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Report No. 26

Clause 3

General.-This follows section 6, Provincial Act and section 9, Presidency Act.

Sub-clause. (1)-Paragraph (a).-Needs no comments.

Paragraph (b).-Needs no comments.

Paragraphs (c) and (d).-The existing wording in section 6(1)(c) of the Provincial Act and section 9(1)(c) of the Presidency Act is-"if he makes any transfer which would under this or any other enactment for the time being in force" be void as a fraudulent preference. The reference to "other enactment" was mainly intended, it seems, for the sister Act. That is to say, the Presidency Act by these words referred to the Provincial Act, and vice versa.

Perhaps the laws in force in other parts of India where neither of the two Acts is in force (for example, the area of an erstwhile Indian State) would also be covered (though the definition of "enactment" in the General Clauses Act, 1897, is not specific on this point, because it is an inclusive definition.) Anyway, it is considered that these words should be retained in an altered form to cover clearly cases of a transaction regarded as a fraudulent preference under the Insolvency Law in Jammu and Kashmir also. The necessary change has been made accordingly. For clarity, the matter has been dealt with in two paragraphs.

Paragraph (e).-Needs no comments.

Paragraph (f).-Section 6(e) of the Provincial Act enacts that it is an act of insolvency if any property has been sold in execution of the decree of any court. The corresponding provision in the Presidency Act, section 9(e), provides further that it is an act of insolvency if the property has been under attachment for a period of 21 days. That has been adopted as useful. Further, "orders" fiir the payment of money have also been included1, since they should receive the same treatment as decrees as regards attachment and arrest.

Another question which arises on this clause is, whether an order charging a partner's share under Order 21, rule 49, Code of Civil Procedure, is "attachment" within this clause. It was held in Gulam Mustafa v. Madanlal, 1931 ILR 58 Cal 624: AIR 1931 Cal 167 : (1958), p. 124, para. 121B., that it is not. It is true that an order under Order 21, rule 49, is different from an attachment; but, for the present purpose, the effect of both is the same. Hence an Explanation on the subject is added.

Paragraph (1).-"Orders" have been included2.

Sub-clause (2).-Is mainly based on section 1(1)(g) of the (English) Bankruptcy Act, 1914. Under this section, it would be open to a person who has obtained a decree or order for the payment of money to give notice to the debtor calling upon him to pay the amount due thereunder, and failure to do so would itself be an act of insolvency3. In Bombay4 provisions5 based on the English Act have been introduced both in the Presidency Act and in the Provincial Act, by the Bombay Insolvency Amendment Act (Bombay Act 15 of 1939).

If the notice is to be served outside India, leave of the court must be obtained and the period for compliance of the notice should be fixed by the court. The provision contained in the English Act) has been embodied here. If the notice is to be served within India, the period will not be less than one month. Having regard to conditions in India, a minimum period of one month seems to be appropriate.

Sub-clauses (3) and (4).-Contain detailed provisions as to insolvency notice.

1. Cf clauses 6 and 7.

2. Cf clauses 6 and 7.

3. See Williams, pp. 31-42.

4. i.e. erstwhile Province of Bombay.

5. For Bombay amendment, see Mulla, (1958), p. 135.

Clause 3

Explanation.-The Explanation (found in the existing Acts also) is departure from the English Law. Under that law the act of bankruptcy must be personal to the debtor, and therefore there can be no adjudication founded merely on the act of the agent1. It has been pointed out by the Privy Council2 that the position of Gumashta who carries on business on behalf of the proprietor may not strictly be that of a mere manager or agent, and that he may be entrusted with such large powers of management as to virtually assimilate his position to that of an owner, and that therefore a proprietor may be adjudicated on an act of insolvency committed by him. It is this view that is embodied in the Explanation to section 9 of the Presidency Act and section 6 of the Provincial Act.

Both of them provide that an act of insolvency committed by an agent may be the act of the principal. This does not, of course, mean that every act of the agent must be treated as act of the principal. That appears to have been assumed in Kalianji v. Bank of Madras, ILR 39 Mad 693, which has been commented upon by Mulla3. Whether it should be treated as an act of the principal must depend upon the authority of the agent and the nature of the business, vide John v. Oriental Government Security Life Assurance Co., AIR 1929 Mad 347.

It should be noted that in the Explanation to section 9 of the Presidency Act there occur the following words: "even though the agent has no specific authority to commit the act". This is not found in the Explanation to section 6 of the Provincial Act. The effect of the Explanation will be the same whether those words were there or not, because if there is specific authority by the principal to the agent to commit the act, then it becomes the act of the principal himself4. However, since the quoted words are useful by way of emphasis, they have been retained.

1. Mulla, (1958), pp. 139-140, para. 136.

2. Kasturchand v. Dhanpat Singh, 22 IA 162: ILR 23 Cal 26.

3. See the criticism in Mulla, (1958), p. 142.

4. See Mulla, (1958), p. 139, para. 136.



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