Provincial Insolvency Act, 1920

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THE PROVINCIAL INSOLVENCY ACT, 1920 
 
 
 
CONTENTS 
1.  Short title and extent 
2.  Definitions 
PART I 
CONSTITUTION AND POWERS OF COURT 
3.  Insolvency Jurisdiction 
4.  Power of Court to decide all questions arising in insolvency 
5.  General powers of Courts 
PART II 
PROCEEDINGS FROM ACT OF INSOLVENCY TO DISCHARGE 
Acts of Insolvency 
6.  Acts of Insolvency 
Petition 
7.  Petition and adjudication 
8.  Exemption of corporation, etc., from insolvency proceedings 
9.  Conditions on which creditor may petition 
10.  Conditions on which debtor may petition 
11.  Court to which petition shall be presented 
12.  Verification of petition 
 
 

 
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13.  Contents of petition 
14.  Withdrawal of petitions 
15.  Consolidation of petitions 
16.  Power to change carriage of proceedings 
17.  Continuance of proceedings on death of debtor 
18.  Procedure for admission of petition 
19.  Procedure on admission of petition 
20.  Appointment of interim receiver 
21.  Interim proceedings against debtor 
22. Duties of debtors 
23.  Release of debtor 
24.  Procedure at hearing 
25.  Dismissal of petition 
26.  Award of compensation 
Order of Adjudication 
27.  Order of adjudications 
28.  Effect of an order of adjudication 
29.  Stay of pending proceedings 
30.  Publication of order of adjudication 
Proceedings consequent on order of Adjudication 
31.  Protection order 
32.  Power to arrest after adjudication 
33.  Schedule of creditors 
34.  Debts provable under the Act 
Annulment of Adjudication 
35.  Power to annul adjudication of insolvency 
 
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36.  Power to cancel one of concurrent orders of adjudication.  
37.  Proceedings on annulment. 
Compositions and schemes of arrangement 
38.  Compositions and schemes of arrangement 
39.  Order on approval 
40.  Power to re-adjudge debtor insolvent 
Discharge 
41.  Discharge 
42.  Cases in which Court must refuse an absolute discharge 
43.  Adjudication to be annulled on failure to apply for discharge 
44.  Effect of order of discharge 
PART III 
ADMINISTRATION OF PROPERTY 
Method of proof of debts 
45.  Debt payable at a future time.  
46.  Mutual dealings and set-off 
47.  Secured creditors 
48.  Interest 
49.  Mode of proof 
50.  Disallowance and reduction of entries in schedule 
Effect of insolvency on antecedent ransactions 
51.  Restriction of rights of creditor under execution 
52. Duties of Court executing decree as to property taken in execution 
53.  Avoidance of voluntary transfer 
54.  Avoidance of preference in certain cases 
54A.  By whom petitions for annulment may be made 
 
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55.  Protection of bona fide transactions 
Realisation of Property 
56.  Appointment of receiver 
57.  Power to appoint Official Receivers 
58.  Powers of Court if no receiver appointed 
59.  Duties and powers of receiver 
59A.  Power to require information regarding insolvent’s property 
60.  Special provisions in regard to immovable property 
Distribution Of Property 
61.  Priority of debts 
62.  Calculation of dividends 
63.  Right of creditor who has not proved debt before declaration of a dividend 
64.  Final dividend 
65.  No suit for dividend 
66.  Management by and allowance to insolvent 
67.  Right of insolvent to surplus 
67A.  Committee of inspection 
Appeal to Court against receiver 
68.  Appeal to Court against receiver 
PART VI 
PENALTIES 
69.  Offences by debtors 
70.  Procedure on charge under section 69 
71.  Criminal liability after discharge or composition 
72.  Undischarged insolvent obtaining credit 
73.  Disqualifications of insolvent 
 
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PART V 
SUMMARY ADMINISTRATION 
74.  Summary administration 
PART VI 
APPEALS 
75.  Appeals 
PART VII 
MISCELLANEOUS 
76.  Costs  
77.  Courts to be auxiliary to each other 
78.  Limitation 
79.  Power to make rules 
80.  Delegation of powers to Official Receivers 
81.  Power of Provincial Government to bar application of certain provisions to certain Courts 
82.  Savings 
83.  Repeals 
 
SCHEDULE I.___DECISIONS AND ORDERS FROM WHICH AN APPEAL LIES TO THE HIGH 
COURT UNDER SECTION 75(2). 
SCHEDULE II.___PROVISIONS OF THE ACT APPLICATIONOF WHICH MAY BE BARRED 
BY PROVINCIAL GOVERNMENTS. 
SCHEDULE II.___[Repealed.] 
 
 
 
  
 
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THE PROVINCIAL INSOLVENCY ACT, 1920 
1Act No. V OF 1920 
[25th February, 1920] 
An Act to consolidate and amend the Law relating to Insolvency 2* * *, as administered by Courts 
having jurisdiction outside 3* * * the 4[Karachi Division]. 
WHEREAS it is expedient to consolidate and amend the law relating to insolvency 2* * *, as 
administered by Courts having jurisdiction outside 3* * * 5[the Karachi Division]; it is hereby enacted 
as follows :___  
1. Short title and extent.___(1) This Act may be called the Provincial Insolvency Act, 1920.  
6[(2) It extends to the whole of Pakistan except the Karachi Division 7* *.  
2. Definitions.___(1) In this Act, unless there is anything repugnant in the subject or context,-  
(a)  “creditor” includes a decree -holder, “debt” includes a judgment -debt, and 
“debtor” includes a judgment-debtor ;  
(b)  “District Court” means the principal Civil Court of original jurisdiction in any 
area 8[outside the limits of the ordinary original civil jurisdiction of the 9[High 
Court of Sind] as defined in section 2 of the 10[Insolvency (Karachi Division 
and Dacca) Act (III of 1909)];  
(c)  “prescribed” means prescribed by rules made under this Act ;  
(d)  “property” includes any property over which or the profits of which any person 
as a disposing power, which he may exercise for his own benefit ;  
 
 
1For statement of Objects and Reasons, see Gazette of India, 1918, Pt. V, p.63 ; for Report of Select Committee, see ibid., 1919, Pt. V, p.119; and ibid., 
1920, Pt. V, p.9 ; and for Proceedings in Council, see ibid., 1918, Pt. VI, pp. 761 and 1322, and ibid., 1920, Pt. VI, pp.15 and 389.  
This Act has been amended in the Punjab by Punjab Act s 7 of 1934 and 3 of 1939  ; in Sind by Sind Act 25 of 1939  ; and in the Taluka of Karachi by 
Bom. Act 3 of 1935.  
It has been amended in its application to the Province of West Pakistan by West Pakistan Ordinance 8 of 1959.  
It has been extended by notification under section 5 of the Scheduled Districts Act, 1874 (14 of 1874), to__  
         Sind__see Gazette of India, 1920, Pt.I, p. 2052;  
         Scheduled Districts in the N.W.F.P__see Gazette of India, 1920, Pt. II, p. 910 ;  
         Baluchistan—see Baluchistan local R.& O.  
It has been extended to the Leased Areas of Baluchistan; see the Leased Areas (Laws) Order, 1950 (G.G.O.3 of 1950) ; and also applied in the Federated 
Areas of Baluchistan, see Gazette of India, 1937, Pt. I. p. 1499.  
2The words “in British India” omitted by A. O., 1949.  
3 The words “the Presidency-towns and” omitted, ibid.  
4 Subs. by F.A.O., 1975, Art, 2 and Sch., for “towns of Karachi and Dacca”, which was previously amended by various enactments.  
5 The original words “the town of Rangoon” have successively been amended by the Insolvency (Amdt.) Act, 1926 (9 of  1926), s.11, A.O., 1937, and 
Ord. 21 of 1960, s. 3 and 2nd Sch. (with affect from the 14th October, 1955), to read as above.  
6Sub-section (2) has successively been amended by A.O., 1949, Ord. 21 of 1960, s. 3 and 2nd Sch. (with effect from the 14th October, 1955), the Repealing 
and Amending Ordinance, 1961 (1 of 1961) and A.O., 1964, Art. 2 and Sch., to read as above.  
7The words “and Dacca” omitted by F.A.O., 1975, Art. 2 and Sch.  
8The original words “outside the local limits for the time being of the Presidency-towns and of the Town of Rangoon”, have successively been amended 
by the Insolvency (Amdt.) Act, 1926 (9 of 1926), s. 11, A. O. 1937 and A. O.  1949, to read as above.  
9Subs, by the Federal Laws (Revision and Declaration) Ordinance, 1981 (27 of 1981), s. 3 and Sch.II, for “Bench of the High Court of West Paksitan at 
Karachi”, which was previously by various enactments.  
10Subs. by A.O., 1964, Art 2 and Sch., for “Insolvency (Dacca and the Federal Territory of Karachi) Act ” which had been subs. by Ord. 1 of 1961 s. 3 
and 2nd Sch., for “Insolvency (Capital of the Federation and Dacca), Act”.  
 
