149. Functions of bankruptcy trustee.—The bankruptcy trustee shall perform the following
functions in accordance with the provisions of this Chapter—
(a) investigate the affairs of the bankrupt;
(b) realise the estate of the bankrupt; and
(c) distribute the estate of the bankrupt.
150. Duties of bankrupt towards bankruptcy trustee.—(1) The bankrupt shall assist the
bankruptcy trustee in carrying out his functions under this Chapter by—
(a) giving to the bankruptcy trustee the information of his affairs;
(b) attending on the bankruptcy trustee at such times as may be required;
(c) giving notice to the bankruptcy trustee of any of the following events which have occurred
after the bankruptcy commencement date,—
(i) acquisition of any property by the bankrupt;
(ii) devolution of any property upon the bankrupt;
(iii) increase in the income of the bankrupt;
(d) doing all other things as may be prescribed.
102
(2) The bankrupt shall give notice of the increase in income or acquisition or devolution of property
under clause (c) of sub-section (1) within seven days of such increase, acquisition or devolution.
(3) The bankrupt shall continue to discharge the duties under sub-section (1) other than the duties
under clause (c) even after the discharge under section 138.
151. Rights of bankruptcy trustee.—For the purpose of performing his functions under this
Chapter, the bankruptcy trustee may, by his official name—
(a) hold property of every description;
(b) make contracts;
(c) sue and be sued;
(d) enter into engagements in respect of the estate of the bankrupt;
(e) employ persons to assist him;
(f) execute any power of attorney, deed or other instrument; and
(g) do any other act which is necessary or expedient for the purposes of or in connection with the
exercise of his rights.
152. General powers of bankruptcy trustee.—The bankruptcy trustee may while discharging his
functions under this Chapter,—
(a) sell any part of the estate of the bankrupt;
(b) give receipts for any money received by him;
(c) prove, rank, claim and draw a dividend in respect of such debts due to the bankrupt as are
comprised in his estate;
(d) where any property comprised in the estate of the bankrupt is held by any person by way of
pledge or hypothecation, exercise the right of redemption in respect of any such property subject to
the relevant contract by giving notice to the said person;
(e) where any part of the estate of the bankrupt consists of securities in a company or any other
property which is transferable in the books of a person, exercise the right to transfer the property to
the same extent as the bankrupt might have exercised it if he had not become bankrupt; and
(f) deal with any property comprised in the estate of the bankrupt to which the bankrupt is
beneficially entitled in the same manner as he might have dealt with it.
153. Approval of creditors for certain acts.—The bankruptcy trustee for the purposes of this
Chapter may after procuring the approval of the committee of creditors,—
(a) carry on any business of the bankrupt as far as may be necessary for winding it up
beneficially;
(b) bring, institute or defend any legal action or proceedings relating to the property comprised in
the estate of the bankrupt;
(c) accept as consideration for the sale of any property a sum of money due at a future time
subject to certain stipulations such as security;
(d) mortgage or pledge any property for the purpose of raising money for the payment of the
debts of the bankrupt;
(e) where any right, option or other power forms part of the estate of the bankrupt, make
payments or incur liabilities with a view to obtaining, for the benefit of the creditors, any property
which is the subject of such right, option or power;
103
(f) refer to arbitration or compromise on such terms as may be agreed, any debts subsisting or
supposed to subsist between the bankrupt and any person who may have incurred any liability to the
bankrupt;
(g) make compromise or other arrangement as may be considered expedient, with the creditors;
(h) make compromise or other arrangement as he may deem expedient with respect to any claim
arising out of or incidental to the bankrupt’s estate;
(i) appoint the bankrupt to—
(A) supervise the management of the estate of the bankrupt or any part of it;
(B) carry on his business for the benefit of his creditors;
(C) assist the bankruptcy trustee in administering the estate of the bankrupt.
154. Vesting of estate of bankrupt in bankruptcy trustee.—(1) The estate of the bankrupt shall
vest in the bankruptcy trustee immediately from the date of his appointment.
(2) The vesting under sub-section (1) shall take effect without any conveyance, assignment or
transfer.
