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Report No. 26

23. Period of limitation in case of fraudulent preferences.-In section 44 of the English Bankruptcy Act, 1914, which deals with fraudulent preference, the period of three months was extended to six months by section 115(3) and (6) of the Companies Act, 1947. We recommend1 that in the new law a similar change should be made. Fraudulent preference is one of the acts of insolvency. In view of the doctrine of relation back, a transaction which amounts to fraudulent preference will, qua an act of insolvency, be liable to be impeached if it has taken place within three months of the insolvency petition. The existing provision in the Presidency Act relating to fraudulent preference which is restricted to three months does not therefore serve a very useful purpose.

8. See App I, clause 55.

24. Bona fide transactions.-Under section 57 of the Presidency Act a bona fide transaction entered into with the insolvent before the date of the order of adjudication is protected if the person dealing with the insolvent has no notice of the presentation of the insolvency petition. The provision about notice of the presentation of the insolvency petition is not quite consistent with the doctrine of relation back as applicable under the Presidency Act. Mulla has pointed out this inconsistency, and has suggested1 an amendment of section 57 on the lines of section 45 of the English Act. We accept this suggestion. We also accept the suggestion2 that if such a change is made, it will be necessary to introduce into the Indian law the provisions of section 16 of the Bankruptcy Act, 1914

1. Mulla Law of Insolvency in India, (1958), pp. 27-28.

2. See App I, clauses 57-58.

25. Special protection to bankers.-We have considered the question whether any special protection should be granted to bankers on the lines of section 97 of the Australian Act. That section is in the following terms:

"Protection to bankers.-Any payment of money or delivery of any security or negotiable instrument made to or by the order or direction of a debtor by his banker in good faith before the making, or without negligence on the part of the banker after the making, of the order of sequestration made against the debtor shall be valid as against the trustee."

While there may be no objection to protecting bankers in respect of transactions entered into in good faith before adjudication, we think the extension of the protection in the absence of negligence to transactions after adjudication may be liable to be abused. It is to be noticed that in this country banking business is not only done by regular banks but also by private firms. In our opinion the interests of bankers are sufficiently safeguarded by the section1 protecting bona fide transactions and the new provision proposed by us on the lines of section 46 of the English Bankruptcy Act, 1914.

1. See App I, clauses 57-58.

26. Transferees from donees.-Under the existing law, the position of transferees from donees where the original transaction with the donee is declared void, is not quite clear.1 It has been held in a Nagpur case2 that the provisions of section 53 of the Provincial Act apply only to transfers by the insolvent and not to transfers by the transferees from the insolvent. In this connection, we think that the provisions of section 66 of the Canadian Act are suitable and may be adopted. That section, while protecting the rights of bona fide transferees for value empowers the Official Assignee to recover property of the bankrupt which has been acquired under a transaction that is void or the value or sale proceeds in the hands of the transferee.

1. Mulla Law of Insolvency in India, (1958), pp. 620-621, para. 625.

2. Govind v. Sonba, AIR 1930 Nag 34.

27. Copyright.-The existing law does not contain any provision relating to the property of the insolvent consisting of works in which copyright subsists. Section 52 of the Canadian Act contains useful provisions on this subject. That section enacts that subject to certain conditions, the author's ,manuscripts and any copyright assigned to a publisher, etc., shall on the publisher, etc., becoming bankrupt revert to the author. We recommend that a provision on the lines of the Canadian Act may be incorporated in the new law1.

1. See App I, clause 64.

28. Second bankruptcy.-The existing law does not provide for a contingency where a person who has become insolvent is again adjudged insolvent before he is discharged in the first insolvency. In this connection, we may refer to section 39 of the English Bankruptcy Act, 1914 and the modification suggested in that section by the Blagden Committee1. In paragraph 114 of the Report, the Committee have considered two solutions of the problem.

We prefer the second solution,2 under which the assets in the second or subsequent insolvency will first be applied towards payment to the creditors of such insolvency of a dividend up to the amount of any dividend that has been paid to the creditors in the former insolvency, but when both the insolvencies reach equality as regards dividend paid, any further assets available will be distributed pro rata to the creditors in both the insolvencies. In our opinion, the "administrative complications" referred to in the Report of the Blagden Committee (which, incidentally, are not specified in that Report) may not be insurmountable, and should not stand in the way of this solution which seems just and fair to the creditors of both the insolvencies.

1. Report, (1957) Cmd. 221, pp. 37-38, para. 114.

2. See App I, clause 49.



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