The Provincial Insolvency Act, 1920

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The Provincial Insolvency Act, 1920 was enacted on 25th February, 1920. The act laid laws relating to insolvency administered by courts having jurisdiction outside Presidency towns.

Part I of the Act deals with constitution and powers of the insolvency courts. The act provides that district court shall have jurisdiction under the provisions of the act, unless government by notification in official gazette bestows similar jurisdiction on any other court then such court shall act as Small Causes Court. Small Causes court shall be subordinate to the district court. Section 4 of the act invests power to decide all questions arising in matters relating to insolvency on Small Causes Court. The decision of court with respect to Small Causes court shall be final and binding. The courts are bestowed with original civil jurisdiction under sub clause (1) section 5 of the Act.

Section 6 of the act lays the instances in which insolvency is committed. Any person in India or elsewhere transfers all or substantial part of his property either to benefit or cause loss to his creditors apart from these when a person departs the remains of his property outside the territories to which the act extends, he is found missing from his place of residence, closes all channels of communication against creditors or where a person files an application in the court of law to adjudge himself as insolvent. The debtor shall be given a prior notice which debtor can set aside by an order of the District Court.

The petition for insolvency shall be presented either by creditor or debtor. Section 8 of the act lays that no insolvency petition shall lay against any corporation, company or association. Creditors can file petition for insolvency against debtor only if the aggregate amount of debt is more than rupees five hundred, debt is liquidated payable immediately or after some time, petition shall be filed within three months from commission of the Act.

Section 10 of the Act lays conditions under which the debtor can present petition for insolvency in situations where the debt amounts to five hundred rupees, debtor is under imminence of arrest or an order of attachment in execution of decree is made against the debtor.

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Insolvency petition shall be presented only to the courts having jurisdiction under the Act and situated at such place in which debtor resides, carries on his business or in case arrested place where debtor is kept in custody. Section 13 contains the manner in which insolvency petition shall be filed. Petitions filed under the Act shall be in consonance with Code of Civil Procedure, 1908. Petition once filed cannot be withdrawn except with permission of the court. Act also provides for consolidation of petitions in wherein two or more petition of similar nature has been filed against one person.

Where debtor dies while proceeding against him are going on, proceedings shall continue under the order of the Court.  Petitions for insolvency shall be admitted in accordance with provisions of Civil Procedure Code, 1908. Once petition is admitted notice shall be served to creditors and also to debtor where he is not the petitioner. Court shall also appoint interim receiver while the proceeding for insolvency are pending. Court may issue interim proceedings against debtor under section 21 of the Act.  Hearing shall be in accordance with the provisions of section 24 of the Act.

Petition filed by creditor may be dismissed by the court for want of evidence or in case of vexatious petitions in such cases court may award compensation to the debtor. Once a petition is dismissed court may order adjudication under section 27 of the Act in lieu of which debtor may apply for protection order under section 31 of the Act. The courts may issue warrant for arrest incase it is of opinion that debtor may abscond after an order for adjudication.

Appeal against the orders of subordinate court shall lie to district courts. Offences committed by debtor shall be made punishable under Part IV of the Act.

The provincial insolvency act was enacted with a purpose to lay hands of law on debtors and to prevent loss to the creditors. Apart from enacting laws against the debtors legislators also enacted provisions where creditors had filed false and frivolous complaints.

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by Vibhuti Nakta.