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Report No. 26

Clause 15

General.-This follows section 24(1) of the Provincial Act and sections 13(2) and 15(1) of the Presidency Act. But the provision has been re-drafted to achieve clarity.

Scheme of re-draft.-The re-draft is intended to state separately the position as regarding hearing of a--

(i) debtor's petition; and

(ii) creditor's petition.

Some of the circumstances to be inquired into on a creditor's petition-for example, proof of the act of insolvency,-are not applicable to a debtor's petition, and have accordingly been omitted.

It will be noted that, except for the point discussed below regarding proof of inability to pay debts, the re-draft does not differ in substance from the propositions embodied in the following provisions of the two Acts:-

Provincial Act (for debtor's petition)-section 24(1) read with section 10(1).

Provincial Act (for debtor's petition)-section 15(1) read with section 14(1).

Provincial Act (for creditor's petition)-section 24(1) read with section 9(1).

Presidency Act (for creditor's petition)-section 13(2) read with section 12(1).

Inability to pay debts.-How far the debtors' inability to pay debts should be proved (when the petition is by the debtor) is a point which presents some difficulty.

The first difficulty is created by the difference in the wording of the two Acts. In the Provincial Act, section 10 (opening lines), expressly provides that the debtor cannot present a petition unless he is unable to pay his debts; and section 24(1)(a) requires proof of the debtor's being entitled to present the petition. But the provisions in the Presidency Act are not so direct. Section 15(1) of that Act does require that the debtor's petition shall "allege" that the debtor is unable to pay his debts.

But the same section, when dealing with proof, merely says that "if the debtor proves that he is entitled to present the petition", the court may make an order of adjudication, etc. Now, when one turns to the section in the Presidency Act dealing with the subject of the debtor being "entitled to present a petition", one finds that section 14(1) does not mention the requirement of inability to pay debts.

The question that arises is, whether the inability, etc., has to be "be proved" at the hearing under the Presidency Act. It seems that the answer should be in the affirmative for cases under the Presidency Act also. It has been held under the Presidency Act, that a false allegation about inability entails the annulment of the adjudication1 under section 21. As was observed in another case2, a debtor petitioner's only justification for obtaining the benefit of Insolvency Acts is his inability to pay his debts. A clear provision on the subject would be useful.

The second difficulty is created by the proviso to section 24(1)(a) of the Provincial Act. Inability to pay debts has been made a condition precedent to the presentation of the petition in section 10 of the Provincial Act, and this change was made in 1920 deliberately (departing from the old Provincial Act of 1907, section 11) to prevent abuse by debtors filing petitions to avoid liability from arrest in execution. Mulla has observed3 that this has not resulted in any practical benefit to the creditors. At the same time, he has not suggested the deletion of the proviso which limits the scope of the inquiry by the court for this condition. It is considered that since the proviso does not impose an absolute limitation, the section in the Provincial Act need not be disturbed on this point.

Sub-clause (1).-Deals with the case of petition by debtor. No further comments are needed. Mention of adjourned date is omitted, as unnecessary. See 0. 17, C.P.C.

Sub-clause (1), proviso.-The question of inability to pay debts has already been discussed above4.

Sub-clause (2).-Deals with the creditor's petition.

Omission of section 24(2), P.A.-Section 24(2) of the Provincial Act provides that the court shall also examine the debtor if he is present. It was held in Gangadas v. Percival, AIR 1927 Cal 32 that this provision is mandatory, and an order of adjudication made without examination of the debtor was bad. The contrary was held in Sitaram v. Amrutrao, ILR 1939 Nag 463. It has, however, been proposed to omit this sub-section altogether, as it is considered that a public examination of the debtor at that stage is not necessary5. Both under the English Act and under the scheme of the Presidency Act, the public examination of the debtor takes place after adjudication, and that procedure has been adopted for all the courts under the Bill6.

It may be noted that in an earlier Report7 the Law Commission recommended the acceptance of the suggestion that there should be a provision in the Provincial Act for the public examination of the insolvent after the adjudication order is made, and that the examination of a debtor under section 24 of the Provincial Act8 before the order for adjudication is premature, as there is hardly any material on which the debtor could be examined at that stage.

Omission of section 24(3), P.A. and section 90(3), P.T.A.-Provisions regarding adjournment are omitted, as covered by Order 17, C.P.C.

Omission of section 24(4), P.T.A.-Section 24(4) of the Provincial Act dealing with the making of the memorandum of the substance of the evidence has been omitted, as it is considered that such a detailed provision need not be made in the Act.

1. See Alamelu Mangatha Yarammal v. Balusami, AIR 1928 Mad 394 (395), right-hand, and 396.

2. Viszvanatha v. Official Assignee, AIR 1930 Mad 544 (546), left-hand (Ramesam and Carnish ff.).

3. Mulla, (1958), p. 200, para. 209.

4. See notes to clause 15, "Inability to pay debts".

5. Cf. suggestion in Mulla, (1958), pp. 24-25 and 27.

6. See clause 29.

7. 14th Report of the Law Commission (Reform of Judicial Administration), Vol. I.

8. Cited in the 14th Report as the "Presidency Act" through slip.

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