Chapter 15 Bankruptcy for Individuals and Partnership Firms – CS Professional Insolvency Law and Practice Notes is designed strictly as per the latest syllabus and exam pattern.
Bankruptcy for Individuals and Partnership Firms – CS Professional Insolvency Law and Practice Study Material
Question 1.
What is required for a sound bankruptcy and insolvency framework as per the Report of the Bankruptcy Law Reforms Committee?
Answer:
A sound bankruptcy and insolvency framework requires the existence of an impartial, efficient and expeditious administration. This is more likely to be possible for individual insolvency when administrative proceedings are placed outside the court of law. As with legal entities, what is visualised for individuals is to enable a negotiated settlement between creditors and debtor without active involvement of the court. The principle is to allow greater flexibility in the repayment plans, and a time to execute the plans, that can be acceptable to both parties. If creditors and debtors can settle on such a plan out of court, what matters for the system is that there is a record of this settlement and that it can affect the premium of future credit transactions.
Question 2.
Name the Acts governing the personal insolvency prior to enactment of Insolvency and Bankruptcy Code, 2016.
Answer:
Personal insolvency is primarily governed under two Acts in India: the Presidency Towns Insolvency Act, 1909 (for the erstwhile Presidency towns, i.e. Kolkata, Mumbai and Chennai) and the Provincial Insolvency Act, 1920 (for the rest of India).
Question 3.
Discuss the main aim of Insolvency and Bankruptcy Code.
Answer:
The law aims to consolidate the laws relating to insolvency of companies and limited liability entities (including limited liability partnerships and other entities with limited liability), unlimited liability partnerships and individuals, presently contained in a number of legislations, into a single legislation.
Question 4.
Describe the main functions of Bankruptcy Trustee .
Answer:
According to Section 149 of the Insolvency and Bankruptcy Code, 2016, the bankruptcy trustee shall perform the following functions in accordance with the provisions of this Chapter –
(a) investigate the affairs of the bankrupt;
(b) realise the estate of the bankrupt; and
(c) distribute the estate of the bankrupt..
It may be noted that “bankruptcy trustee” means the insolvency professional appointed as a trustee for the estate of the bankrupt under section 125 of the Insolvency and Bankruptcy Code, 2016.
Question 5.
What are the main duties of bankrupt towards Bankruptcy Trustee.
Answer:
Section 150 of the Insolvency and Bankruptcy Code, 2016 provides that the bankrupt shall assist the bankruptcy trustee in carrying out his functions by:
(a) giving to the bankruptcy trustee the information of his affairs;
(b) attending on the bankruptcy trustee at such times as may be required;
(c) giving notice to the bankruptcy trustee of any of the following events which have occurred after the bankruptcy commencement date,
(i) acquisition of any property by the bankrupt;
(ii) devolution of any property upon the bankrupt;
(iii) increase in the income of the bankrupt;
(d) doing all other things as may be prescribed.
The bankrupt shall give notice of the increase in income or acquisition or devolution of property within seven days of such increase, acquisition or devolution.
Question 6.
Discuss the rights of Bankruptcy Trustee as per Section 151 of the Insolvency and Bankruptcy Code, 2016.
Answer:
The bankruptcy trustee may, by his official name-
(a) hold property of every description;
(b) make contracts;
(c) sue and be sued;
(d) enter into engagements in respect of the estate of the bankrupt;
(e) employ persons to assist him;
(f) execute any power of attorney, deed or other instrument; and
(g) do any other act which is necessary or expedient for the purposes of or in connection with the exercise of his rights.
Question 7.
Mention the general powers of Bankruptcy Trustee.