155. Estate of bankrupt.—(1) The estate of the bankrupt shall include,—
(a) all property belonging to or vested in the bankrupt at the bankruptcy commencement date;
(b) the capacity to exercise and to initiate proceedings for exercising all such powers in or over or
in respect of property as might have been exercised by the bankrupt for his own benefit at the
bankruptcy commencement date or before the date of the discharge order passed under section 138;
and
(c) all property which by virtue of any of the provisions of this Chapter is comprised in the estate.
(2) The estate of the bankrupt shall not include—
(a) excluded assets;
(b) property held by the bankrupt on trust for any other person;
(c) all sums due to any workman or employee from the provident fund, the pension fund and the
gratuity fund; and
(d) such assets as may be notified by the Central Government in consultation with any financial
sector regulator.
156. Delivery of property and documents to bankruptcy trustee.—The bankrupt, his banker or
agent or any other person having possession of any property, books, papers or other records which
bankruptcy trustee is required to take possession for the purposes of the bankruptcy process shall deliver
the said property and documents to the bankruptcy trustee.
157. Acquisition of control by bankruptcy trustee.—(1) The bankruptcy trustee shall take
possession and control of all property, books, papers and other records relating to the estate of the
bankrupt or affairs of the bankrupt which belong to him or are in his possession or under his control.
(2) Where any part of the estate of the bankrupt consists of things in actionable claims, they shall be
deemed to have been assigned to the bankruptcy trustee without any notice of the assignment.
158. Restrictions on disposition of property.—(1) Any disposition of property made by the debtor,
during the period between the date of filing of the application for bankruptcy and the bankruptcy
commencement date shall be void.
104
(2) Any disposition of property made under sub-section (1) shall not give rise to any right against any
person, in respect of such property, even if he has received such property before the bankruptcy
commencement date in—
(a) good faith;
(b) for value; and
(c) without notice of the filing of the application for bankruptcy.
(3) For the purposes of this section, the term “property” means all the property of the debtor, whether
or not it is comprised in the estate of the bankrupt, but shall not include property held by the debtor in
trust for any other person.
159. After-acquired property of bankrupt.—(1) The bankruptcy trustee shall be entitled to claim
for the estate of the bankrupt, any after-acquired property by giving a notice to the bankrupt.
(2) A notice under sub-section (1) shall not be served in respect of—
(a) excluded assets; or
(b) any property which is acquired by or devolves upon the bankrupt after a discharge order is
passed under section 138.
(3) The notice under sub-section (2) shall be given within fifteen days from the day on which the
acquisition or devolution of the after-acquired property comes to the knowledge of the bankruptcy trustee.
(4) For the purposes of sub-section (3)—
(a) anything which comes to the knowledge of the bankruptcy trustee shall be deemed to have
come to the knowledge of the successor of the bankruptcy trustee at the same time; and
(b) anything which comes to the knowledge of a person before he is appointed as a bankruptcy
trustee shall be deemed to have come to his knowledge on the date of his appointment as bankruptcy
trustee.
(5) The bankruptcy trustee shall not be entitled, by virtue of this section, to claim from any person
who has acquired any right over after-acquired property, in good faith, for value and without notice of the
bankruptcy.
(6) A notice may be served after the expiry of the period under sub-section (3) only with the approval
of the Adjudicating Authority.
Explanation.—For the purposes of this section, the term “after-acquired property” means any
property which has been acquired by or has devolved upon the bankrupt after the bankruptcy
commencement date.
160. Onerous property of bankrupt.—(1) The bankruptcy trustee may, by giving notice to the
bankrupt or any person interested in the onerous property, disclaim any onerous property which forms a
part of the estate of the bankrupt.
(2) The bankruptcy trustee may give the notice under sub-section (1) notwithstanding that he has
taken possession of the onerous property, endeavoured to sell it or has exercised rights of ownership in
relation to it.
(3) A notice of disclaimer under sub-section (1) shall—
(a) determine, as from the date of such notice, the rights, interests and liabilities of the bankrupt
in respect of the onerous property disclaimed;
105
(b) discharge the bankruptcy trustee from all personal liability in respect of the onerous property
as from the date of appointment of the bankruptcy trustee.
(4) A notice of disclaimer under sub-section (1) shall not be given in respect of the property which
has been claimed for the estate of the bankrupt under section 155 without the permission of the committee
of creditors.