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 (e)  “secured creditor” means a person holding a mortgage, charge or lien on the 
property debtor or any part thereof as a security for a debt due to him from the 
debtor ; and  
(f)  “transfer of property ” includes a transfer of any interest in property and the 
creation of any charge upon property.  
(2) Words and expression used in this Act and defined in the Code of Civil Procedure, 1908 (V 
of 1908), and not hereinbefore defined shall have the same meanings as those respectively attributed 
to them by the said Code.  
PART I 
 
CONSTITUTION AND POWERS OF COURT 
3. Insolvency Jurisdiction. ___(1) The District Courts shall be the Courts having jurisdiction 
under this Act :  
Provided that the 1[Provincial Government] may, by notification in the 2[official Gazette], 
invest any Court subordinate to a District Court with jurisdiction in any class of cases, and any Court 
so invested shall within the local limits of its jurisdiction have concurrent jurisdiction with the District 
Court under this Act.  
(2) For the purpose of this Act, a Court of S mall Causes shall be deemed to be subordinate to 
the District Court.  
4. Power of Court to decide all questions arising in insolvency.__(1) Subject to the provision 
of this Act, the Court shall have full power to decide all questions whether of title or priority, or of any 
nature whatsoever, and whether in volving matters of law or of fact, which may arise in any case of 
insolvency coming within the cognizance of the Court, or which the Court may deem it expedient or 
necessary to decide for the purpose of do ing complete justice or making a complete distribution of 
property in any such case.  
(2) Subject to the provisions of this Act and notwithstanding anything contained in any other 
law for the time being in force, every such decision shall be final and bind ing for all purposes as 
between, on the one hand, the debtor and the debtor's estate and, on the other hand, all claimants against 
him or it and all persons claiming through or under them or any of them.  
(3) Where the Court does not deem it expedient or n ecessary to decide any question of the 
nature referred to in sub-section (1), but has a reason to believe that the debtor has a saleable interest 
in any property, the Court may without further inquiry sell such interest in such manner and subject to 
such conditions as it may think fit.  
5. General powers of Courts.___ (1) Subject to the provisions of this Act, the Court, in regard 
to proceedings under this Act, shall have the same powers and shall follow the same procedure as it 
has and follows in the exercise of original civil jurisdiction.  
(2) Subject as aforesaid, High Courts and District Courts, in regard to proceedings under this 
Act in Courts subordinate to them shall have the same powers and shall follow the same procedure as 
they respectively have and follow in regard to civil suits.  
 
1Subs. by A.O., 1937, for “L. G.”.  
2Subs, ibid, for “local official Gazette”.  
 
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PART II 
 
PROCEEDINGS FROM ACT OF INSOLVENCY TO DISCHARGE 
 
Acts of Insolvency 
6. Acts of insolvency. A debtor commits an act of insolvency in each of the following cases 
namely :___ 
(a)  If in 1[Pakistan] or elsewhere, he makes a transfer of all or substantially all his 
property to a third person for the benefit of his creditors generally ;  
(b)  If, in 1[Pakistan] or elsewhere, he makes a transfer of his property or of any part 
thereof, with intent to defeat or delay his creditors;  
(c)  If, in 1[Pakistan] or elsewhere, he makes any transfer of his property, or of any 
part thereof, which would, under this or any other enactment for the time being 
in force, be void as a fraudulent preference if he were adjudged an insolvent ;  
(d)  if, with intent to defeat or delay his creditors,___ 
(i)  he departs or remains out of the 1[Pakistan],  
(ii)  he departs from his dwelling -house or usual place of business or 
otherwise absents himself,  
(iii)  he seclud es himself so as to deprive his creditors of the means of 
communicating with him ;  
(e)  if any of his property has been sold in execution of the decree of any Court for 
the payment of money ;  
(f)  if he petitions to be adjudged an insolvent under the provisions of this Act ;  
(g)  if he gives notice to any of his creditors that he has suspended, or that he is about 
to suspend, payment of his debts ; or  
(h)  if he is imprisoned in execution of the decree of any Court for the payment of 
money.  
Explanation.- For the purposes of this section the act of an agent may be the act of the principal.  
Petition 
7. Petition and adjudication .___ Subject to the conditions specified in this Act, if a debtor 
commits an act of insolvency, an insolvency petition may be presented either by a creditor or by the 
debtor, and the Court may on such petition make an order (hereinafter called an order of adjudication) 
adjudging him an insolvent.  
Explanation.- The presentation of a petition by the debtor shall be deemed an act of insolvency 
within the meaning of this section, and on such petition the Court may make an order of adjudication.  
1Subs by the Central Laws (Statute Reform) Ordinance, 1960 (21 of 1960), s. 3 and 2nd Sch. (with effect from the 14th October, 1955), for “the Provinces 
and the Capital of the Federation” which had been subs. by A. O., 1949, for “British India”.  
 
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8. Exemption of corporation, etc., from insolvency proceedings .___ No insolvency petition 
shall be presented against any corporation or against any association or company registered under any 
enactment for the time being in force.  
9. Conditions on which creditor may petition.___ (1) A creditor shall not be entitled to present 
in insolvency petition against a debtor unless___ 
(a)  the debt owing by the debtor to the creditor, or, if two or more creditors join in 
the petition, the aggregate amount of debts owing to such creditors, amounts to 
five hundred rupees, and  
(b)  the debt is a liquidated sum payable either immediately or at some certain future 
time, and  
(c)  the act of insolvency on which the petition is grounded has occurred within three 
months before the presentation of the petition.  
(2) If the petitioning creditor is a secured creditor, he shall in his petition either state that he is 
willing to relinquish his security for the benefit of the creditors in the event of the debtor being 
adjudged insolvent, or give an estimate of the value of the security. In the latter case, he may be 
admitted as a petitioning creditor to the extent of the balance of the debt due to him after deducting the 
value so estimated in the same way as if the were an unsecured creditor.  
10. Conditions on which debtor may petition.___ (1) A debtor shall not be entitled to present 
an insolvency petition, unless he is unable to pay his debts and___  
(a)  his debts amount to five hundred rupees; or1  
(b)  he is under arrest or imprisonment in ex ecution of the decree of any Court for 
the payment of money ; or  
(c)  an order of attachment in execution of such a decree has been made, and is 
subsisting, against his property.  
(2) A debtor is respect of whom an order of adjudication 2[whether made under the 3[Insolvency 
(Karachi Division) 4* * Act], or under this Act (III of 1909)] has been annulled, owing to his failure to 
apply, or to prosecute an application for his discharge, shall not be entitled to present an insolvency 
petition without the leave  of the Court by which the order of adjudication was annulled. Such Court 
shall not grant leave unless it is satisfied either that the debtor was prevented by any reasonable cause 
from presenting or prosecuting his application, as the case may be, or that the petition is founded on 
facts substantially different from those contained in the petition on which the order of adjudication was 
made.  
11. Court to which petition shall be presented. Every insolvency petition shall be presented 
to a Court having jurisdiction under this Act in any local area in which the debtor ordinarily resides or 
carries on business, or personally works for gain, or if he has been arrested or imprisoned, where he is 
in custody :  
1In its application to the Punjab, a new clause (aa) has been ins. here by the Punjab Relief of Indebtedness Act, 1934 (Punjab 7 of 1934), s. 3.  
2 Subs. by the Insolvency (Amdt.) Act, 1927 (11 of 1927), s. 4 for “made under this Act”.  
3Subs. by A.O., 1964, Art. 2 and Sch., for “Insolvency (Dacca and the Federal Territory of Karachi) Act”, which had been subs.  by the Repealing and 
Amending Ordinance, 1961 (1 of 1961), s. 3 and 2nd Sch., for “Insolvency (Capital of the Federation and Dacca), Act”.  
4The words, “and Dacca” omitted by F.A.O., 1975, Art.2 and Sch.,  
 
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Provided that no objection as to the place of presentment shall be allowed by any Court in the 
exercise of appellate or revisional jurisdiction unles s such objection was taken in the Court by which 
the petition was heard at the earliest possible opportunity, and unless there has been a consequent 
failure of justice.  
12. Verification of petitions. Every insolvency petition shall be in writing and shall be signed 
and verified in the manner prescribed by the Code of Civil Procedure, 1908 (V of 1908), for signing 
and verifying plaints.  
13. Contains of petition.___ (1) Every insolvency petition presented by a debtor shall contain 
the following particulars, namely :___  
(a)  a statement that the debtor is unable to pay his debts ;  
(b)  the place where he ordinarily resides or carries on business or personally works 
for gain, or, if he has been arrested or imprisoned, the place where he is in 
custody ;  
(c)  the Court (if any) by whose order he has been arrested or imprisoned, or by 
which an order has been made for the attachment of his property, together with 
particulars of the decree, in respect of which any such order has been made ;  
 (d)  the amount an d particulars of all pecuniary claims against him, together with 
the names and residences of his creditors so far as they are known to, or can by 
the exercise of reasonable care and diligence be ascertained by him ;  
(e)  the amount and particulars of all his property together with___ 
(i)  a specification of the value of all such property not consisting of money;  
(ii)  the place or places at which any such property is to be found ; and  
(iii)  a declaration of his willingness to place at the disposal of th e Court all 
such property save in so far as it includes such particulars (not being his 
books of account) as are exempted by the Code of Civil Procedure, 1908 
(V of 1908), or by any other enactment for the time being in force from 
liability to attachment and sale in execution of a decree ;  
(f)  a statement whether the debtor has on any previous occasion filed a petition to 
be adjudged an insolvent, and (where such a petition has been filed)___ 
(i)  if such petition has been dismissed, the reasons for such dismissal, or  
(ii)  if the debtor has been adjudged an insolvent, concise particulars of the 
insolvency, including a statement whether any previous adjudication has 
been annulled and, if so, the grounds therefor.  
(2) Every insolvency petition presented by a creditor or creditors shall set forth the particulars 
regarding the debtor specified in clause (b) of sub-section (1), and shall also specify___ 
(a)  the act of insolvency committed by such debtor, together with the date of its 
commission ; and  
 