Answer:
As per Section 152 of the Code, the bankruptcy trustee may while discharging his functions under this Chapter,
(a) sell any part of the estate of the bankrupt;
(b) give receipts for any money received by him;
(c) prove, rank, claim and draw a dividend in respect of such debts due to the bankrupt as are comprised in his estate;
(d) where any property comprised in the estate of the bankrupt is held by any person by way of pledge or hypothecation, exercise the right of redemption in respect of any such property subject to the relevant contract by giving notice to the said person;
(e) where any part of the estate of the bankrupt consists of securities in a company or any other property which is transferable in the books of a person, exercise the right to transfer the property to the same extent as the bankrupt might have exercised it if he had not become bankrupt; and
(f) deal with any property comprised in the estate of the bankrupt to which the bankrupt is beneficially entitled in the same manner as he might have dealt with it.
Question 8.
List the acts for which bankruptcy trustee requires the approval of creditors.
Answer:
Section 153 of the Insolvency and Bankruptcy Code, 2016 provides that the bankruptcy trustee for certain acts needs the approval of the committee of creditors:
(a) carry on any business of the bankrupt as far as may be necessary for winding it up beneficially;
(b) bring, institute or defend any legal action or proceedings relating to the property comprised in the estate of the bankrupt;
(c) accept as consideration for the sale of any property a sum of money due at a future time subject to certain stipulations such as security.
(d) mortgage or pledge any property for the purpose of raising money for the payment of the debts of the bankrupt;
(e) where any right, option or other power forms part of the estate of the bankrupt, make payments or incur liabilities with a view to obtaining, for the benefit of the creditors, any property which is the subject of such right, option or power;
(f) refer to arbitration or compromise on such terms as may be agreed, any debts subsisting or supposed to subsist between the bankrupt and any person who may have incurred any liability to the bankrupt;
(g) make compromise or other arrangement as may be considered expedient, with the creditors;
(h) make compromise or other arrangement as he may deem expedient with respect to any claim arising out of or incidental to the bankrupt’s estate;
(i) appoint the bankrupt to:
(a) supervise the management of the estate of the bankrupt or any part of it;
(b) carry on his business for the benefit of his creditors;
(c) assist the bankruptcy trustee in administering the estate of the bankrupt.
Question 9.
What is included in the Estate of Bankrupt?
Answer:
As per Section 155(1) of the Insolvency and Bankruptcy Code, 2016, the estate of the bankrupt includes –
(a) all property belonging to or vested in the bankrupt at the bankruptcy commencement date;
(b) the capacity to exercise and to initiate proceedings for exercising all
such powers in or over or in respect of property as might have been exercised by the bankrupt for his own benefit at the bankruptcy commencement date or before the date of the discharge order passed under section 138; and .
(c) all property which by virtue of any of the provisions of this Chapter is comprised in the estate. Further as per Section 155(1) of the Code the estate of the bankrupt shall not include –
(a) excluded assets;
(b) property held by the bankrupt on trust for any other person;
(c) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund; and
(d) such assets as may be notified by the Central Government in consultation with any financial sector regulator.
Question 10.
Explain the provisions of acquisition of control by Bankruptcy Trustee.
Answer:
According to Section 157 of the Insolvency and Bankruptcy Code, 2016, the bankruptcy trustee shall take possession and control of all property, books, papers and other records relating to the estate of the bankrupt or affairs of the bankrupt which belong to him or are in his possession or under his control. Where any part of the estate of the bankrupt consists of things in actionable claims, they shall be deemed to have been assigned to the bankruptcy trustee without any notice of the assignment.
Question 11.
What are the restrictions on Disposition of Property?
Answer:
Section 158(1) of the Insolvency and Bankruptcy Code, 2016 provides that any disposition of property made by the debtor, during the period between the date of filing of the application for bankruptcy and the bankruptcy commencement date shall be void.
Further, Section 158(2) of the Insolvency and Bankruptcy Code, 2016 provides that Any disposition of property made under sub-section (1) shall not give rise to any right against any person, in respect of such property, even if he has received such property before the bankruptcy commencement date in –
(a) good faith;
(b) for value; and
(c) without notice of the filing of the application for bankruptcy.
It may be noted that the term “property” means all the property of the debtor, whether or not it is comprised in the estate of the bankrupt, but shall not include property held by the debtor in trust for any other person.