(5) A notice of disclaimer under sub-section (1) shall not affect the rights or liabilities of any other
person, and any person who sustains a loss or damage in consequence of the operation of a disclaimer
under this section shall be deemed to be a creditor of the bankrupt to the extent of the loss or damage.
Explanation.—For the purposes of this section, the term “onerous property” means—
(i) any unprofitable contract; and
(ii) any other property comprised in the estate of the bankrupt which is unsaleable or not readily
saleable, or is such that it may give rise to a claim.
161. Notice to disclaim onerous property.—(1) No notice of disclaimer under section 160 shall be
necessary if—
(a) a person interested in the onerous property has applied in writing to the bankruptcy trustee or
his predecessor requiring him to decide whether the onerous property should be disclaimed or not;
and
(b) a decision under clause (a) has not been taken by the bankruptcy trustee within seven days of
receipt of the notice.
(2) Any onerous property which cannot be disclaimed under sub-section (1) shall be deemed to be
part of the estate of the bankrupt.
Explanation.—For the purposes of this section, an onerous property is said to be disclaimed where
notice in relation to that property has been given by the bankruptcy trustee under section 160.
162. Disclaimer of leaseholds.—(1) The bankruptcy trustee shall not be entitled to disclaim any
leasehold interest, unless a notice of disclaimer has been served on every interested person and—
(a) no application objecting to the disclaimer by the interested person, has been filed with respect
to the leasehold interest, within fourteen days of the date on which notice was served; and
(b) where the application objecting to the disclaimer has been filed by the interested person, the
Adjudicating Authority has directed under section 163 that the disclaimer shall take effect.
(2) Where the Adjudicating Authority gives a direction under clause (b) of sub-section (1), it may also
make order with respect to fixtures, improvements by tenant and other matters arising out of the lease as it
may think fit.
163. Challenge against disclaimed property.— (1) An application challenging the disclaimer may
be made by the following persons under this section to the Adjudicating Authority—
(a) any person who claims an interest in the disclaimed property; or
(b) any person who is under any liability in respect of the disclaimed property; or
(c) where the disclaimed property is a dwelling house, any person who on the date of application
for bankruptcy was in occupation of or entitled to occupy that dwelling house.
(2) The Adjudicating Authority may on an application under sub-section (1) make an order
for the vesting of the disclaimed property in, or for its delivery to any of the persons mentioned in
sub-section (1).
106
(3) The Adjudicating Authority shall not make an order in favour of a person who has made an
application under clause (b) of sub-section (1) except where it appears to the Adjudicating Authority that
it would be just to do so for the purpose of compensating the person.
(4) The effect of an order under this section shall be taken into account while assessing loss or
damage sustained by any person in consequence of the disclaimer under sub-section (5) of section 160.
(5) An order under sub-section (2) vesting property in any person need not be completed by any
consequence, assignment or transfer.
164. Undervalued transactions.—(1) The bankruptcy trustee may apply to the Adjudicating
Authority for an order under this section in respect of an undervalued transaction between a bankrupt and
any person.
(2) The undervalued transaction referred to in sub-section (1) should have—
(a) been entered into during the period of two years ending on the filing of the application for
bankruptcy; and
(b) caused bankruptcy process to be triggered.
(3) A transaction between a bankrupt and his associate entered into during the period of two years
preceding the date of making of the application for bankruptcy shall be deemed to be an undervalued
transaction under this section.
(4) On the application of the bankruptcy trustee under sub-section (1), the Adjudicating Authority
may—
(a) pass an order declaring an undervalued transaction void;
(b) pass an order requiring any property transferred as a part of an undervalued transaction to be
vested with the bankruptcy trustee as a part of the estate of the bankrupt; and
(c) pass any other order it thinks fit for restoring the position to what it would have been if the
bankrupt had not entered into the undervalued transaction.
(5) The order under clause (a) of sub-section (4) shall not be passed if it is proved by the bankrupt
that the transaction was undertaken in the ordinary course of business of the bankrupt:
Provided that the provisions of this sub-section shall not be applicable to undervalued transaction
entered into between a bankrupt and his associate under sub-section (3) of this section.
