Provincial Insolvency (Act 5, 1920) refers to any interest in the property and the result of any amount upon the property. It is furthermore defined in the Code of Civil Procedure, 1908, and not 5 of hereinbefore described must have the exact meanings as 1908.
In India, Personal Insolvency is controlled by two laws that came into force during the British era. There is barely any difference between the provisions under:
- Provincial Insolvency Act, 1920
- Presidency Towns Insolvency Act, 1909
Except that under the latter, the process is slightly more rigid and rigid than in the one-time. The word 'insolvent' is not stated under any legislation. Insolvent' in general terms, refers to a person who can't pay his debts or has committed an 'act of insolvency' and has been sentenced to an 'insolvent' by an insolvency court.
This article will explain the Provincial insolvency act, its motive, background, and other essential sections.
The motive behind the laws:
Before the previous legislation came into power, everyone who couldn't pay their debts was regaled as the culprit and put behind bars. Both honest and dishonest debtors were treated in the same way. The insolvency legislation comes into force to safeguard debtors.
Currently, these laws operate two primary purposes:
- They aim to safeguard the honest debtor from meeting criminal proceedings when they have agreed to sacrifice all the property in turn of the debtors.
- They aim to defend the claims of the creditors by ensuring that the debtor's property is dispersed among the creditors so that each can obtain a fair and rightful share.
Background of Provincial Insolvency Act:
Now, when we understand the motive, we can go further discussing the background of the provincial Insolvency act. There was no insolvency law in India until the British came here. The Indian law dealing with insolvency was initially found in the Government of India Act 1800. In 1828, a law was enacted that kept the beginning of specific insolvency legislation in India, and the law was laid to cities, namely Bombay, Madras, and Calcutta.
Initially, it came to force for four years but was extended until 1843. There was a different insolvency law termed the Indian Insolvency Act. 1848 was passed in 1843, which made a difference among the traders and non-traders. Under the law, Insolvency jurisdiction was moved to High Courts. Its authority was also altered in some towns. The present Presidency Towns Insolvency Act, 1909, was enacted in 1909.
- After that Provincial Insolvency Act of 1907 was enacted and abolished by the current Provincial Insolvency Act of 1920.
- After that, the Insolvency and Bankruptcy Code, 2016, was passed in 2016 so that it could handle the rising level of Non-Performing Loans efficiently.
The parts in the Code which deal with individual insolvency matters are yet to be notified. However, the Central Government vide gazette notification dated 15.11.2019 specified that this part's provisions relating to the Personal Guarantors to the Corporate Debtors should come into effect from 01.12.2019, save and except provisions dealing with the Fresh Start Process.
Earlier, the personal insolvency law was mainly governed by:
- The Presidency Towns Insolvency Act 1909
- The Provincial Insolvency Act 1920.
These acts had similar content and provisions, but the two differed in territorial authority. Presidency Towns Insolvency Act 1909 in some specific cities, whereas the Provincial Insolvency Act 1920 is laid provinces of India.
Provincial Insolvency Act 1920 law permits an application to be filed by the creditor or the debtor to initiate insolvency proceedings if the debtor cannot pay his debts amounting to five hundred rupees.
Acts of Insolvency:
Listed below are the 'acts of insolvency' defined under the legislation.
Suppose one makes a transfer of his property to a third person for the benefit of his creditors generally. Through this Act, he is willing to accord fair shares in his property to creditors.
Suppose one drives a transfer of his property or any part with the intent to defeat or delay his creditors. In such circumstances, the debtor deliberately and dishonestly tries to shield his property from creditors to avoid making debt payments.
If one causes any transfer of his property or a part, or any other legislation for the time being in force, be null as a false choice if one was convicted insolvent. Fraudulent preference necessarily means preferring one creditor over the other for certain ulterior motives while transferring property or making any debt payment.
If with intent to defeat or delay one's creditors, one must
ü Departs or remains out of India
ü Departs from his dwelling house or usual place of business or otherwise absents himself
ü Secludes himself from depriving his creditors of the means of communicating with him.
Provincial Insolvency Act of 1920, if a person sells their property as per the court order for the payment of money.
If one offers notice to his creditors about suspension, asking for payment of his debts. Through this Act, he tries to inform his creditors of his inability to reciprocate the debts.
Provincial Insolvency Act of 1920 has been accorded to district courts, but it is pliable in that the state government can, if essential, deal the jurisdiction to a lower court. The orders of these courts are not complete and final and can be appealed against in higher courts if the aggrieved party so desires.
Listed below are some points that can describe the procedure:
An insolvency petition can be filed by the debtor or a creditor of the debtor in an insolvency court.
The amount of debt must be more than Rs. 500 to get the insolvency petition accepted by the Court.
On the admission of the petition by the Court, a date of hearing is fixed.
The Court appointed an interim receiver to take immediate possession of the debtor's property. He continues to function till a regular officer is appointed. On the hearing date, the Court, if satisfied that the petition is reasonable, shall make an adjudication order. After passing the 'order of adjudication,' the debtor becomes an 'undischarged.
Insolvent.' After this declaration, all his property is vested in an officer called 'Official Assignee' under the Presidency Towns Insolvency Act and 'Official Receiver' under the Provincial Insolvency Act, appointed by the Court to conduct insolvency proceedings.
It then becomes the Official Assignee's duty to sell the insolvent's property within a reasonable period. Whatever money is generated in the form of sale proceeds is then distributed among the creditors.