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(b)  the amount and particulars of his or their pecuniary claim or claims against such 
debtor.  
14. Withdrawal of petitions. No petition, whether presented by a debtor or by a creditor, shall 
be withdrawn without the leave of the Court.  
15. Consolidation of petitions. Where two or more insolvency petitions are presented against 
the same debtor, or where separate petitions are presented against joint debtors, the Co urt may 
consolidate the proceedings or any of them, on such terms as the Court thinks fit.  
16. Power to change carriage of proceedings. Where the petitioner does not proceed with 
due diligence on his petition, the Court may substitute as petitioner any ot her creditor to whom the 
debtor may be indebted in the amount required by this Act in the case of petitioning creditor.  
17. Continuance of proceedings on death of debtor. If a debtor by or against whom an 
insolvency petition has been presented dies, the p roceedings in the matter shall, unless the Court 
otherwise orders, be continued so far as may be necessary for the realisation and distribution of the 
property of the debtor.  
18. Procedure for admission of petition . The procedure laid down in the Code of Civil 
Procedure, 1908 (V of 1908), with respect to the admission of plaints, shall, so far as it is applicable, 
be followed in the case of insolvency petitions.  
19. Procedure on admission of petition .___ (l) Where an insolvency petition is admitted, the 
Court shall make an order fixing a date for hearing the petition.  
(2) Notice of the order under sub-section (1) shall be given to creditors in such manner as may 
be prescribed.  
(3) Where the debtor is not the petitioner, notice of the order under sub -section (1) shall be 
served on him in the manner provided for the service of summons.  
20. Appointment of interim receiver. The Court when making an order admitting the petition 
may, and where the debtor is the petitioner ordinarily shall, appoint an interim receiver of the property 
of the debtor or of any part thereof, and may direct him to take immediate possession thereof or of any 
part thereof, and the interim receiver shall thereupon have such of the powers conferrable on a receiver 
appointed under the Code of Civil Procedure, 1908 (V of 1908), as the Court may direct. If an interim 
receiver is not so appointed, the Court may make such appointment at any subsequent time before 
adjudication, and the provisions of 1[this section] shall apply accordingly.  
21. Interim proceedings against debtor. At the time of making an order admitting the petition 
or at any subsequent time before adjudication the Court may either of its own motion or on the 
application of any creditor make one or more of the following orders, namely :___  
(1) order the debtor to give reasonable security for his appearance until final orders are made 
upon the petition, and direct that, in default of giving such security, he shall be detained in the civil 
prison ;  
 
1Subs. by the Repealing and Amending Act, 1939 (34 of 1939), s. 2 and Sch. I for “this sub-section”.  
 
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(2) order the attachment by actual seizure of the whole or any part of the property in the 
possession or under the control of the debtor, other than such particulars (n ot being his books of 
account) as are exempted by the Code of Civil Procedure, 1908 (V of 1908), or by any other enactment 
for the time being in force from liability to attachment and sale in execution of a decree ;  
(3) order a warrant to issue with or wi thout bail for the arrest of the debtor, and direct either 
that he be detained in the civil prison until the disposal of the petition, or that he be released on such 
terms as to security as may be reasonable and necessary :  
Provided that an order under cl ause (2) or clause (3) shall not be made unless the Court is 
satisfied that the debtor, with intent to defeat or delay his creditors or to avoid any process of the 
Court,___ 
(i)  has absconded or has departed from the local limits of the jurisdiction of th e 
Court or is about to abscond or to depart from such limits, or is remaining 
outside them, or  
(ii)  has failed to disclose or has concealed, destroyed, transferred or removed from 
such limits, or is about to conceal destroy transfer or remove from such limits, 
any documents likely to be of use to his creditors in the course of hearing or any 
part of his property other than such particulars as aforesaid.  
22. Duties of debtor s. The debtor shall on the making of an order admitting the petition 
produce all books of account, and shall at any time thereafter give such inventories of his property, 
and such lists of his creditors and debtors and of the debts due to and from them respectively , submit 
to such examination in respect of his property or his creditors, attend at such times before the Court or 
receiver, execute such instruments, and generally do all such acts and things in relation to his property 
as may be required by the Court or receiver, or as may be prescribed.  
23. Release of debtor. -(1) At the time of making an order admitting the petition or at any 
subsequent time before adjudication, the Court may, if the debtor is under arrest or imprisonment in 
execution of the decree of any Court for the payment of money, order his release on such terms as to 
security as may be reasonable and necessary.  
(2) The Court may at any time order any person who has been released under this section to be 
re-arrested and re-committed to the custody from which he was released.  
(3) At the time of making any order under this section, the Court shall record in writing its 
reason therefor.  
24. Procedure at hearing .___ (1) On the day fixed for the hearing of the petition, or on any 
subsequent day to which the hearing may be adjourned, the Court shall require proof of the following 
matters, namely:___ 
(a)  that the creditor or the debtor, as the case may be, is entitled to p resent the 
petition : 
Provided that, where the debtor is the petitioner, he shall, for the purpose of proving his 
inability to pay his debts, be required to furnish only such proof as to satisfy the Court that there are 
prima facie grounds for believing the same and the Court, if and when so satisfied, shall not be bound 
to hear any further evidence thereon ;  
 
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(b)  that the debtor, if he does not appear on a petition presented by a creditor, has 
been served with notice of the order admitting the petition ; and  
(c)  that the debtor has committed the act of insolvency alleged against him.  
(2) The Court shall also examine the debtor, if he is present, as to his conduct, dealings and 
property in the presence of such creditors as appear at the hearing, and the creditors shall have the right 
to question the debtor thereon.  
(3) The Court shall, if sufficient cause is shown, grant time to the debtor or to any creditor to 
produce any evidence which appears to it to be necessary for the proper disposal of the petition.  
(4) A memorandum of the substance of the examination of the debtor and of any o ther oral 
evidence given shall be made by the Judge, and shall form part of the record of the case.  
25. Dismissal of petition .___ (1) In the case of a petition presented by a creditor, where the 
Court is not satisfied with the proof of his right to presen t the petition or of the service on the debtor 
of notice of the order admitting the petition, or of the alleged act of insolvency, or is satisfied by the 
debtor that he is able to pay his debts, on that for any other sufficient cause no order ought to be made, 
the Court shall dismiss the petition.  
(2) In the case of a petition presented by a debtor, the Court shall dismiss the petition if it is not 
satisfied of his right to present the petition.  
26. Award of compensation.___ (1) Where a petition presented by a creditor is dismissed under 
sub-section (1) of section 25, and the Court is satisfied that the petition was frivolous or vexatious, the 
Court may, on the application of the debtor, award against such creditor such amount, not exceeding 
one thousand r upees, as it deems a reasonable compensation to the debtor for the expense or injury 
occasioned to him by the petition and the proceedings thereon, and such amount may be realised as if 
it were a fine.  
(2) An award under this section shall bar any suit for compensation in respect of such petition 
and the proceedings thereon.  
Order of Adjudication 
27. Order of adjudications.___ (1) If the Court does not dismiss the petition, it shall make an 
order of adjudication, and shall specify in such order the period  within which the debtor shall apply 
for his discharge.  
(2) The Court may, if sufficient cause is shown, extend the period within which the debtor shall 
apply for his discharge, and in that case shall publish notice of the order in such manner as it thinks 
fit.  
28. Effect of an order of adjudication .___ (1) On the making of an order of adjudication, the 
insolvent shall aid to the utmost of his power in the realisation of his property and the distribution of 
the proceeds among his creditors.  
(2) On the making of an order of adjudication, the whole of the property of the insolvent shall 
vest in the Court or in a receiver as hereinafter provided, and shall become divisible among the 
creditors, and thereafter, except as provided by this Act, no creditor to whom the insolvent is indebted 
in respect of any debt provable under this Act shall during the pendency of the insolvency proceedings 
 