Question 12.
Discuss the provisions related to after-acquired property of Bankrupt.
Answer:
As per Section 159
- The bankruptcy trustee shall be entitled to claim for the estate of the bankrupt, any after-acquired property by giving a notice to the bankrupt.
- A notice under sub-section (1) shall not be served in respect of (a) excluded assets, or (b) any property which is acquired by or devolves upon the bankrupt after a discharge order is passed under section 138.
- The notice under sub-section (2) shall be given within fifteen days from the day on which the acquisition or devolution of the after-acquired property comes to the knowledge of the bankruptcy trustee.
- For the purposes of sub-section (3)
(a) anything which comes to the knowledge of the bankruptcy trustee shall be deemed to have come to the knowledge of the successor of the bankruptcy trustee at the same time; and
(b) anything which comes to the knowledge of a person before he is appointed as a bankruptcy trustee shall be deemed to have come to his knowledge on the date of his appointment as bankruptcy trustee. - The bankruptcy trustee shall not be entitled, by virtue of this section, to claim from any person who has acquired any right over after-acquired property, in good faith, for value and without notice of the bankruptcy.
- A notice may be served after the expiry of the period under sub-section (3) only with the approval of the Adjudicating Authority.
Question 13.
What is meant by the Onerous Property of Bankrupt?
Answer:
Section 160(1) of the Insolvency and Bankruptcy Code, 2016 provides that the bankruptcy trustee may, by giving notice to the bankrupt or any person interested in the onerous property, disclaim any onerous property which forms a part of the estate of the bankrupt.
Section 160 (2) of the Insolvency and Bankruptcy Code, 2016 provides that the bankruptcy trustee may give the notice under sub-section (1) notwithstanding that he has taken possession of the onerous property, endeavored to sell it or has exercised rights of ownership in relation to it. Section 160 (2) of the Insolvency and Bankruptcy Code, 2016 provides that a notice of disclaimer under subsection (1) shall
(a) determine, as from the date of such notice, the rights, interests and liabilities of the bankrupt in respect of the onerous property disclaimed;
(b) discharge the bankruptcy trustee from all personal liability in respect of the onerous property as from the date of appointment of the bankruptcy trustee.
As per Section 160(4) of the Insolvency and Bankruptcy Code, 2016 a notice of disclaimer under sub-section (1) shall not be given in respect of the property which has been claimed for the estate of the bankrupt under section 155 without the permission of the committee of creditors.
Section 160(5) of the Insolvency and Bankruptcy Code, 2016 provides that a notice of disclaimer under subsection (1) shall not affect the rights or liabilities of any other person, and any person who sustains a loss or damage in consequence of the operation of a disclaimer under this section shall be deemed to be a creditor of the bankrupt to the extent of the loss or damage. It may be noted that the term “onerous property” means (i) any unprofitable contract; and (ii) any other property comprised in the estate of the bankrupt which is unsaleable or not readily saleable, or is such that it may give rise to a claim.
Question 14.
What are the provisions related to the notice to disclaim onerous property.
Answer:
As per Section 161(1) of the Insolvency and Bankruptcy Code, 2016, no notice of disclaimer under section 160 shall be necessary if:
(a) a person interested in the onerous property has applied in writing to the bankruptcy trustee or his predecessor requiring him to decide whether the onerous property should be disclaimed or not; and
(b) a decision under clause (a) has not been taken by the bankruptcy trustee within seven days of receipt of the notice. As per Section 161 (2) of the Insolvency and Bankruptcy Code, 2016, any onerous property which cannot be disclaimed under sub-section (1) shall be deemed to be part of the estate of the bankrupt. An onerous property is said to be disclaimed where notice in relation to that property has been given by the bankruptcy trustee under section 160.
Question 15.
What are the provisions of disclaimer of leaseholds?