Once the distribution process is completed, the insolvent gets a certificate of 'absolute discharge,' which is granted when it is proved that the insolvency resulted due to misfortune and not due to dishonest behaviour on the debtor's part. Another point considered is the debtor's behaviour during the insolvency proceedings, which must have been satisfactory. When the 'absolute discharge certificate' is given, the remaining unpaid debts of the debtor are cancelled, and any creditor cannot force him to repay the debt amount.
End notes: Now that you are clear with the rest of things, we have dropped a list below about the things included in the Provincial Insolvency Act 1920.
Provincial Insolvency Act, 1920
An Act to converge and amend the law relating to Insolvency 1* as administered by Courts having jurisdiction outside the Presidency- towns 2*. WHEREAS it is suitable to reduce and amend the law relating to insolvency 1* as issued by Courts having jurisdiction outside the Presidency towns 2*
It is with this enacted as follows:
1. Short title and extent
(1) This Act can also be termed the Provincial Insolvency Act 1920.
(2) It extends to 3*[the whole of India except 4*[the regions which, instantly before the 1st November 1956, were included in the Part B States and the Scheduled Districts.
(a) creditor contains a decree-holder, debt has a judgment-debt, and the debtor has a judgment-debtor;
(b) District Court refers to the principal Civil Court of original authority in any area beyond the local limits for the time being of the Presidency towns.
(c) prescribed means specified by rules specified as on this Act;
(d) property under this Act includes any property over which the profits of which any individual has a disposing force which one may exert for their benefit.
(e) secured creditor refers to one holding a mortgage, order, or lien on the debtor's property or any part thereof as security for a debt due to him from the debtor.
(f) transfer of property refers to any stake in the property charged upon the property.
Words and phrases used in this Act are expressed in the CrPC, 1908 (5 of 1908), and not herein before described, must have the same aims as those attributed to them by the stated Code.
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 the petition shall be presented
12. Verification of petition
13. Contents of the petition
14. Withdrawal of petitions
15. Consolidation of petitions
16. Power to change carriage of proceedings
18. Procedure for admission of the petition
19. Procedure on admission of the petition
20. Appointment of interim receiver
21. Interim proceedings against the debtor
22. Duties of debtors
23. Release of the debtor
24. Procedure at hearing
25. Dismissal of petition
26. Award of compensation
27. Order of adjudication
28. Effect of an order of adjudication
28-A. Insolvents property to comprise specific capacity
29. Stay of the pending proceeding
30. Publication of order of adjudication
31. Protection Order
32. Power to arrest after adjudication
33. Schedule of creditors
34. Debts provable under the Act
35. Power to annul adjudication of insolvency
36. Power to cancel one of the concurrent orders of adjudication
37. Proceedings on annulment
38. Compositions and schemes of arrangement
39. Order on approval
40. Power to re-adjudge debtor insolvent
42. Cases in which Court must refuse an absolute discharge
43. Adjudication to be annulled on failure to apply for discharge
44. Effect of order of discharge
46. Mutual dealings and set-off
47. Secured creditors
49. Mode of proof
50. Disallowance and reduction of entries in the schedule
51. Restriction of rights of creditor under execution
52. Duties of Court executing decree as to property taken in execution
53. Avoidance of voluntary transfer
54. Avoidance of preference in some instances
54-A. By whom petitions for annulment may be made
55. Protection of bona fide transactions
56. Appointment of receiver
57. Power to appoint official Receivers
58. Powers of Court if no receiver is appointed
59. Duties and powers of a receiver
59-A. Authority to require information regarding insolvents property
60. Special provisions regarding immovable property
61. Priority of debts
62. Calculation of dividends
63. Right of a creditor who has not proved debt before the declaration of a dividend
64. Final dividend
65. No suit for dividend
66. Management by and allowance to insolvent
67. Right of an insolvent to surplus
67. A. Committee of inspection
68. Appeal to Court against the receiver
69. offenses by debtors
70. Procedure on a charge under section 69
71. Criminal liability after discharge or composition
72. Undischarged insolvent obtaining credit
73. Disqualifications of insolvent
74. Summary administration
77. Courts to be auxiliary to each other
79. Power to make rules
80. Delegation of powers to official Receivers
81. Power of State Government to bar application of certain provisions to certain Courts
The Provincial Insolvency Act of 1920 is one of India's most significant reforms. It was enacted to reduce the time-bound resolution of stressed assets and promote ease of business in India. These developments will likely be beneficial in dealing with insolvency and bankruptcy cases in India effectively and efficiently.
We hope this article gives you clarity about the provincial insolvency act.
What is Section 19 2 Provincial Insolvency Act?
(1) Once an insolvency petition is admitted, the Court must pass an order for hearing the petition.
(2) Notice of the order under sub-section (1) must be given to creditors in the prescribed manner.
What is the difference between Presidency Towns Insolvency Act and Provincial Insolvency Act?
The Act is similar, but there is a slight difference in the application of these enactments geographically. While the Presidency Insolvency Act 1909 lays to the Presidency Towns – Calcutta, Bombay, and Madras. On the other hand, the Provincial Insolvency Act of 1920 pertains to all of India, excluding these towns.
Which item is not preferential as per the Provincial Insolvency Act 1920?
As per the Act, one month's rent comes under preferential creditors. Still, rent does not come under the preferential creditor category as per the Provincial Insolvency Act.