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have any remedy against the property of the insolvent in respect of the debt, or commence any suit or 
other legal proceeding, except with the leave of the Court and on such terms as the court may impose.  
(3) For the purposes of sub -section (2), all goods being at the date of the presentation of the 
petition on which the order is made, in the possession, order or disposition of the insolvent in his trade 
or business, by the consent and permission of the true owner, under such circumstances that he is the 
reputed owner thereof, shall be deemed to be the property of the insolvent.  
(4) All property which is acquired by or devolves on the insolvent after the date of an order of 
adjudication and before his discharge shall forthwith vest in the Court or receiver, and the provisions 
of sub-section (2) shall apply in respect thereof.  
(5) The property of the insolvent for the purposes of this section shall not include any property 
(not being books of account) which is exempted by the Code of Civil Procedure, 1908 (V of 1908), or 
by any other enactment for the time being in force from liability to attachment and sale in execution 
of a decree.  
(6) Nothing in this section shall affect the power of any secured creditor to realise or otherwise 
deal with his security, in the same manner as he would have been entitled to realise or deal with it if 
this section had not been passed.  
(7) An order of adjudication shall relate back to, and take affect fr om, the date of the 
presentation of the petition on which it is made.  
29. Stay of pending proceeding . Any Court in which suit or other proceeding is pending 
against a debtor shall, on proof that an order of adjudication has been made against him under this Act, 
either stay the proceeding, or allow it to continue on such terms as such Court may impose.  
30. Publication of order of adjudication. Notice of an order of adjudication stating the name, 
address and description of the insolvent, the date of the adjudication, the period within which the debtor 
shall apply for his discharge, and the Court by which the adjudication is made, shall be published in 
the 1[official Gazette] and in such other manner as may be prescribed.  
Proceedings consequent on order of Adjudication 
31. Protection order .___ (1) Any insolvent in respect of whom an order of adjudication has 
been made may apply to the Court for protection, and the Court may on such application make an order 
for the protection of the insolvent from arrest or detention.  
(2) A protection order may apply either to all the debts of the debtor, or to any of them as the 
Court may think proper, and may commence and take effect at and for such time as the Court may 
direct, and may be revoked or renewed as the Court may think fit.  
(3) A protection order shall protect the insolvent from being arrested or detained in prison for 
any debt to which such order applies, and any insolvent arrested or detained contrary to the terms of 
such an order shall be entitled to his release :  
Provided that no such order shall operate to prejudice the rights of any creditor in the event of 
such order being revoked or the adjudication annulled.  
1Subs. by A.O., 1937, for “local official Gazette”.  
 
Page 15 of 34 
 
 (4) Any creditor shall be entitled to appear and oppose the grant of a protection order.  
32. Power to arrest after adjudication . At any time after an order of adjudication has been 
made, the Court may, if it has reason to believe on the application of any  creditor or the receiver that 
the debtor has absconded or departed from the local limits of its jurisdiction with intent to avoid any 
obligation which has been, or might be, imposed on him by or under this Act, order a warrant to issue 
for his arrest, and on his appearing or being brought before it, may, if satisfied that he was absconding 
or had departed with such intent, order his release on such terms as to security as may be reasonable 
or necessary, or, if such security is not furnished, direct that he shall be detained in the civil prison for 
a period which may extend to three months.  
33. Schedule of creditors.___ (1) When an order of adjudication has been made under this Act, 
all persons alleging themselves to be creditors of the insolvent in respect of debts provable under this 
Act shall tender proof of their respective debts by producing evidence of the amount and particulars 
thereof, and the Court shall, by order, determine the persons who have proved themselves to be 
creditors of the insolvent in respect of such debts, and the amount of such debts, respectively, and shall 
frame a schedule of such persons and debts :  
Provided that, if, in the opinion of the Court, the value of any debt is incapable of being fairly 
estimated, the Court may make an order to that effect, and thereupon the debt shall not be included in 
the schedule.  
(2) A copy of every such schedule shall be posted in the Courthouse.  
(3) Any creditor of the insolvent may, at any time before the discharge of the insolvent, tender 
proof of his debt and apply to the Court for an order directing his name to be entered in the schedule 
as a creditor in respect of any debt provable under this Act, and not entered in the schedule, and the 
Court, after causing notice to be served on the 1[receiver] and other creditors who have proved their 
debts, and hearing their objections (if any), shall comply with or reject the application.  
34. Debts provable under the Act.___ (1) Debts which have been excluded from the schedule 
on the ground that their va lue is incapable of being fairly estimated and demands in the nature of 
unliquidated damages arising otherwise than by reasons of a contract or a breach of trust shall not be 
provable under this Act.  
(2) Save as provided by sub -section (1), all debts and liabilities, present or future, certain or 
contingent, to which the debtor is subject when he is adjudged an insolvent, or to which he may become 
subject before his discharge by reason of any obligation incurred before the date of such adjudication, 
shall be deemed to be debts provable under this Act.  
Annulment of Adjudication 
35. Power to annual adjudication of insolvency. Where, in the opinion of the Court, a debtor 
ought not to have been adjudged in solvent, or where it is proved to the satisfaction of the Court that 
the debts of the insolvent have been paid in full, the Court shall, on the application of the debtor, or of 
any other, person interested, by order in writing, annul the adjudication 2[and the Court may, of its own 
motion or on application made by the receiver or any creditor, annul any adjudication made on the 
petition of a debtor who was, by reason of the provisions of sub-section (2) of section 10, not entitled 
to present such petition].  
1Subs. by the Provincial Insolvency (Amdt.) Act, 1926 (39 of 1926), s. 2, for “insolvent”.  
1Ins. by the Insolvency (Amdt.) Act, 1927 (11 of 1927), s. 5.  
 
Page 16 of 34 
 
36. Power to cancel one of concurrent orders of adjudication. If, in any case in which an 
order of adjudication has been made, it shall be proved to the Court by which such order was made 
that insolvency proceedings are pending in another Court against the same debtor, and that the property 
of the debtor can be more conveniently distributed by such other Court, the Court may annul the 
adjudication or stay all proceedings thereon.  
37. Proceedings on annulment .___(1) Where an adjudication is annulled, all sa les and 
dispositions of property and payments duly made, and all acts theretofore done, by the Court or 
receiver, shall be valid; but, subject as aforesaid, the property of the debtor who was adjudged insolvent 
shall vest in such person as the Court may appoint, or, in default of any such appointment, shall revert 
to the debtor to the extent of his right or interest therein on such conditions (if any) as the Court may, 
by order in writing, declare.  
(2) Notice of every order annulling an adjudication shall be published in the 1[official Gazette] 
and in such other manner as may be prescribed.  
Compositions and schemes of arrangement 
38. Compositions and schemes of arrangement .___ (1) Where a debtor, after the making of 
an order of adjudication, submits a property for a composition in satisfaction of his debts, or a proposal 
for a scheme of arrangement of his affairs, the Court shall fix a date for the consideration of the 
proposal, and shall issue a notice to all creditors in such manner as may be prescribed.  
(2) If, on the consideration of the proposal, a majority in number and three-fourths in value of 
all the creditors whose debts are proved and who are present in person or by pleader, resolve to accept 
the proposal, the same shall be deemed to be duly accepted by the creditors.  
(3) The debtor may at the meeting amend the terms of his proposal if the amendment is, in the 
opinion of the Court, calculated to benefit the general body of creditors.  
(4) Where the Court is of opinion, after hearing the report of the receiver, if a receiver has been 
appointed, and after considering any objections which may be made by or on behalf of any creditor, 
that the terms of the proposal are not reasonable or are not calculated to benefit the general body of 
creditors, the Court shall refuse to approve the proposal.  
(5) If any facts are proved on proof of which the Court would be required either to refuse, 
suspend or attach conditions to the debtor’s discharge, the Court shall refuse to approve the proposal 
unless it provide s reasonable security for payment of not less than six annas in the rupee on all the 
unsecured debts provable against the debtor’s estate.  
(6) No composition or scheme shall be approved by the Court which does not provide for the 
payment in priority to other debts of all debts directed to be so paid in the distribution of the property 
of an insolvent.  
(7) In any other case the Court may either approve or refuse to approve the proposal.  
 
 
1Subs. by A.O., 1937, for “local official Gazette”.  
 
Page 17 of 34 
 
39. Order on approval. If the Court approves the proposal, the terms shall be embodied in an 
order of the Court, and 1* * * the order of adjudication shall be annulled, and the provisions of section 
37 shall apply, and the composition or scheme shall be bi nding on all the creditors 2[so far as relates 
to any debt due to them from the debtor and provable under this Act].  
40. Power to re-adjudge debtor insolvent. If default is made in the payment of any instalment 
due in pursuance of the composition or schem e, or if it appears to the Court that the composition or 
scheme cannot proceed without injustice or undue delay, or that the approval of the Court was obtained 
by fraud, the Court may, if it thinks fit, re -adjudge the debtor insolvent and annul the composi tion or 
scheme but without prejudice to the validity of any transfer or payment duly made or of anything duly 
done under or in pursuance of the composition or scheme. When a debtor is re -adjudged insolvent 
under this section, all debts provable in other re spects which have been contracted before the date of 
such re-adjudication shall be provable in the insolvency.  
Discharge 
41. Discharge.___ (1) A debtor may, at any time after the order of adjudication and shall, within 
the period specified by the Court, apply to the Court for an order of discharge, and the Court shall fix 
a day, notice whereof shall be given in such manner as may be prescribed, for hearing such application, 
and any objections which may be made thereto.  
(2) Subject to the provisions of this section, the Court may, after considering the objections of 
any creditor and, where a receiver has been appointed, the report of the receiver___  
(a)  grant or refuse an absolute order of discharge ; or  
(b)  suspend the operation of the order for a specified time ; or  
(c)  grant an order of discharge subject to any conditions with respect to any 
earnings or income which may afterwards become due to the insolvent, or with 
respect to his after-acquired property.  
42. Cases in which Court mu st refuse an absolute discharge .___ (1) The Court shall refuse 
to grant an absolute order of discharge under section 41 on proof of any  of the following facts, 
namely:___ 
(a)  that the insolvent's assets are not of a value equal to e ight annas in the rupees 
on the amount of his unsecured liabilities, unless he satisfies the Court that the 
fact that the assets are not of a value equal to eight annas in the rupee on the 
amount of his unsecured liabilities has arisen from circumstances f or which he 
cannot justly be held responsible ;  
(b)  that the insolvent has omitted to keep such books of account as are usual and 
proper in the business carried on by him and as sufficiently disclose his business 
transactions and financial position within the three years immediately preceding 
his insolvency ;  
(c)  that the insolvent has continued to trade after knowing himself to be insolvent ;  
 
1The words “the Court shall frame a schedule in accordance with the provisions of section 33” rep. by the Provincial Insolvency (Amdt.) Act, 1935 (10 
of 1935), s. 2.  
2Subs. ibid., for “entered in the said schedule so far as relates to any debts entered therein.”.  
 
