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Report No. 26

30. Priority of debts.-Under section 33 of the English Bankruptcy Act, 1914 taxes due only for one year have priority over other debts. Under the two Indian Acts1, all debts due to the Government, which include taxes, take precedence over other debts. We think that in the conditions prevailing in this country the preference of debts due to Government should not be whittled down. We considered the question whether any preference should be given to small creditors. But in view of the difficulty of defining a small creditor and where to draw the line, we think that no such provision, although desirable, is feasible.

We also examined the question whether priority should be given to payments to be made under the Workmen's Compensation Act, 1923, the Employees' State Insurance Act, 1948, and the sums due to an employee from a Provident Fund, etc., as provided in section 530 of the Companies Act, 1956. In our opinion there is a great deal of difference between the liquidation of a company and the insolvency of an individual. Companies do business on a very large scale, while an insolvent may be a small trader. We think tEat under the Insolvency law, the list of preferential creditors should be as small as possible. We, therefore, do not recommend any change on these matters in the existing law2.

1. Section 61(1), P.A. section 49(1) P.T.A.

2. App I, clause 72.

31. Penalties.-There are very few prosecutions under the insolvency law in this country. The reason perhaps is that it is difficult to prove the guilty intention of an insolvent which is a necessary ingredient of every insolvency offence. In this connection the following observations made by Mulla1 are relevant:-

"In England all that the prosecution has to prove is the act or omission complained of and the onus rests upon the debtor to prove that he had no intent to defraud or that he did not mean to conceal the state of his affairs or to defeat the law. This proceeds on the principle that the debtor is in a position to know all facts which go to prove his innocence and it is, therefore, for him to prove those facts. This, it is submitted, is a sound principle, and it is in accordance with the provisions of section 106 of the Indian Evidence Act, 1872. That section says that when any fact is especially within the knowledge of any person the burden of proving that fact is upon him. The same rule, it is submitted, should be applied to insolvency offences in India. But it is a matter for the Legislature."

We recommend that this suggestion may he accepted2.

Some offences in the English Bankruptcy Act of 1914 are not included in the Indian Acts. We recommend that the penal provisions in the new law should be enacted on the lines of sections 154 to 160 of the English Act. We have also taken this opportunity of further enlarging the list of insolvency offences by borrowing some provisions from the Australian and Canadian Bankruptcy Acts.

1. Mulla Law of Insolvency in India, (1958), p. 708, para. 72.

2. See App I, clause 119 et seq.

32. Appendices.-In order to give a concrete shape to our recommendations we have, in Appendix I, shown them in the form of a draft Bill.

Appendix II contains Notes on Clauses, elucidating, with reference to the clauses in Appendix I, the points that require elucidation.

Appendix III contains comparative tables showing the sections in the existing Acts and the corresponding provisions in Appendix I.

Appendix IV gives figures of periods of discharge of insolvents in the Presidency-towns.

J.L. Kapur, Chairman.

K.G. Datar, Member.

S.K. Hiranandani, Member.

S.P. Sen Varma, Member.

Niren De, Member.

T.K. Tope Member.

P.M. Bakshi, Joint Secretary and Draftsman.

New Delhi,

Dated: 21st February, 1964.

Explanation of Abbreviations used in Appendix I

P.A. = The Provincial Insolvency Act, 1920.

P.T.A.= The Presidency Towns Insolvency Act, 1909.

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