consent of the parties after passing of a decree in
a mortgage suit for sale of such mortgaged property and it is agreed that the receiver
shall recover the rents of the property for a period of one year to hand over
the same to the mortgagee, the mortgagee's right to receive the rents will not
be affected by insolvency of the mortgagor at any time during this period and
neither the official assignee nor other decree- holders will be entitled to a rate
able distribution of such rents.
Bonafide Sale
Section 53 of the Provincial Insolvency Act provides that
a transfer of property not being a transfer in favor of a purchaser in good faith
and for valuable consideration shall,if the transferor is adjudged insolvent within
two years after the date of transfer, be voidable as against the Receiver.Further,where the debtor transfers all or substantially all the properties in consideration
of the past debts, such a transfer constitutes an act of insolvency since it has
the effect of withdrawing all the property from the legal process,which his creditors
have a right to enforce against the insolvent.
Thus,an order of adjudication of insolvency will deprive
the insolvent from dealing with his properties which shall be dealt with by the
Official Assignee or Receiver when once such a person is appointed by the Court.
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