Answer:
According to Section 162 of the Insolvency and Bankruptcy Code, 2016, the bankruptcy trustee shall not be entitled to disclaim any leasehold interest, unless a notice of disclaimer has been served on every interested person and –
(a) no application objecting to the disclaimer by the interested person, has been filed with respect to the leasehold interest, within fourteen days of the date on which notice was served; and
(b) where the application objecting to the disclaimer has been filed by the interested person, the Adjudicating Authority has directed under section 163 that the disclaimer shall take effect. Where the Adjudicating Authority gives a direction above, it may also make order with respect to fixtures, improvements by tenant and other matters arising out of the lease as it may think fit.
Question 16.
Explain the process of filing a challenge against disclaimed property.
Answer:
As per Section 163(1) of the Insolvency and Bankruptcy Code, 2016, an application challenging the disclaimer may be made by the following persons under this section to the Adjudicating Authority
(a) any person who claims an interest in the disclaimed property; or
(b) any person who is under any liability in respect of the disclaimed property; or
(c) where the disclaimed property is a dwelling house, any person who on the date of application for bankruptcy was in occupation of or entitled to occupy that dwelling house.
Section 163(2) of the Insolvency and Bankruptcy Code, 2016 provides that the Adjudicating Authority may on an application under sub-section (1) make an order for the vesting of the disclaimed property in, or for its delivery to any of the persons mentioned in sub-section (1).
As per Section 163(3) of the Insolvency and Bankruptcy Code, 2016, the Adjudicating Authority shall not make an order in favour of a person who has made an application under clause (b) of sub-section (1) except where it appears to the Adjudicating Authority that it would be just to do so for the purpose of compensating the person.
Section 163(4) of the Insolvency and Bankruptcy Code, 2016, provides that the effect of an order under this section shall be taken into account while assessing loss or damage sustained by any person in consequence of the disclaimer under sub-section (5) of section 160.
Section 163(5) of the Insolvency and Bankruptcy Code, 2016, provides that an order under sub-section (2) vesting property in any person need not be completed by any consequence, assignment or transfer.
Question 17.
What are Undervalued Transactions?
Answer:
As per Section 164(1) of the Insolvency and Bankruptcy Code, 2016, the bankruptcy trustee may apply to the Adjudicating Authority for an order under this section in respect of an undervalued transaction between a bankrupt and any person.
As per Section 164(2) of the Insolvency and Bankruptcy Code, 2016, the undervalued transaction referred above should have –
(a) been entered into during the period of two years ending on the filing of the application for bankruptcy; and
(b) caused bankruptcy process to be triggered.
As per Section 164(3) of the Insolvency and Bankruptcy Code, 2016, a transaction between a bankrupt and his associate entered into during the period of two years preceding the date of making of the application for bankruptcy shall be deemed to be an undervalued transaction under this section.
Section 164(4) of the Insolvency and Bankruptcy Code, 2016 provides that on the application of the bankruptcy trustee, the Adjudicating Authority may (a) pass an order declaring an undervalued transaction void; (b) pass an order requiring any property transferred as a part of an undervalued transaction to be vested with the bankruptcy trustee as a part of the estate of the bankrupt; and (c) pass any other order it thinks fit for restoring the position to what it would have been if the bankrupt had not entered into the undervalued transaction.
As per Section 164(5) of the Insolvency and Bankruptcy Code, 2016, the order under Section 164(4)(a) shall not be passed if it is proved by the bankrupt that the transaction was undertaken in the ordinary course of business of the bankrupt: It may be noted that the provisions of this sub-section shall not be applicable to undervalued transaction entered into between a bankrupt and his associate under sub-section (3) of this section. Space to write important points for revision
Question 18.
Which transactions are included in undervalued transaction?
Answer:
A bankrupt is said to have entered into an undervalued transaction with any person if-
(a) he makes a gift to that person;
(b) no consideration has been received by that person from the bankrupt;
(c) it is in consideration of marriage; or
(d) it is for a consideration, the value of which in money or money’s worth is significantly less than the value in money or money’s worth of the consideration provided by the bankrupt.
Question 19.
Explain “Preference Transactions”.
