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Report No. 26

Clause 30

Sub-clauses (1), (2) and (3) (Annulment, discretionary or mandatory).-1. These correspond to section 21(1) of the Presidency Act which corresponds to section 35 of the Provincial Act).

2. Section 21 of the Presidency Act, and section 35, Provincial Act, as originally enacted, were different. Additions were made in both the Acts by section 5 of the Insolvency (Amendment) Act, 1927 (11 of 1927).

3. But as regards cases in which a "debtor" ought not to have been adjudged or where his debts were paid in full, there still remained a fundamental difference between the Presidency Act and the Provincial Act, in that while under the former Act the Court "may" annul the adjudication, under the latter it "shall" annul it on the grounds set out therein; and adverting to this difference in language, it was pointed out1 that under the Provincial Act the court had no discretion in the matter (except in certain cases) while under the Presidency Act, the court had a discretion in all cases. But2 the Amendment of 1950 substituted the word "shall" for the word "may" in the first portion of section 21(1) of the Presidency Act, thus assimilating the position under the Presidency Act to that under the Provincial Act.

4. The question whether the law should be re-enacted in terms of the sections as they have stood since the amendment of 1950, has been considered. Under the English law, it has been generally held that annulment is a matter of discretion3, and that such an order should not be passed even if all the debts of the insolvent have been paid in full, if his conduct had been mala fide. (It may be mentioned that one of the grounds given for maintaining the distinction between the Provincial Act and the Presidency Act, was that the Privy Council had held in Chhatrapat Singh v. Kharag Singh, 44 IA 11: ILR 44 Cal 535: AIR 1916 PC 64 (PC), that the court was bound to adjudicate a person as insolvent if the statutory conditions were satisfied, and that it had no discretion in the matter. On this point, the Bill now follows the scheme of the Presidency Act). It is considered unnecessary to disturb the law as it exists. It may be noted that the English Committee has (in substance) recommended that the annulment should be mandatory4.

5. After the word "insolvent", the words "provable in insolvency" have been added, to define the debts that must have been paid in full.

Sub-clause (4).-Is new and is intended to implement the recommendation made in an earlier Report of the Law Commission5 to the effect that the court may be empowered to annul the adjudication in the cases mentioned in the sub-clause under discussion.

Sub-clause (5).-Is taken from section 21(2) of the Presidency Act. There is nothing corresponding to it in the Provincial Act, but such a provision is considered necessary6.

1. Periakaruppan Chettiar v. Arunachalam Chettiar, ILR 1940 Mad 441: AIR 1940 Mad 375 (FB).

2. Discussion in Mulla, (1958), p. 316, paras. 339-340 is with reference to previous law.

3. See Williams, p. 148 and foot-note 60.

4. Report of the Committee on Bankruptcy Law, etc., 1957 Cmd. 221, p. 49, paras. 145-146.

5. 14th Report of the Law Commission (Reform of Judicial Administration), Vol. I.

6. Mulla, (1958), (Edn.), p. 313, para. 335, last four lines, expresses the view that the same principle will be applied under the Provincial Act.

Clause 31

The language of section 22, Presidency Act has been followed. The corresponding section in the Provincial Act is section 36.

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