PROVINCIAL INSOLVENCY ACT, 1920 (KARNATAKA AMENDMENT)

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 B States"] [the territories which, immediately before the 1st November, 1956, were comprised in Part B States] and] the Scheduled Districts.

STATE AMENDMENTS

KARNATAKA

[1] [In Section 1

The expression "except the territories which immediately before the 1st November 1956, were comprised in Part B States", the expression "other than the territories specified in clause (a) and clause (c) of sub-section (1) of section 7 of the States Reorganisation Act, 1956 (Central Act 37 of 1956)" shall be added.]]]

Section 6 -Actofinsolvency

Acts of insolvency

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

(a)      if, in [3] [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 [4] [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 [5] [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 [6] [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.

[7] [(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 therefore.

(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.]

[STATE AMENDMENTS

[Karnataka

[8] [In Section 6

(a)      in section 6, after clause (h) the following new clause shall be inserted, namely :-

"(i)? ?if, after a creditor has served an insolvency notice on him under this Act in respect of a decree or an order for the payment of any amount due to such creditor, the execution of which is not stayed, he does not, within the period specified in the notice which shall not be less than one month, either comply with the requirements of the notice or satisfy the Court that he has a counter claim or set off which equals or exceeds the decretal amount or the amount ordered to be paid by him and which he could not lawfully set up in the suit or proceeding in which the decree or order was made against him".

(b)      after section 6, the following new section shall be inserted, namely:-

"6A. Insolvency notice- 

(1)     An insolvency notice under this Act shall be in the prescribed form and shall be served in the prescribed manner. It shall require the debtor to pay the amount due under the decree or order, or to furnish security for the payment of such amount to the satisfaction of the creditor or his agent, or to satisfy the court that he has a counterclaim or set off which equals or exceeds the decretal amount or the amount ordered to be paid by him and which he could not lawfully setup in the suit or proceeding in which the decree or order was made against him and shall state the consequences of non-compliance with the notice.

(2)     Such notice shall not be invalidated by reason only that the sum specified in the notice as the amount due exceeds the amount actually due, unless the debtor within the time allowed for payment gives notice to the creditor that he disputes the validity of the notice on the ground of such mis-statement ; but if the debtor does not give such notice, he shall be deemed to have complied with the insolvency notice, if within the time allowed he takes such steps as would have constituted a compliance with the notice had the actual amount due been correctly specified therein."]]]

Section 79 - Power to make rules

{Subs.by the A.O.1937 for the original sub-section}

[(1) ?The High Court may, with the previous sanction of the State Government, make rules for carrying into effect the provisions of this Act.]

(2)   In particular and without prejudice to the generality of the foregoing power, such rules may provide-

[9] [(a) the form of the insolvency notice under clause (a), and the manner in which such notice may be served under clause (b), of sub-section (3) of section 6;]

[10] [(aa)] for the appointment and remuneration of receivers (other than Official Receivers), the audit of the account of all receivers and the costs of such audit.

(b)   for meetings of creditors,

(c)   for the procedure to be followed where the debtor is a firm, {The word "and" rep.by Act 39 of 1926, s.6}

(d)   for the procedure to be followed in the case of estates to be administered in a summary manner, {Ins.by s.6, ibid.} [and

(e)   for any matter which is to be or may be prescribed.]

(3)    All rules made under this section shall be published {The words "in the Gazette of India or" rep.by the A.O.1937} in the Official Gazette, {The words "as the case may be," rep., ibid} and shall, on such publication, have effect as if enacted in this Act.

[STATE AMENDMENTS

[Karnataka

[11] [In Section 79

The following clause shall be inserted, namely :-

"(aa) the form of insolvency notice and the manner in which it may be served ;]]]