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:
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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