Page 18 of 34 
 
 (d)  that the insolvent has contracted any debt provable under this Act without 
having at the time of contracting it any reasonable or probable ground of 
expectation (the burden of proving which shall lie on him) that he would be able 
to pay it ;  
(e)  that the insolvent has failed to account satisfactorily for any loss of assets or for 
any deficiency of assets to meet his liabilities ;  
(f)  that the insolvent has brought on, or contributed to, his insolvency by rash and 
hazardous speculations, or by unjust ifiable extravagance in living, or by 
gambling, or by culpable neglect of his business affairs ;  
(g)  that the insolvent has, within three months preceding the date of the presentation 
of the petition, when unable to pay his debts as they became due, given an undue 
preference to any of his creditors ;  
(h)  that the insolvent has on any previous occasion been adjudged an insolvent or 
made a composition or arrangement with his creditors ;  
(i)  that the insolvent has concealed or removed his property or any part thereof, or 
has been guilty of any other fraud or fraudulent breach of trust.  
(2) For the purposes of this section, the report of the receiver shall be deemed to be evidence ; 
and the Court may presume the correctness of any statement contained therein.  
(3) The powers of suspending, and of attaching conditions to, an insolvent’s discharge may be 
exercised concurrently.  
43. Adjudication to be annulled on failure to apply for d ischarge.___ (1) If the debtor does 
not appear on the day fixed for hearing his application for discharge or on such subsequent day as the 
Court may direct, or if the debtor does not apply for an order of discharge within the period specified 
by the Court, the order of adjudication shall be annulled, and the provisions of section 37 shall apply 
accordingly.  
(2) Where a debtor has been released from custody under the provisions of this Act and the 
order of adjudication is annulled under sub -section (1), the Court may, if it thinks fit, re -commit the 
debtor to his former custody, and the officer incharge of the prisoner to whose custody such debtor is 
so re -commited shall receive such debtor into his custody according to such re -commitment, and 
thereupon all processes which were in force against the person of such debtor at the time of such release 
as aforesaid shall be deemed to be still in force against him as if no order of adjudication had been 
made.  
44. Effect of order of discharge .___ (1) An order of di scharge shall not release the insolvent 
from___  
(a)  any debt due to the 1[Government] ;  
(b)  any debt or liability incurred by means of any fraud or fraudulent breach of trust 
to which he was a party;  
1Subs by A.O., 1961, Art. 2, for “Crown” (with effect from the 23rd March, 1956)  
 
 
Page 19 of 34 
 
(c)  any debt or liability in respect of which he has obtained forbearance by any 
fraud to which he was a party ; or  
1[(d)  any liability under an order for maintenance of a wife or child.]  
(2) Save as otherwise provided by sub -section (1), an order of discharge shall release the 
insolvent from all debts provable under this Act.  
(3) An order of discharge shall not, release an y person who, at the date of the presentation of 
the petition, was a partner or co-trustee with the insolvent, or was jointly bound or had made any joint 
contract with him or any person who was surety for him.  
PART III 
 
ADMINISTRATION OF PROPERTY 
 
Method of Proof of debts 
45. Debt payable at a future time. A creditor may prove for a debt not payable when the 
debtor is adjudged an insolvent as if it were payable presently, and may receive dividends equally with 
the other creditors, deducting therefrom only rebate of interest at the rate of six per centum per annum 
computed from the declaration of a dividend to the time when the debt would have become payable, 
according to the terms on which it was contracted.  
46. Mutual dealings and set-off. Where there have been mutual dealings between an insolvent 
and a creditor proving or claiming to prove a debt under this Act, an account shall be taken of what is 
due from the one party to the other in respect of such mutual dealings and the sum due from the one 
party shall be set-off against any sum due from the other party, and the balance of the account, and no 
more, shall be claimed or paid on either respectively.  
47. Secured creditors.___ (1) Where a secured creditor realises his security, he may prove for 
the balance due to him, after deducting the net amount realised.  
(2) Where a secured creditor relinquishes his security for the general benefit of the creditors, 
he may prove for his whole debt.  
(3) Where a secured creditor does not either realise or relinquish his security, he shall, before 
being entitled to have his debt entered in the schedule, state in his proof the particulars of his security, 
and the value at which he assesses it, and shall be entitled to receive a dividend only in respect of  the 
balance due to him after deducting the value so assessed.  
(4) Where a security is so valued, the Court may at any time before realisation redeem it on 
payment to the creditor of the assessed value.  
(5) Where a creditor, after having valued his secur ity, subsequently realises it, the net amount 
realised shall be substituted for the amount of valuation previously made by the creditor, and shall be 
treated in all respects as an amended valuation made by the creditor.  
(6) Where a secured creditor does n ot comply with the provisions of this section, he shall be 
excluded from all share in any dividend.  
 
1Subs. by the Federal Laws (Revision and Declaration) Ordinance, 1981 (27 of 1981), s. 3 Sch. II, for clause (d). 
 
Page 20 of 34 
 
48. Interest.___ (1) On any debt or sum certain whereon interest is not reserved or agreed for, 
and which is overdue when the debtor is adjudged an insolvent, and which is provable under this Act, 
the creditor may prove for interest at rate not exceeding six per centum per annum___  
(a)  if the debt or sum is payable by virtue of a written instrument at a certain time, 
from the time when such debt or sum was payable to the date of such 
adjudication ; or  
(b)  if the debt or sum is payable otherwise, from the time when a demand in writing 
has been made giving the debtor notice that interest will be claimed from the 
date of the demand until the time of payment to the date of such adjudication.  
(2) Where a debt which has been proved under this Act includes interest or any pecuniary 
consideration in lieu of interest, the interest or consideration shall , for the purposes of dividend, be 
calculated at a rate not exceeding six per centum per annum, without prejudice to the right of a creditor 
to receive out of the debtor's estate any higher rate of interest to which he may be entitled after all the 
debts proved have been paid in full.  
49. Mode of proof .___ (1) A debt may be proved under this Act by delivering , or sending by 
post in a registered letter, to the Court an affidavit verifying the debt.  
(2) The affidavit shall contain or refer to a statement of account showing the particulars of the 
debt, and shall specify the vouchers (if any) by which the same can  be substantiated. The Court may 
at any time can for the production of the vouchers.  
50. Disallowance and reduction of entries in schedule.___ (1) Where the receiver thinks that 
a debt has been improperly entered in the schedule, the Court may, on the app lication of the receiver 
and after notice to the creditor, and such inquiry (if any) as the Court thinks necessary, expunge such 
entry or reduce the amount of the debt.  
(2) The Court may also, after like inquiry, expunge an entry or reduce the amount of a debt 
upon the application of creditor where no receiver has been appointed, or where the receiver declines 
to interfere in the matter or, in the case of a composition or scheme, upon the application of the debtor.  
Effect of insolvency on antecedent transactions 
51. Restriction of rights of creditor under execution.___ (1) Where execution of a decree has 
issued against the property of a debtor, no person shall be entitled to the benefit of the execution against 
the receiver except in respect of assets realised in the course of the execution by sale or otherwise 
before the date of the admission of the petition.  
(2) Nothing in this section shall affect the rights of a secured creditor in respect of the property 
against which the decree is executed.  
(3) A person who in good faith purchases the property of a debtor under a sale in execution 
shall in all cases acquire a good title to it against the receiver.  
52.Duties of Court executing decree as to property taken in execution. Where execution of 
a decree has issued against any property of a debtor which is saleable in execution and before the sale 
thereof notice is given to the Court executing the decree that an insolvency pe tition by or against the 
debtor has been admitted, the Court shall, on application, direct the property, if in the possession of 
the Court, to be delivered to the receiver, but the costs of the suit in which the decree was made and of 
 
