Report No. 67
35.7. Inspectorship deed, and Letter of Licence.-
The third and fourth categories of instruments mentioned above can be distinguished thus. In the case of the inspectors mentioned in Article 22, though the article is silent as to who should appoint these inspectors, it is presumed that the inspectors are nominated by the creditors. In the letter of licence, the claims of the creditors are suspended for a specified time, and the debtor is allowed to carry on his business at his own discretion.1
1. cf. Article 38.
35.8. Article 38.-
Where it is a deed falling under Article 38 as a letter of licence, the business is carried on at the discretion of the debtor, it is doubtful how far such a deed is of practical importance, as presumably the debtor has already mis-managed his business earlier, thus incurring the debts, and one wonders if the creditors would allow him to manage his business further at his own discretion.1
1. See also Mulla The Indian Stamp Act, (6th Edn.), p. 292.
35.9. Position after adjudication.-
Under the Insolvency Acts,1after adjudication, the court appoints the insolvent to manage the trade or his property in such manner as the court directs. In such cases, the discretion of the insolvent is controlled by the court. Therefore, where it is a deed whereby provision is made for the continuance of the debtor's business "under the supervision of inspectors", it can be assumed that the inspectors would be nominated by the creditors.
1. (a) Section 66 of the Provincial Insolvency Act, 1920; Mulla Law of Insolvency (1958), pp. 699 and 714;
(b) Section 75 of the Presidency Towns Insolvency Act, 1909;
(c) Compare sections 57-58, Bankruptcy Act, 1914 (English).
35.10. Procedure under Insolvency Acts.-
As regards the procedure for inspection, the relevant provisions in the Insolvency Acts1 provide for a committee of inspection for the purpose of superintending the administration of the insolvent's property by the official receiver. Under the Insolvency Acts, the committee of inspection are the creditors themselves or those who hold general powers of attorney from the creditors. The court has to authorise the appointment of such a committee.
1. (a) Section 67A, Provincial Insolvency Act, 1920. (b) Sections 88 and 89, Presidency Towns Insolvency Act, 1909.
35.11. Meaning of "Inspectors" in Article 22.-
The question whether, under the Stamp Act, Article 22, "inspectors" means those appointed from among the creditors themselves to supervise the debtor's business, and whether they have to be approved by the court (as under the Insolvency Act),1 is not beyond doubt. However, one general comment that can be made with respect to deeds of inspectorship (similar to the comment already made with regard to letters of licence), is that such deeds do not appear to be commonly used. No case law on these two types of composition deeds is available.
1. Para. 35.10, supra.
35.12. Practical utility limited.-
With regard to the practical use of these deeds, it is interesting to note the history of section 67A of the Provincial Insolvency Act, 1920. This section was added by section 5 of the Act of 1926. Before the amendment, there was no such provision in this Act, though there were, in the Presidency towns Insolvency Act, sections 88 and 89, which provided for the setting up of a committee of inspection by the creditors for the purpose of superintending the administration of the insolvent's property by the receiver. In 1924, the Civil Justice Committee made a recommendation for the addition of such a section, making the following observations:-
"So little use is made of these sections in the Presidency Towns Act that one hesitates to recommend their introduction into the mofussil. In principle, however, it seems hopeless to expect good administration of a fund which really belongs to the creditors, unless the creditors are given a means whereby they may have a proper' voice in superintending the administration."
There does not appear to be any case law under these sections providing for a committee of inspectors under the Insolvency Act also.
35.13. Recommendation to amend Article 22.-
If these two types of composition deeds are retained in the Stamp Act, then the following changes are recommended for the improvement of the relevant parts of the article:-
(1) In the case of instruments for the continuance of business under inspectors, the article should make it clear that they are appointed by the creditors.1
(2) Since Article 38 denies a letter of licence, reference should be made in Article 22 to that article.
We may add that such an amendment has been favoured by most replies to our Questionnaire.2
1. Para. 35.7, supra.
2. Q. 86
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