Everyone is going gaga over the Insolvency and Bankruptcy Code, 2016 (“IBC”) which presently is only meant for Companies and LLPs. The Individual Insolvency provisions under IBC, 2016 are still to be notified and therefore not applicable.
A recent Ruling of Bombay High Court wherein it declared the Promoters of a known Developer Firm as Insolvent, brought into limelight the legislation for individual insolvency. However, not many people are aware about the existing Individual Insolvency provisions which have been in existence from the British Era.
The Presidency Towns Insolvency Act, 1909 is applicable for the cities of Mumbai, Kolkata and Chennai, and The Provincial Insolvency Act, 1920 is applicable for all of India except for the abovementioned towns of Mumbai, Kolkata and Chennai.
Which individual can file for Bankruptcy ?
In the existing scenario, where there are lays-off and unemployment across the sectors, many individuals would be debt ridden or on the brink of it. It is therefore necessary to understand what are the laws existing for declaring oneself as insolvent and what are the repercussions.
Any individual who is unable to pay debt greater than Rs. 500/- can file for bankruptcy under the Act.
Assets of the person under Insolvency
After an individual applies for bankruptcy before the Court, an Interim Receiver (Officer of the Court) is appointed to take the possession of all the properties of that individual.
After admission of the Application for Insolvency
Once the Application of the Individual for Insolvency is admitted, there is a stay on all recovery proceedings by the creditors of the Applicant. A Receiver (Court Officer) is appointed for the properties of the Applicant, who as per the directions of the Court, distributes it amongst the Creditors. The priority of Creditors for distribution is mentioned in the Act. To summarize the list of the priorities, it is i) dues to the government or government agencies, ii) salary and wages of any clerk, servant or labourers, iii) dues payable to a partner in a Partnership firm and so on.
Repercussions of being declared insolvent
Once an individual is declared insolvent, that individual is free from the shackles of the earlier Creditors and the individual can start the life afresh.
Though the individual is free from the earlier Creditors, however, he still has to pay the debt due to the government, any debt incurred by fraud, liability to pay maintenance under section 488 of Cr. P.C. (Order of maintenance to wife/husband) etc.
This law has been in place for many years, but not many have taken resort to it. Now with the major impact on individual earnings and the ability to satisfy debt, it is to be seen if this decades old Act once again comes under spot light.
About the Author: Adv Amit A. Tungare
Amit is a practising Advocate and Counsel at Bombay High Court. He also appears various Tribunals and Forums across India. His major areas of practice include Civil Laws, Arbitration, Company Matters, Insolvency Law, Real Estate, Consumer, White Collared Criminal Cases and Corporate Litigation. Amit regularly advises Multi National Companies, MSMEs, Nationalized Banks, Senior Executives and individuals. He is empalled as Legal Advisor with leading Corporates and Banks.
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