Page 21 of 34 
 
the execution shall be a first charge on the property so delivered, and the receiver may sell the property 
or an adequate part thereof for the purpose of satisfying the charge.  
53. Avoidance of voluntary transfer . Any transfer of property not being a transfer made 
before and in consideration of marriage or made in favour of a purchaser or incumbrancer in good faith 
and for valuable consideration shall, if the transferor is adjudged insolent 1[on a petition presented] 
within two years after the date of the transfer, be voidable as against the receiver and may be annulled 
by the Court.  
54. Avoidance of preference in certain cases.___ (1) Every transfer of property, every payment 
made, every obligation incurred, and every judicial proceeding taken or suffered by any person unable 
to pay his debt as they become due from his own money in favour of any creditor, with a view of 
giving that creditor a preference over the other creditors, shall, if such person is adjudged insolvent on 
a petition presented within three months after the d ate thereof, be deemed fraudulent and void as 
against the receiver, and shall be annulled by the Court.  
(2) This section shall not effect the rights of any person who in good faith and for valuable 
consideration has acquired a title through or under a creditor of the insolvent.  
2[54A. By whom petitions for annulment may be made. A petition for the annulment of any 
transfer under section 53, or of any transfer, payment, obligation or judicial proceeding under section 
54, may be made by the receiver or with the leave of the Court, by any creditor who has proved his 
debt and who sa tisfies the Court that the receiver has been requested and has refused to make such 
petition.]  
55. Protection of bona fide transactions. Subject to the foregoing provisions of this Act with 
respect to the effect of insolvency on an execution, and with res pect to the avoidance of certain 
transfers and preferences, nothing in this Act shall invalidate in the case of an insolvency___  
(a)  any payment by the insolvent to any of his creditors ;  
(b)  any payment or delivery to the insolvent ;  
(c)  any transfer by the insolvent for valuable consideration ; or  
(d)  any contract or dealing by or with the insolvent for valuable consideration :  
Provided that any such transaction takes place before the date of the order of adjudication, and 
that the person with wh om such transaction takes place has not at the time notice of the presentation 
of any insolvency petition by or against the debtor.  
Realisation of Property 
56. Appointment of receiver.-(1) The Court may, at the time of the order of adjudication, or 
at any time afterwards, appoint a receiver for the property of the insolvent, and such property shall 
thereupon vest in such receiver.  
(2) Subject to such conditions as may be prescribed, the Court may___ 
 
1Ins. by the Insolvency Law (Amdt.) Act, 1930 (10 of 1930), s. 6. 
2S. 54A ins. by the Provincial Insolvency (Amdt.) Act, 1926 (39 of 1926).  
 
Page 22 of 34 
 
 (a)  require the receiver to give such security as it thinks fit duly to account for what 
he shall receive in respect of the property ; and  
(b)  by general or special order, fix the amount to be paid as remuneration for the 
services of the receiver out of the assets of the insolvent.  
(3) Where the Court appoints a receiver, it may remove the person in whose possession or 
custody any such property as aforesaid is from the possession or custody thereof :  
Provided that nothing in this section shall be deemed to authorise the Court to remove from the 
possession or custody of property any person whom the insolvent has not a present right so to remove.  
(4) Where a receiver1 appointed under this section___  
(a)  fails to submit his accounts at such periods and in such form as the Court directs, 
or  
(b)  fails to pay the balance due from him thereon as the Court directs , or  
(c)  occasions loss to the property by his wilful default or gross negligence,  
 the Court may direct his property to be attached and sold, and may app ly the 
proceeds to make good any balance found to be due from him or any loss so 
occasioned by him.  
(5) The provisions of this section shall apply, so far as may be, to interim receivers appointed 
under section 20.  
57. Power to appoint Official Receiver .___(1) The 2[Provincial Government] may appoint 
such persons as it thinks fit (to be called “Official Receivers”) to be receivers under this Act within 
such local limits as it may prescribe.  
(2) Where any Official Receiver has been so appointed for the local limits of the jurisdiction 
of any Court having jurisdiction under this Act, he shall be the receiver for the purpose of every order 
appointing a receiver or an interim receiver issued by any such Court, unless the Court for special 
reasons otherwise directs.  
(3) Any sum payable under clause (b) of sub-section (2) of section 56 in respect of the services 
of an Official Receiver shall be credited3 to such fund as the 2[Provincial Government] may direct.  
(4) Every Official Receiver shall receive such remuneration out of the said fund or otherwise 
as the 2[Provincial Government] may fix in this behalf, and no remuneration whatever beyond that so 
fixed shall be received by the Official Receiver as such3.  
58. Powers of Court if no receiver appointed. Where no receiver is appointed, the Court shall 
have all the rights of, and may exercise all the powers conferred on, a receiver under this Act.  
 
1In the application of the Act to the taluka of Karachi, certain words have been ins. at this place by the Karachi Insolvency (Amdt.) Act, 1935 (Bom.3 of 
1935), s. 3.  
2Subs. by A.O., 1937 for “L.G.”.  
3In the application of the Act to the taluka of Karachi, certain words have been ins. in sub-section (3) of s. 57; and new ss. 57A to 57E have been ins. after 
s. 57, by the Karachi Insolvency (Amdt.) Act, 1935 (Bom. 3 of 1935), s. 3.  
 
Page 23 of 34 
 
59. Duties and powers of rece iver. Subject to the provisions of this Act, the receiver shall, 
with all convenient speed, realise the property of the debtor and distribute dividends among the 
creditors entitled thereto, and for that purpose may___ 
(a)  sell all or any part of the property of the insolvent ;  
(b)  give receipts for any money received by him;  
and may, by leave of the Court do all or any of the following things, namely :___ 
(c)  carry on the business of the insolvent so far as may be necessary  for the 
beneficial winding up of the same ;  
(d)  institute, defend or continue any suit or other legal proceedings relating to the 
property of the insolvent ;  
(e)  employ a pleader or other agent to take any proceedings or do any business 
which may be sanctioned by the Court ;  
(f)  accept as the consideration for the sale of any property of the insolvent a sum 
of money payable at a future time subject to such stipulations as to security and 
otherwise as the Court thinks fit ;  
(g)  mortgage or pledge any part of the property of the insolvent for the purpose of 
raising money for the payment of his debts ;  
(h)  refer any dispute to arbitration, and compromise all debts, claims and liabilities, 
on such terms as may be agreed upon ; and  
(i)  divide in its existing form amongst the creditors, according to its estimated 
value, any property which, from its peculiar nature or other special 
circumstances, cannot readily or advantageously be sold.  
1[59A. Power to require information regarding insolvent’s propert y.___(1) The Court, if 
specially empowered in this behalf by an order of the 2[Provincial Government], or any officer of the 
Court so empowered by a like order, may, on the application of the receiver or any creditor who has 
proved his debt, at any time af ter an order of adjudication has been made, summon before it in the 
prescribed manner any person known or suspected to have in his possession any property belonging to 
the insolvent, or supposed to be indebted to the insolvent, or any person whom the Court  or such 
officer, as the case may be, may deem capable of giving information respecting the insolvent or his 
dealings or property, and the Court or such officer may require any such person to produce any 
documents in his custody or power relating to the insolvent or to his dealings or property.  
(2) If any person so summoned, after having been tendered a reasonable sum, refuses to come 
before the Court or such officer at the time appointed, or refuses to produce any such document, having 
no lawful impedimen t made known to and allowed by the Court or such officer, the Court or such 
officer may, by warrant, cause him to be apprehended and brought up for examination.  
 
1S. 59A ins. by the Provincial Insolvency (Amdt.) Act, 1926 (39 of 1926), s. 4.  
2Subs. by A.O., 1937, for “L.G.”.  
 
Page 24 of 34 
 
60. Special provisions in regard to immovable property.___ (1) In any local area in which a 
declaration has been made under section 68 of the Code of Civil Procedure, 1908 (V of 1908), an d is 
in force, on sale of immovable property paying revenue to the Government or held or let for agricultural 
purposes shall be made by the receiver ; but, after the other property of the insolvent has been realised, 
the Court shall ascertain___ 
(a)  the amount required to satisfy the debts proved under this Act after deducting 
the monies already received ;  
(b) the immoveable property of the insolvent remaining unsold ; and  
(c)  the incumbrances (if any) existing thereon ;  
 and shall forward a statement to the Collector containing the particulars 
aforesaid; and thereupon the Collector shall proceed to raise the amount so 
required by the exercise of such of the powers conferred on him by paragraphs 
2 to 10 of the Third Schedule to the said Code as he thinks fit, and subject to the 
provisions of those paragraphs so far as they are applicable, and shall hold at 
the disposal of the Court all sums that may come to his hands by the exercise of 
such powers.  
(2) Nothing in this Act shall be deemed to affect any provisions of any enactment for the time 
being in force prohibiting or restricting the execution of decrees or orders against immov eable 
property; and any such provisions shall be deemed to apply to the enforcement of an order of 
adjudication made under this Act as if it were such a decree or order.  
Distribution of Property 
61. Priority of debts. ___(1) In the distribution of the prope rty of the insolvent, there shall be 
paid in priority to all other debts :___ 
(a)  all debts due to the 1[Government] or to any local authority ; and  
(b)  all salary or wages, not exceeding twenty rupees in all, of any clerk, servant or 
labourer in respec t of services rendered to the insolvent during four months 
before the date of the presentation of the petition.  
(2) The debts specified in sub-section (1) shall rank equally between themselves, and shall be 
paid in full, unless the property of the insolve nt is insufficient to meet them, in which case they shall 
abate in equal proportions between themselves.  
(3) Subject to the retention of such sums as may be necessary for the expenses of administration 
or otherwise, the debts specified in sub -section (1) shall be discharged forthwith in so far as the 
property of the insolvent is sufficient to meet them.  
 
 
(4) In the case of partners, the partnership property shall be applicable in the first instance in 
payment of the partnership debts, and the separate pr operty 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 o f 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.  
1Subs. by A.O., 1961, Art. 2, for “Crown” (with effect from the 23rd March, 1956).  
 