Answer:
As per Section 165
- The bankruptcy trustee may apply to the Adjudicating Authority for an order if any preference is given to any person.
- The transaction giving preference to an associate of the bankrupt under sub-section (1) should have been entered into by the bankrupt with the associate during the period of two years ending on the date of the application for bankruptcy.
- Any transaction giving preference not covered under sub-section (2) should have been entered into by the bankrupt during the period of six months ending on the date of the application for bankruptcy.
- The transaction should have caused the bankruptcy process to be triggered.
- On receiving the application, the Adjudicating Authority may –
(a) pass an order declaring a transaction giving preference void;
(b) pass an order requiring any property transferred in respect of a transaction giving preference to be vested with the bankruptcy trustee as a part of the estate of the bankrupt; and
(c) pass any other order it thinks fit for restoring the position to what it would have been if the bankrupt had not entered into the transaction giving preference. - The Adjudicating Authority shall not pass an order unless proved that the bankrupt was influenced in his decision of giving preference to a person by a desire.
- For the purpose of sub-section (6), if the person is an associate of the bankrupt, at the time of giving preference, it shall be presumed that the bankrupt was influenced in his decision under that sub- section.
- A bankrupt shall be deemed to have entered into a preference transaction if –
(a) the person is the creditor or surety or guarantor for any debt of the bankrupt; and
(b) the bankrupt does anything or suffers anything to be done which has the effect of putting that person into a position which, in the event of the debtor becoming a bankrupt, will be better than the position he would have been in, if that thing had not been done.
Question 20.
Discuss the post effects of order.
Answer:
1. As per Section 166 (1) an order passed by the Adjudicating Authority under Section 164 or 165, shall not –
(a) give rise to a right against a person interested in the property acquired under Section 164 or 165, whether or not he is the person with whom the bankrupt entered into such transaction; and
(b) require any person to pay a sum to the bankruptcy trustee in respect of the benefit received from the undervalued transaction or a transaction giving preference, whether or not he is the person with whom the bankrupt entered into such transaction.
2. The provision of sub-section (1) shall apply only if the interest was acquired or the benefit was received-
(a) in good faith;
(b) for value;
(c) without notice that the bankrupt entered into the transaction at an under- value or for giving preference;
(d) without notice that the bankrupt has filed an application for bankruptcy or a bankruptcy order has been passed; and
(e) by any person who at the time of acquiring the interest or receiving the benefit was not an associate of the bankrupt.
3. Any sum required to be paid to the bankruptcy trustee under sub-section (1) shall be included in the estate of the bankrupt.
Question 21.
Describe provisions related to Extortionate credit transactions.
Answer:
As per Section 167:
1. On an application by the bankruptcy trustee, the Adjudicating Authority may make an order under this section in respect of extortionate credit transactions to which the bankrupt is or has been a party.
2. The transactions under sub-section (1) should have been entered into by the bankrupt during the period of two years ending on the bankruptcy commencement date.
3. An order of the Adjudicating Authority may –
(a) set aside the whole or part of any debt created by the transaction;
(b) vary the terms of the transaction or vary the terms on which any security for the purposes of the transaction is held;
(c) require any person who has been paid by the bankrupt under any transaction, to pay a sum to the bankruptcy trustee;
(d) require any person to surrender to the bankruptcy trustee any property of the bankrupt held as security for the purposes of the transaction.
4. Any sum paid or any property surrendered to the bankruptcy trustee shall be included in the estate of the bankrupt.
Question 22.
What do you mean by Extortionate credit transaction?
Answer:
An extortionate credit transaction is a transaction for or involving the provision of credit to the bankrupt by any person
- on terms requiring the bankrupt to make exorbitant payments in respect of the credit provided; or
- which is unconscionable under the principles of law relating to contracts.
- Any debt extended by a person regulated for the provision of financial services in compliance with the law in force in relation to such debt, shall not be considered as an extortionate credit transaction under this section.
Question 23.
Explain the provisions under Section 168.
Answer:
Section 168 is related to obligations under contracts.
