1. Presentation of Law
Group Members:
Sumit Banerjee
Ankit Rajora
Manikant Sinha
Ankush Gupta
Manoj Kumar Gupta
Sidharth Parmar
Himanshu Verma

2. Law of Insolvency
INTRODUCTION
REASONS OF INSOLVENCY
JURISDICTION OF INSOLVENCY COURTS
PROSECUTION
WHO CAN BE DECLARED AS INSOLVENT
ACTS OF INSOLVENCY
COMMITTEES ON INSOLVENCY
PROCESS OF RECOVERY OF DEBTS IN INDIA

3. Insolvency
Insolvency is when an individual, corporation, or other
organization cannot meet its financial obligations for
paying debts as they are due. Insolvency can occur
when certain things happen, some of which may
include: poor cash management, increase in cash
expenses, or decrease in cash flow.
A finding of insolvency is important, as specific rights
are enabled for the creditor to exercise against the
insolvent individual or organization. For example,
outstanding debts may be paid off by liquidating assets
of the insolvent party.

4. Bankruptcy
Bankruptcy is not exactly the same as insolvency.
Technically, bankruptcy occurs when a court has
determined insolvency, and given legal orders for it
to be resolved.
Bankruptcy is a determination of insolvency made
by a court of law with resulting legal orders
intended to resolve the insolvency.
Insolvency describes a situation where the debtor
is unable to meet his/her obligations.
Bankruptcy is a legal move in which an insolvent
debtor seeks relief.

5. Reasons behind insolvency
The main reasons behind insolvency are primarily poor
management and financial constraints. This is much more
prevalent in smaller companies. Specifically, the reasons
are:
• Market – Company did not recognize the need for change
• Bad debts – obviously money owed by customers
• Management – failure to acquire adequate skills,
imprudent accounting, lack of information systems
• Finance – loss of long term finance, over gearing or lack
of cash flow
• It is however observed that the larger the company, the
better the chance of survival and of receiving remedial
treatment and of paying creditors.

6. JURISDICTION OF INSOLVENCY COURTS
There are two statutes which govern the laws of insolvency in
India.
• Presidency Towns:
Presidency Towns Insolvency Act, 1909. This Act is applicable to
three Presidency Towns namely – Calcutta, Madras and Bombay.
The High Court of Calcutta, Madras and Bombay has the
jurisdiction to try the Insolvency proceedings under this Act.
All the matters in respect of which jurisdiction is given by the
Presidency Towns Insolvency Act are ordinarily transacted and
disposed of by or under the direction of one of the judges of the
High Court, and Chief Justice assigns from time to time.

7. Rest of India:
• In the rest of India, insolvency matters are dealt with by the District Courts.
The State Government may, by the notification in the local Official Gazette,
invest any court subordinate to a district court with insolvency jurisdiction.
• The insolvency court have the full power to decide questions: (i) whether of
title or priority or of any nature whatsoever, and (ii) whether involving
matter of law or of fact, which may arise in case of insolvency (Prov. Sec. 4).
• On the passing of an order of insolvency, all the properties of the insolvent,
wherever situated, shall be vested in the official Assignee, for its realization
and distributed among the body of creditors. One of the important effects of
vesting is that the insolvent cannot deal with his property.
• Insolvency is a proceeding, wherein on the alleged “act of insolvency”
committed by the debtor, the possession of property of a debtor is seized up
for the benefit of the body of creditors, generally by an officer appointed for
the purpose by the Court.
When a person is declared as an insolvent, he is subject to many
disqualifications in respect of his civil rights. Although it is not a crime per se,
yet insolvency brings the collapse of self esteem and perhaps humiliation in
the social background. Also, unless a person is personally liable, he cannot be
declared as insolvent. (Somasundaram vs. Kanoo (died).

8. NO BAR AGAINST CRIMINALPROSECUTION
Provisions of the Insolvency Act apply to civil
proceedings and the proceedings are against the
properties of the insolvent. There is absolutely no
bar against any criminal prosecution against the
debtor to which he may be subject to under the laws
of the land. For example – a criminal prosecution of
the insolvent under section 138 of the Negotiable
Instrument Act 1881 for the dishonour of cheque
issued by him cannot be stayed even if the same
debt has been the basis of insolvency petition.
Bharath N Mehta versus Mansi Finance Ltd, (1999)

9. • WHO CAN BE DECLARED AS INSOLVENT
• A person who is competent to contract can be
declared as Insolvent.
Even a partnership form can also be declared as
Insolvent. (Chaturbhu versus KevalRam). Firm
(Mukanlal versus Purushottam Singh).
• However, companies cannot be declared as
Insolvent. Winding up proceedings can be
instituted against the defaulting company.
Unless a person is personally liable, he cannot be
declared as insolvent.(Somasundaram versus
Kanoo (died))
• An admission by debtor relating to his inability to
pay may be an act of insolvency.

10. • The following acts are regarded as “acts of
insolvency”
• If in India or elsewhere, the debtor makes a transfer of
all or substantially all his property to a third person for
the benefit of his creditors generally.
• If in India or elsewhere, the debtor makes a transfer
of his property or any part thereof with intent to
defeat or delay his creditors.
• If in India or elsewhere the debtor makes any transfer
of his property.
• If the debtor himself makes a petition in the court to
declare him as a insolvent.

11. • If the debtor gives notice to any of his creditors that
he has suspended, or that he is about to suspend,
payment of his debts.
• If the debtor is imprisoned in execution of the decree
of any court for the payment of money.
• COMMITTEES ON INSOLVENCY
• Shri. T. Tiwari Committee
• Justice V.B. Balakrishna Eradi Committee
• N L Mitra Committee

12. PROCESS OF RECOVERY OF DEBTS IN INDIA