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Report No. 26

Clause 119

General.-This clause, dealing with some of the major offences under insolvency laws, is wider than section 69 of the Provincial Act and sections 33(4) and 103 of the Presidency Act, and covers many offences not mentioned in those sections or mentioned briefly therein. It has been widened on the lines of section 154 of the English Act, which is more elaborate.

"Before or after".-The words "whether before or after making of an order of adjudication" are, as observed in Ganga Prasad v. Madhuri Saran, AIR 1927 All 352 (353), (Walsh, acting C.J. and Banerji J.) peculiar to India, because in the English Legislation, penalties are confined to conduct after presentation of the petition. It was noted there, that the general language "before the making of an order" is sufficiently wide to cover almost any distance of time.

But, it was also noted, the definition of the specified acts complained of narrowed down the generality of the provisions, so as to confine offences strictly to matters affecting the investigation of the insolvent's affairs under the Act, the duties to be performed by him under the Act, the distribution of his property or money between the creditors, and the concealment or making away with property, or falsification of his books, with the intention of defeating the objects of the Act. The provision, it was also observed, was a special provision for cases in this country.

Burden of proof-Apart from adding certain offences, the clause also departs from the existing section in throwing the burden of proof on the insolvent. While under the existing law the burden is on the prosecution, the position under the clause is1, that once the act or omission complained of is made out, the burden of proving that such act or omission was done without the relevant intent is on the insolvent. This is the law2 under section 154 of the English Act3-4.

Other changes.-The period of imprisonment has been extended to two years as in the Presidency Act (instead of one year as in Provincial Act), as these are serious offences. The words "on conviction" have been omitted as unnecessary.

Section 33(4), Presidency Act, omitted.-As the new Act will apply to the mofussil also, the provision treating some of the acts as contempt of court (occurring in the Presidency Act) has been omitted.

Prevention of malpractices by traders.-It has been stated that many buyers, particularly in the food-grains market, make purchases on credit with an ulterior motive of gain, and that they suddenly close down their business without meeting their financial obligations to the sellers. Quite often, it is said, they fraudulently dispose of their property and defeat their creditors. In this connection, the question whether an increase in the penalties for bankruptcy offences is called for has been examined. But it is considered, that no such increase is necessary. The problem can be dealt with by rigorous enforcement of the law wherever such cases are brought to light and by instituting prosecutions under the penal sections of the Insolvency laws5.

1. See also body of the Report, para. 31.

2. Cf suggetion in Mulla (1958), p. 20, para. 25 and p. 708, para. 729.

3. R.V. Governor of Brixton Prison, ex-parte-Shure, (1926) 1 KB 127.

4. Williams, pp. 528, 529.

5. The question whether any changes in sections 421 and 422 of the Indian Penal Code or section 53 of the Transfer of Property Act, etc., are necessary, in this context, is not being considered here.

Clause 120

This is a new provision (dealing with frauds by insolvents) and follows the provisions of the English Act, section 156.



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