- This section shall apply where a contract has been entered into by the bankrupt with a person before the bankruptcy commencement date.
- Any party to a contract, other than the bankrupt under sub-section (1), may apply to the Adjudicating Authority for –
(a) an order discharging the obligations of the applicant or the bankrupt under the contract;
(b) payment of damages by the party or the bankrupt, for non-performance of the contract or otherwise. - Any damages payable by the bankrupt by virtue of an order under clause (b) of sub-section (2) shall be provable as bankruptcy debt.
- When a bankrupt is a party to the contract under this section jointly with another person, that person may sue or be sued in respect of the contract without joinder of the bankrupt.
Question 24.
Discuss the provisions regarding the proceedings in case of death of the bankrupt.
Answer:
- Continuance of proceedings on death of bankrupt shall continue as if he were alive.
- All the provisions related to the administration and distribution of the estate of the bankrupt shall, so far as the same are applicable, apply to the administration of the estate of a deceased bankrupt.
- While administering the estate of a deceased bankrupt, the bankruptcy trustee shall have regard to the claims by the legal representative of the deceased bankrupt to payment of the proper funeral and testamentary expenses incurred by them.
- The claims under sub-section (2) shall rank equally to the secured creditors in the priority provided under section 178.
- If, on the administration of the estate of a deceased bankrupt, any surplus remains in the hands of the bankruptcy trustee afterpayment in full of all the debts due from the deceased bankrupt, together with the costs of the administration and interest as provided under section 178, such surplus shall be paid to the legal representatives of the estate of the deceased bankrupt or dealt with in such manner as may be prescribed.
Question 25.
Explain the rules regarding the proof of debt.
Answer:
As per Section 171 of the Code the bankruptcy trustee shall give notice to
each of the creditors to submit proof of debt within fourteen days of preparing
the list of creditors under section 132.
The proof of debt shall –
(a) require the creditor to give full particulars of debt, including the date on which the debt was contracted and the value at which that person assesses it;
(b) require the creditor to give full particulars of the security, including the date on which the security was given and the value at which that person assesses it;
(c) be in such form and manner as may be prescribed.
Question 26.
What can be the valid proofs of debt against the bankrupt?
Answer:
In case the creditor is a decree holder against the bankrupt, a copy of the decree shall be a valid proof of debt. Where a debt bears interest, that interest shall be provable as part of the debt except in so far as it is owed in respect of any period after the bankruptcy commencement date.
The bankruptcy trustee shall estimate the value of any bankruptcy debt which does not have a specific value.
The value assigned by the bankruptcy trustee shall be the amount provable by the concerned creditor.
A creditor may prove for a debt where payment would have become due at a date later than the bankruptcy commencement date as if it were owed presently and may receive dividends in a manner as may be prescribed. Where the bankruptcy trustee serves a notice and the person on whom the notice is served does not file a proof of security within thirty days after the date of service of the notice, the bankruptcy trustee may, with leave of the Adjudicating Authority, sell or dispose of any property that was subject to the security, free of that security.
Question 27.
Mutual credit and set-off Section 173 states that where before the bankruptcy commencement date, there have been mutual dealings between the bankrupt and any creditor, the bankruptcy trustee shall take an account of what is due from each party to the other in respect of the mutual dealings and the sums due from one party shall be set off against the sums due from the other; and only the balance shall be provable as a bankruptcy debt or as the amount payable to the bankruptcy trustee as part of the estate of the bankrupt. Sums due from the bankrupt to another party shall not be included in the account taken by the bankruptcy trustee above, if that other party had notice at the time they became due that an application for bankruptcy relating to the bankrupt was pending.
Question 28.
Explain the process of distribution of interim dividend.
Answer:
According to Section 174 of the Insolvency and Bankruptcy Code, whenever the bankruptcy trustee has sufficient funds in his hand, he may declare and distribute interim dividend among the creditors in respect of the bankruptcy debts which they have respectively proved.