Page 25 of 34 
 
 (5) Subject to the provisions of this Act, all debts entered in the schedule shall be paid rateably 
according to the amounts of such debts respectively and without any preference.  
(6) Where there is any surplus after payment of the foregoing debts, it shall be applied in 
payment of interest from the date on which the debtor is adjudged an insolvent at the rate of six per 
centum per annum on all debts entered in the schedule.  
62. Calculation of dividends.___ (1) In the calculation of dividends, the receiver shall retain in 
his hands sufficient assets to meet___  
(a)  debts provable under this Act and ap pearing, from the insolvent’s statement or 
otherwise, to be due to persons resident in places so distant that in the ordinary 
course of communication they have not had sufficient time to tender their proofs 
;  
(b)  debts provable under this Act, the subject of claims not yet determined ;  
(c)  disputed proofs or claims ; and  
(d)  the expenses necessary for the administration of the estate or otherwise.  
(2) Subject to the provisions of sub -section (1), all money in hand shall be distributed as 
dividends.  
63. Right of creditor who has not proved debt before declaration of a dividend. Any 
creditor who has not proved his debt before the declaration of any dividend or dividends shall be 
entitled to be paid, out of any money for the time being in the hands of t he receiver, any dividend or 
dividends which he may have failed to receive before that money is applied to the payment of any 
future dividend or dividends; but he shall not be entitled to disturb the distribution of any dividend 
declared before his debt was proved by reason that he has not participated therein.  
64. Final dividend. When the receiver has realised all the property of the insolvent or so much 
thereof as can, in the opinion of the Court, be realised without needlessly protracting the receivership, 
he shall declare a final dividend; but before so doing, he shall give notice in manner prescribed to the 
persons whose claims to be creditors have been notified but not proved, that if they do not prove their 
claims within the time limited by the notic e, he will proceed to make a final dividend without regard 
to their claims. After the expiration of the time so limited, or if the Court, on application by any such 
claimant, grants him further time for establishing his claim, then on the expiration of such further time, 
the property of the insolvent shall be divided among the creditors entered in the schedule without 
regard to the claims of any other persons.  
1[65. No suit for dividend. No suit for a dividend shall lie against the receiver; but where the 
receiver refuses to pay any dividend, the Court may, on the application of any creditor who is entered 
in the schedule, order him to pay it, and also to pay out of his own money interest thereon for the time 
that it is withheld, and the costs of the application.  
66. Management by and allowance to insolvent.___ (1) The Court may appoint the insolvent 
himself to superintend the management of the property of the insolvent or of any part thereof, or to 
carry on the trade (if any) of the insolvent for the benef it of the creditors, and in any other respect to 
aid in administering the property in such manner and on such terms as the Court may direct.  
1In its application to the taluka of Karachi, this section has been amended by the Karachi Insolvency (Amdt.) Act, 1935 (Bom. 3 of 1935), s. 3.  
 
Page 26 of 34 
 
(2) The Court may, from time to time, make such allowance as it may think just to the insolvent 
out of his property for the support of himself and his family, or in consideration of his services if he is 
engaged in winding up his estate; but any such allowance may, at any time , be varied or determined 
by the Court.  
67. Right of insolvent to surplus . The insolvent shall be entitled to any surplus remaining 
after payment in full of his creditors with interest as provided  by this Act, and of the expenses of the 
proceedings taken thereunder.  
1[67A. Committee of inspection.—(1) The Court may, if it thinks fit, authorise the creditors 
who have proved their debts to appoint a committee of inspection for the purpose of superin tending 
the administration of the insolvent’s property by the receiver.  
(2) The persons appointed to a committee of inspection shall be creditors who have proved 
their debts or persons holding general powers-of-attorney from such creditors.  
(3) The committee of inspection shall have such powers of control over the proceedings of the 
receiver as may be prescribed.]  
Appeal to court against receiver 
68. Appeal to Court against receiver. If the insolvent or any of the creditors or any other 
persons is aggrieved by any act or decision of the receiver, he may apply to the Court, and the Court 
may confirm, reverse or modify the act or decision complained of, and make such order as it thinks 
just :  
Provided that no application under this section shall be e ntertained after the expiration of 
twenty-one days from the date of the act or decision complained of.  
PART IV 
 
PENALTIES 
69. Offences by debtors . If a debtor, whether before or after the making of an order of 
adjudication,___  
(a)  wilfully fails to perform the duties imposed on him by section 22 or to deliver 
up possession of any part of his property which is divisible among his creditors 
under this Act, and which is for the time being in his possession or under his 
control to the Court or to any person authorised by the Court to take possession 
of it, or  
(b)  fraudulently with intent to conceal the state of his affairs or to defeat the objects 
of this Act,___ 
(i)  has destroyed or otherwise wilfully prevented or purposely withheld the 
production of any document relating to such of his affairs as are subject 
to investigation under this Act, or  
(ii)  has kept or caused to be kept false books, or  
 
1S. 67A ins. by the Provincial Insolvency (Amdt.) Act, 1926 (39 of 1926), s. 5.  
 
Page 27 of 34 
 
(iii)  has made false entries in or withheld entries from or wilfully altered or 
falsified any document relating to such of his affairs as are subject to 
investigation under this Act, or  
(c)  fraudulently with intent to diminish the sum to be divided among his creditors 
or to give an undue preference to any of his creditors ;___ 
(i)  has discharged or concealed any debt due to or from him, or  
(ii)  has made away with, charged, mortgaged or con cealed any part of his 
property of any kind whatsoever,  
 he shall be punishable on conviction 1* * * with imprisonment which 
may extend to one year.  
2[70. Procedure on charge under section 69 . Where the Court is satisfied, after such 
preliminary inquiry, if any, as it thinks necessary, that there is ground for inquiring into any offence 
referred to in section 69 and appearing to have been committed by the insolvent, the Court may record 
a finding to that effect and make a complaint of the offence in writing to a Magistrate of the first class 
having jurisdiction, and such Magistrate shall deal with such complaint in the manner laid down in the 
Code of Criminal Procedure, 1898 (V of 1898).]  
71. Criminal liability. Where an insolvent has' been guilty of any of the offences specified in 
section 69, he shall not be exempt from being proceeded against therefor by reason that he has obtained 
his discharge or that a composition or scheme of arrangement has been accepted or approved.  
72. Undisc harged insolvent obtaining credit .___ (1) A undischarged insolvent obtaining 
credit to the extent of fifty rupees or upwards from any person without informing such person that he 
is an undischarged insolvent shall, on conviction by a Magistrate, be punisha ble with imprisonment 
for a term which may extend to six months, or with fine or with both.  
(2) Where the Court has reason to believe that an undischarged insolvent has committed the 
offence referred to in sub -section (1), the Court, after making any prel iminary inquiry that may be 
necessary, may send the case for trial to the nearest Magistrate of the first class, and may send the 
accused in custody to take sufficient security for his appearance before such Magistrate ; and may bind 
over any person to appear and give evidence on such trial.  
73. Disqualifications of insolvent.___ (1) Where a debtor is adjudged or re-adjudged insolvent 
under this Act, he shall, subject to the provisions of this section, be disqualified from___ 
(a)  being appointed or acting as a Magistrate ; 
(b)  being elected to any office of any local authority where the appointment to such 
office is by election or holding or exercising any such office to which no salary 
is attached ; and  
(c)  being elected to sitting or voting as member of any local authority.  
(2) The disqualifications which an insolvent is subject to under this section shall be removed, 
and shall cease if___  
1The words “by the Court” rep. by the Repealing Act, 1927 (12 of 1927), s. 2 and Sch.  
2Subs. by the Insolvency (Amdt.) Act, 1926 (9 of 1926), s. 11, as amended by the Repealing and Amending Act, 1927 (10 of 1927), s. 3 and Sch. II, for 
the original section.  
 
Page 28 of 34 
 
 (a)  the order of adjudication is annulled under section 35, or  
(b) he obtains from the Court an order of discharge, whether absolute or 
conditional, with a certificate that his insolvency was caused by misfortune 
without any misconduct on his part.  
(3) The Court may grant or refuse such certificate as it thinks fit, but any order of refusal shall 
be subject to appeal.  
PART V 
 
SUMMARY ADMINISTRATION 
74. Summary administration. When a petition is presented by or against a debtor, if the Court 
is satisfied by affidavit or otherwise that the property of the debtor is not likely to exceed in value five 
hundred rupees1, the Court may make an order that the debtor's estate be administered in a summary 
manner, and thereupon the provisions of this Act shall b e subject to the following modifications, 
namely:-  
(i)  unless the Court otherwise directs,  no notice required under this Act shall be 
published in the 2[official Gazette] ;  
(ii)  on the admission of a petition by a debtor, the property of the debtor sha ll vest 
in the Court as a receiver;  
(iii)  at the hearing of the petition, the Court shall inquire into the debts and assets of 
the debtor and determine the same by order in writing, and it shall not be 
necessary to frame a schedule under the provisions of section 33;  
(iv)  the property of the debtor shall be realised with all reasonable despatch, and 
thereafter, when practicable, distributed in a single dividend;  
(v)  the debtor shall apply for his discharge within six months from the date of 
adjudication; and  
(vi)  such other modifications as may be prescribed with the view saving expense 
and simplifying procedure :  
Provided that the Court may at any time direct that the ordinary procedure provided for in this 
Act shall be followed in regard to the debtor's estate, and thereafter the Act shall have effect 
accordingly.  
PART VI 
 
APPEALS 
75. Appeals.___ (1) The debtor, any creditor, the receiver or any other person aggrieved by a 
decision come to or an order made in the exercise of insolvency jurisdiction by a Court subordinate to 
a District Court may appeal to the District Court, and the order of the District Court upon such appeal 
shall be final:  
 
1In Punjab read “two thousand rupees”, see Punjab Relief of Indebtedness Act, 1934 (Punjab 7 of 1934), s. 4.  
2Subs. by A.O., 1937, for “local official Gazette”.  
 
