The term “insolvent” has not been defined by the Acts on the subject, the term refers to a person who cannot or does not pay his debts in full or has committed an “act of insolvency” and has been adjudged as insolvent by an Insolvency Court. According to popular usage an insolvent is one who is unable to pay his debts. But no man can be called “insolvent” unless a competent court declare him an insolvent. In short, therefore, “insolvent” means a person against whom an “order of adjudication” has been passed. The term “insolvent” and “insolvency” as used in Indian Law are synonymous with the terms “bankrupt” and “bankruptcy” of English Law.
1.2:OBJECTS OF INSOLVENCY LAWS:
Prior to the enactment of insolvency legislation, a debtor who was unable to pay debts was regarded as sort of criminal or offender and was, in almost every case, sent to jail. No distinction was drawn between honest an unfortunate debtors on the one hand and dishonest debtors on the other. Insolvency laws were passed to relieve the honest debtor, who surrenders for distribution amongst his creditors the property which he owns at the time of bankruptcy, from the weight of oppressive indebtness and permit him to start afresh in life free from the pressure and discouragement of pre-exixting debts consequent upon business misfortunes. Insolvency legislation has two fold objective:
i. Protection of debtors: To free an honest and unfortunate debtor from his debts when he has made a full surrender of his property for distribution among his creditors. As a result, he can make a fresh start as soon as he discharged by the court. ii. Safeguarding interests of creditors: To safeguard, as far as possible, the interest of creditors by compelling the insolvent to give up all his property to their use, without any fraudulent concealment. As a result, the same be distributed among the creditors in the most expeditious, the most equal and the most economical mode. These objectives are sought to be achieved in the following way- 1) Distribution of insolvent’s property: After a person is declared insolvent by the court, his properties are taken over by an officer of the court known as Official Assignee or Official Receiver. The properties are converted into cash and distributed among his creditors in proportion to the claim of each. 2) Cancellation of debts and removal of disqualification: After the distribution is complete, the unpaid debts are cancelled and the insolvent is allowed to engage in trade or services. The creditors lose a part of their claims, the debtor gets a fresh start in life. 3) Benefits to creditors: Insolvency legislation is also beneficial to the creditors. It ensures the equitable distribution of the debtor’s remaining properties among all the creditors. 4) Fresh start in life by debtors: insolvency legislation provides a method by which the debtor can free himself from his past obligations. As a result, he gets fresh start in life. 1.3:INSOLVENCY COURTS:
An Insolvency Court means a court having jurisdiction to decide insolvency petitions. Insolvency Courts have power to decide all questions relating to the realization and distribution of the debtor’s properties and the determination of all questions relating to priority of claims as between different creditors According to The Bankruptcy Act and Rules, 1997 (Sec.-4):
1) Subject to the other provisions of this Act, the District Court shall be the Court under this Act and the District Judge shall be the Judge to deal with and dispose of the proceedings under this act within the territorial jurisdiction of that Court. 2) The District Judge may authorize any Additional District Judge of his judgeship to deal with and dispose of any case under this Act.
However, orders in insolvency matters are appealable to a higher court at the instance of any person aggrieved. 1.4:WHEN A PERSON CAN BE DECLARED INSOLVENT?