- Where the bankruptcy trustee has declared any interim dividend, he shall give notice of such dividend and the manner in which it is proposed to be distributed.
- In the calculation and distribution of the interim dividend, the bankruptcy trustee shall make provision for any bankruptcy debts which appear to him to be due to persons who, by reason of the distance of their place of residence, may not have had sufficient time to tender and establish their debts; and any bankruptcy debts which are subject of claims which have not yet been determined; disputed proofs and claims; and expenses necessary for the administration of the estate of the bankrupt.
Question 29.
How is property is distributed in case of bankruptcy of an individual and partnership firm?
Answer:
According to Section 175(1) of the Insolvency and Bankruptcy Code, 2016, the bankruptcy trustee may, with the approval of the committee of creditors, divide in its existing form amongst the creditors, according to its estimated value, any property in its existing form which from its peculiar nature or other special circumstances cannot be readily or advantageously sold.
Section 175(2) provides that an approval under sub-section (1) shall be sought by the bankruptcy trustee for each transaction, and a person dealing with the bankruptcy trustee in good faith and for value shall not be required to enquire whether any approval required under sub-section (1) has been given.
Section 175(3) provides that where the bankruptcy trustee has done anything without the approval of the committee of creditors, the committee may, for the purpose of enabling him to meet his expenses out of the estate of the bankrupt, ratify the act of the bankruptcy trustee.
Section 175(4) states that the committee of the creditors shall not ratify the act of the bankruptcy trustee under Section 175(3) unless it is satisfied that the bankruptcy trustee acted in a case of urgency and has sought its ratification without undue delay.
Question 30.
Explain the regulations related to declaration of the final dividend.
Answer:
As per Section 176:
- Where the bankruptcy trustee has realised the entire estate of the bankrupt or so much of it as could be realised in the opinion of the bankruptcy trustee, he shall give notice-
(a) of his intention to declare a final dividend; or
(b) that no dividend or further dividend shall be declared. - The notice under sub-section (1) shall contain such particulars as may be prescribed and shall require all claims against the estate of the bankrupt to be established by a final date specified in the notice.
- The Adjudicating Authority may, on the application of any person interested in the administration of the estate of the bankrupt, postpone the final date referred to in sub-section (2).
- After the final date referred to in sub-section (2), the bankruptcy trustee shall –
(a) defray any outstanding expenses of the bankruptcy out of the estate of the bankrupt;
(b) if he intends to declare a final dividend, declare and distribute that dividend among the creditors who have proved their debts, without regard to the claims of any other persons. - If a surplus remains after payment in full with interest to all the creditors of the bankrupt and the payment of the expenses of the bankruptcy, the bankrupt shall be entitled to the surplus.
- Where a bankruptcy order has been passed in respect of one partner in a firm, a creditor to whom the bankrupt is indebted jointly with the other partners in the firm or any of them shall not receive any dividend out of the separate property of the bankrupt until all the separate creditors have received the full amount of their respective debts.
Question 31.
Discuss the provisions of claims of creditors.
Answer:
According to Section 177(1)
1. A creditor who has not proved his debt before the declaration of any dividend is not entitled to disturb, by reason that he has not participated in it, the distribution of that dividend or any other dividend declared before his debt was proved, but – (a) when he has proved the debt, he shall be entitled to be paid any dividend or dividends which he has failed to receive, out of any money for the time being available for the payment of any further dividend; and (b) any dividend or dividends payable to him shall be paid before that money is applied to the payment of any such further dividend.
2. No action shall lie against the bankruptcy trustee for a dividend, but if the bankruptcy trustee refuses to pay a dividend payable under sub-section (1), the Adjudicating Authority may order him to – (a) pay the dividend; and (b) pay, out of his own money (i).interest on the dividend; and (ii) the costs of the proceedings in which the order to pay has been made.
Question 32.
Discuss the order of making payment of debts.
Answer:
As per Section 178, the following debts shall be paid in priority to all other debts
- (a) the costs and expenses incurred by the bankruptcy trustee for the bankruptcy process in full;
(b) (i) the workmen’s dues for the period of twenty-four months preceding the bankruptcy commencement date; and (ii) debts owed to secured creditors.