Page 29 of 34 
 
Provided that the High Court, for the purpose of satisfying itself that an order made in any 
appeal decided by the District Court was according to law, may call for the case and pass such order 
with respect thereto as it thinks fit:  
Provided further, that any such person aggrieved by a decision of the District Court on appeal 
from a decision of a subordinate Court under section 4 may appeal to the High Court on any of the 
grounds mentioned in sub-section (1) of section 100 of the Code of Civil Procedure, 1908 (V of 19080).  
(2) Any such person aggrieved by any such decision or order of a District Court as is specified 
in Schedule I, come to or made otherwise than in appeal from an order made by a subordinate Court, 
may appeal to the High Court.  
(3) Any such person aggrieved by any other order made by a District Court otherwise than in 
appeal from an order made by a subordinate Court may appeal to the High Court by leave of the District 
Court or of the High Court.  
(4) The periods of limitation for appeals to the District Court and to the High Court under this 
section shall be thirty days and ninety days, respectively.  
PART VII 
 
MISCELLANEOUS 
76. Costs. The costs of any proceeding under this Act, including the costs of maintaining a 
debtor in the civil prison, shall, subject to any rules made under this Act, be in the discretion of the 
Court in which the proceeding is had.  
77. Courts to be auxiliary to each other. All Courts having jurisdiction in insolvency and the 
officers of such Courts, respectively, shall severally act in aid of and be auxiliary to each other in all 
matters of insolvency, and an order of a Court seeking aid with a request to another of the said Courts 
shall be deemed sufficient to enable the latter Court to exercise, in regard to the matters directed by 
the order, such jurisdiction as either of such Courts could exercise in regard to similar matters within 
their respective jurisdictions.  
78. Limitation.___(1) The provisions of sections 5 and 12 of the Limitation Act, 1908 (IX of 
1908), shall apply to appeals and applications under this Act, and for the purpose of the said section 
12, a decision under section 4 shall be deemed to be a decree.  
(2) Where an order of adjudication has been annulled under this Act, in computing the period 
of limitation prescribed for any suit or application for the execution of a decree (other than a suit or 
application in respect of which the leave of the Court was obtained under sub -section (2) of section 
28) which might have been brought or made but for the making of an order of adjudication under this 
Act, the period from the date of the order of adjudication to the date of the order of annulment shall be 
excluded :  
Provided that nothing in this section shall apply to a suit or application in respect of a debt 
provable but not proved under this Act.  
79. Power to make rules .___1[(1) The High Court may, with the previous sanction of the 
Provincial Government, make rules for carrying into effect the provisions of this Act.]  
1Subs. by A.O., 1937, for the original sub-section.  
 
Page 30 of 34 
 
(2) In particular and without prejudice to the generality of the foregoing power, such rules may 
provide___  
(a)  for the appointmen t and remuneration of receivers (other than Official 
Receivers), the audit of the accounts of all receivers and the cost of such audit,  
(b)  for meetings of creditors,  
(c)  for the procedure to be followed where the debtor is a firm, 1*  
(d)  for the procedure to be followed in the case of estates to be administered in a 
summary manner, 2[and  
(e)  for any matter which is to be or may be prescribed.]  
(3) All rules made under this section shall be published 3* * * in the 4[official Gazette] 5* * * 
and shall, on such publication, have effect as if enacted in this Act.  
80. Delegation of powers to Official Receivers.___(1) The High Court, with the like sanction, 
may from time to time direct that, in any matters in respect of which jurisdiction is given to the Court 
by this Act, the Official Receiver shall, subject to the directions of the Court, have all o r any of the 
following powers, namely:___ 
6*  *  *  *  *  *  *  
(b)  to frame schedules and to admit or reject proofs of creditors ;  
6*  *  *  *  *  *  *  
(e)  to make interim orders in any case of urgency ; and  
(f)  to hear and determine any unopposed or ex -parte application.  
(2) Subject to the appeal to the Court provided for by section 68, any order made or act done 
by the Official Receiver in the exercise of the said powers shall be deemed the order or act of the Court.  
81. Power of Provincial Gove rnment to bar application of certain provisions to certain 
Courts. Any 7[Provincial Government] 8* * * may, by notification in the 9[official Gazette], declare 
that any of the provisions of this Act specified in Schedule II shall not apply to insolvency proceedings 
in any Court or Courts having jurisdiction under this Act in any part of the territories administered by 
such 1[Provincial Government].  
 
 
1The word “and” rep. by the Provincial Insolvency (Amdt.) Act, 1926 (39 of 1926), s. 6.  
2Ins. ibid.  
3The words “in the Gazette of India or” rep. by A.O., 1937.  
4Subs. ibid., for “local official Gazette”.  
5The words “as the case may be” rep., ibid.  
6Cls. (a), (c) and (d) rep. by Act 39 of 1926, s. 7.  
7Subs. by A.O., 1937, for “L.G.”.  
8 The words “with the previous sanction of the G.G. in C.”, rep. by the Devolution Act, 1920 (38 of 1920), s. 2 and Sch. I.  
9Subs. by A.O., 1937, for “local official Gazette”.  
 
 
Page 31 of 34 
 
82. Savings. Nothing in this Act shall—  
(a)  affect the 1[Insolvency (Karachi Division 2* * ) Act (III of 1909)], 3* * * or  
(b)  apply to cases to which Chapter IV of the Dekkhan Agriculturists Relief Act, 
1879 (XVII of 1879), is applicable.  
83. Repeals. 4* * * * * * *  
(2) Where in any enactment or instrument in force at the date of the commencement of this 
Act, reference is made to Chapter XX (of Insolvent Judgment-debtors) of the Code of Civil Procedure, 
1877 (X of 1877), or of the Code of Civil Procedure 1882 (XIV of 1882), or to any section of either of 
those Chapters, such reference shall, so far as may be practicable, be construed as applying to this Act 
or to the corresponding section thereof.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1Subs. by A.O., 1964, Art. 2 and Sch., for “Insolvency (Dacca and the Federal Territory of Karachi) Act ” which had been subs. by the Repealing and 
Amending Ordinance, 1961 (1 of 1961), s. 3 and 2nd Sch., for “Insolvency (Capital of the Federation and Dacca) Act”.  
2The words “and Dacca” omitted by F.A.O., 1975, Art. 2 and Sch.,  
3The words and figures “or section 8 of the Lower Burma Courts Act 1900” rep. by the Repealing and Amending Act, 1930 (8 of 1930), s. 3 and Sch. II.  
4Sub-section (1) rep. by the Repealing Act, 1927 (12 of 1927), s. 2 and Sch. 
  
 
Page 32 of 34 
 
SCHEDULE I 
[See section 75(2)] 
Decisions and Orders from which an appeal lies to the High Court under section 75 (2). 
Section Nature of decision or order 
4  Decision of questions of title, priority, etc., arising in insolvency.  
25  Order dismissing a petition.  
26  Order awarding compensation.  
27  Order of adjudication.  
33  Orders regarding entries in the schedule.  
35  Order annulling adjudication.  
37  Order declaring the conditions on which the debtor's property shall revert to him on 
annulment of adjudication.  
41  Order on application for discharge.  
50  Order disallowing or reducing entries in the schedule.  
53  Order annulling a voluntary transfer.  
54  Decision that a transfer of property is a preference in favour of a creditor.  
1*  * * * * * * *  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1The entry relating to s. 69 was rep. by the Repealing Act, 1927 (12 of 1927), s. 2 and Sch. 
 
Page 33 of 34 
 
SCHEDULE II 
(See Section 81) 
Provisions of the Act application of which may be barred by 
1[Provincial Governments]. 
Provisions of the Act. Subject. 
Section   
26                                                           .. Award of compensation.  
28, sub-section (3)                                 ..  Reputed property of an insolvent.  
34                                                           ..  Debts provable under the Act.  
38   
39                                                           ..  Compositions and schemes of arrangement.  
40  
42, sub-sections (1) and (2)  Obligation to refuse absolute discharge.  
45  
47  
48 Method of proof of debts.  
49  
50  
51  
52  
53  Effect of insolvency on antecedent transactions.  
54  
55  
 
 
 
 
 
 
 
 
 
1Subs. by A.O., 1937, for “Local Governments.” 
  
 
Page 34 of 34 
 
SCHEDULE II___contd. 
Provisions of the Act. 
 
Subject 
61    [exept clause (a) of sub-section (1) and    
sub-section (4)] 
 
62 
 
63 
 
64 
 
65 
 
66 
 
72 
 
Priority of debts. 
 
 
 
Dividends  
 
 
 
 
 
 
Management by and allowance to insolvent. 
 
Penalty for obtaining of credit by undischarged 
insolvent.  
 
 
 
 
 
 
 
SCHEDULE  III. ___[ENACTMENTS REPEALED.] Rep. by the Repealing Act, 1927  
(XII of 1927), s. 2 and Sch. 
 
___________ 
 
 
 
 
 
 
 
 
 
Date: 11-09-2024