Report No. 26

Chapter II

Acts of Insolvency

3. Acts of insolvency.-(1) A debtor commits an act of insolvency in each of the following cases, namely:-

(a) if, in the territories to which this Act extends or elsewhere, he makes a transfer of all or substantially all his property to a third person for the benefit of his creditors generally;

(b) if, in the said territories or elsewhere, he makes a transfer of his property or of any part thereof with intent to defeat or delay his creditors;

(c) if, in the said territories or in any place outside India, he makes any transfer of his property or of any part thereof, which would, under this Act, be void as a fraudulent preference if he were adjudged an insolvent;

(d) if, in the State of Jammu and Kashmir, he makes any transfer of his property or of any part thereof, which would, under this Act or under any law corresponding to this Act for the time being in force in that State, be void as a fraudulent preference if he were adjudged an insolvent;

(e) if, with intent to defeat or delay his creditors,

(i) he departs or remains out of the said territories;

(ii) he departs from his dwelling-house or usual place of business or otherwise absent himself;

(iii) he secludes himself so as to deprive his creditors of the means of communicating with him;

(f) if any of his property has been sold or has been under attachment for a period not less than twenty-one days, in execution of the decree or order of any court for the payment of money.

Explanation.-For the purposes of this clause, where the debtor is a partner in a firm, an order charging his interest under sub-rule (2) of rule 49 of Order XXI in the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908), shall be deemed to be an order of 5 of 1908, attachment,

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(g) if he petitions to be adjudged an insolvent under the provisions of this Act;

(h) if he gives notice to any of his creditors that he has suspended, or that he is about to suspend payment of his debts;

(i) if he is imprisoned in execution of the decree or order of any court for the payment of money.

[Section 6, main para. P.A.] (Cf. section 9, main para., P.T.A.]

(2) A debtor commits an act of insolvency if a creditor who has obtained a decree or order against him for the payment of a sum of money (being a decree or order which has become final and the execution whereof has not been stayed), has served on him an insolvency notice as provided hereunder and the debtor does not comply with such notice within the period specified therein:

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Provided that the debtor shall not be deemed to have committed an act of insolvency for not complying with the notice if he has a counter-claim or set-off which equals or exceeds the sum remaining due under the decree or order, and which he could not lawfully set up in the suit or proceeding in which the decree or order was made against him:

Provided further that where the insolvency notice is to be served outside the territories to which this Act extends, the leave of the court shall be first obtained before service of the notice.

[As to set-off which could not be put forth.]

[Cf. section 1(i)(g), English Act]

(3) An insolvency notice under sub-section (2) shall-

(a) be in the prescribed form;

(b) be served in the prescribed manner;

(c) specify for its compliance a period not less than one month after service, or, if it is to be served outside the territories to which this Act extends, then such period as may be allowed by the order of the court granting leave for the issue of such notice;

(d) require the debtor to pay the amount due under the decree or order, or to furnish security for the payment of such amount to the satisfaction of the creditor or his agent, within the period to be specified therein, which shall be not less than one month from the date of the service thereof, or less than the period allowed under clause (c) of this sub-section, as the case may be;

(e) state the consequences of non-compliance with the notice.

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(4) Such notice shall not be invalidated by reason only that the sum specified in the notice as the amount due exceeds the amount actually due, unless the debtor, within the period allowed for payment, gives notice to the creditor that he disputes the validity of the notice on the ground of such misstatement; but if the debtor does not give such notice, he shall be deemed to have complied with the insolvency notice if within the time allowed he takes such steps as would have constituted a compliance with the notice had the actual amount due been correctly specified therein.

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Explanation.-For the purposes of this section, the Act of an agent may be the act of the principal, even though the agent has no specific authority to commit the act.

[Section 6, Expl., P.A.] [Cf. section 10, P.T.A.]