(c) wages and any unpaid dues owed to employees, other than workmen, of the bankrupt for the period of twelve months preceding the bankruptcy commencement date;
(d) any amount due to the Central Government and the State Government including the amount to be received on account of Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the bankruptcy commencement date;
(e) all other debts and dues owed by the bankrupt including unsecured debts. - The debts in each class specified in sub-section (1) shall rank in the order mentioned in that sub-section but debts of the same class shall rank equally amongst themselves, and shall be paid in full, unless the estate of the bankrupt is insufficient to meet them, in which case they shall abate in equal proportions between themselves.
- Where any creditor has given any indemnity or has made any payment of moneys by virtue of which any asset of the bankrupt has been recovered, protected or preserved, the Adjudicating Authority may make such order as it thinks just with respect to the distribution of such asset with a view to giving that creditor an advantage over other creditors in consideration of the risks taken by him in so doing.
- Unsecured creditors shall rank equally amongst themselves unless contractually agreed to the contrary by such creditors.
- Any surplus remaining after the payment of the debts under sub-section (1) shall be applied in paying interest on those debts in respect of the periods during which they have been outstanding since the bankruptcy commencement date.
- Interest payments under sub-section (5) shall rank equally irrespective of the nature of the debt.
- In the case of partners, the partnership property shall be applicable in the first instance in payment of the partnership debts and the separate property of each partner shall be applicable in the first instance in payment of his separate debts.
- Where there is a surplus of the separate property of the partners, it shall be dealt with as part of the partnership property; and where there is a surplus of the partnership property, it shall be dealt with as part of the respective separate property in proportion to the rights and interests of each partner in the partnership property.
Question 33.
Who is the Adjudicating Authority in case of bankruptcy of individuals and partnership firms.
Answer:
As per Section 179 of the Insolvency and Bankruptcy Code, 2016, the Adjudicating Authority, in relation to insolvency matters of individuals and firms shall be the Debt Recovery Tribunal having territorial jurisdiction over the place where the individual debtor actually and voluntarily resides or carries on business or personally works for gain and can entertain an application under this Code regarding such person.
The Debt Recovery Tribunal shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain or dispose of-
(a) any suit or proceeding by or against the individual debtor;
(b) any claim made by or against the individual debtor;
(c) any question of priorities or any other question whether of law or facts, arising out of or in relation to insolvency and bankruptcy of the individual debtor or firm under this Code. Notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being in force, in computing the period of limitation specified for any suit or application in the name and on behalf of a debtor for which an order of moratorium has been made under Part III, the period during which such moratorium is in place shall be excluded.
Question 34.
Do Civil court has any jurisdiction to entertain any suit or proceedings?
Answer:
- According to Section 180 of the Insolvency and Bankruptcy Code, 2016, no civil court or authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal has jurisdiction under this Code.
- No injunction shall be granted by any court, tribunal or authority in respect of any action taken, or to be taken, in pursuance of any power conferred on the Debt Recovery Tribunal orthe Debt Recovery Appellate Tribunal by or under this Code.
Question 35.
What are the provisions related to appeal against the DRT?
Answer:
- As per Section 181 of the Insolvency and Bankruptcy Code, 2016, an appeal from an order of the Debt Recovery Tribunal under this Code shall be filed within thirty days before the Debt Recovery Appellate Tribunal.
- The Debt Recovery Appellate Tribunal may, if it is satisfied that a person was prevented by sufficient cause from filing an appeal within thirty days, allow the appeal to be filed within a further period not exceeding fifteen days.
- An appeal from an order of the Debt Recovery Appellate Tribunal on a question of law under this Code shall be filed within forty-five days before the Supreme Court. The Supreme Court may, if it is satisfied that a person was prevented by sufficient cause from filing an appeal within forty-five days, allow the appeal to be filed within a further period not exceeding fifteen days.