(6) For the purposes of this section, a bankrupt enters into an undervalued transaction with any person
if—
(a) he makes a gift to that person;
(b) no consideration has been received by that person from the bankrupt;
(c) it is in consideration of marriage; or
(d) it is for a consideration, the value of which in money or money’s worth is significantly less
than the value in money or money’s worth of the consideration provided by the bankrupt.
165. Preference transactions.—(1) The bankruptcy trustee may apply to the Adjudicating Authority
for an order under this section if a bankrupt has given a preference to any person.
(2) The transaction giving preference to an associate of the bankrupt under sub-section (1) should
have been entered into by the bankrupt with the associate during the period of two years ending on the
date of the application for bankruptcy.
107
(3) Any transaction giving preference not covered under sub-section (2) should have been entered
into by the bankrupt during the period of six months ending on the date of the application for bankruptcy.
(4) The transaction giving preference under sub-section (2) or under sub-section (3) should have
caused the bankruptcy process to be triggered.
(5) On the application of the bankruptcy trustee under sub-section (1), the Adjudicating Authority
may—
(a) pass an order declaring a transaction giving preference void;
(b) pass an order requiring any property transferred in respect of a transaction giving preference
to be vested with the bankruptcy trustee as a part of the estate of the bankrupt; and
(c) pass any other order it thinks fit for restoring the position to what it would have been if the
bankrupt had not entered into the transaction giving preference.
(6) The Adjudicating Authority shall not pass an order under sub-section (5) unless the bankrupt was
influenced in his decision of giving preference to a person by a desire to produce in relation to that person
an effect under clause (b) of sub-section (8).
(7) For the purpose of sub-section (6), if the person is an associate of the bankrupt, (otherwise than by
reason only of being his employee), at the time when the preference was given, it shall be presumed that
the bankrupt was influenced in his decision under that sub-section.
(8) For the purposes of this section, a bankrupt shall be deemed to have entered into a transaction
giving preference to any person if—
(a) the person is the creditor or surety or guarantor for any debt of the bankrupt; and
(b) the bankrupt does anything or suffers anything to be done which has the effect of putting that
person into a position which, in the event of the debtor becoming a bankrupt, will be better than the
position he would have been in, if that thing had not been done.
166. Effect of order.—(1) Subject to the provision of sub-section (2), an order passed by the
Adjudicating Authority under section 164 or section 165 shall not,—
(a) give rise to a right against a person interested in the property which was acquired in an
undervalued transaction or a transaction giving preference, whether or not he is the person with whom
the bankrupt entered into such transaction; and
(b) require any person to pay a sum to the bankruptcy trustee in respect of the benefit received
from the undervalued transaction or a transaction giving preference, whether or not he is the person
with whom the bankrupt entered into such transaction.
(2) The provision of sub-section (1) shall apply only if the interest was acquired or the benefit was
received—
(a) in good faith;
(b) for value;
(c) without notice that the bankrupt entered into the transaction at an undervalue or for giving
preference;
(d) without notice that the bankrupt has filed an application for bankruptcy or a bankruptcy order
has been passed; and
(e) by any person who at the time of acquiring the interest or receiving the benefit was not an
associate of the bankrupt.
108
(3) Any sum required to be paid to the bankruptcy trustee under sub-section (1) shall be included in
the estate of the bankrupt.
167. Extortionate credit transactions.—(1) Subject to sub-section (6), on an application by the
bankruptcy trustee, the Adjudicating Authority may make an order under this section in respect of
extortionate credit transactions to which the bankrupt is or has been a party.
(2) The transactions under sub-section (1) should have been entered into by the bankrupt during the
period of two years ending on the bankruptcy commencement date.
(3) An order of the Adjudicating Authority may—
(a) set aside the whole or part of any debt created by the transaction;
(b) vary the terms of the transaction or vary the terms on which any security for the purposes of
the transaction is held;
(c) require any person who has been paid by the bankrupt under any transaction, to pay a sum to
the bankruptcy trustee;
(d) require any person to surrender to the bankruptcy trustee any property of the bankrupt held as
security for the purposes of the transaction.
(4) Any sum paid or any property surrendered to the bankruptcy trustee shall be included in the estate
of the bankrupt.
(5) For the purposes of this section, an extortionate credit transaction is a transaction for or involving
the provision of credit to the bankrupt by any person—
(a) on terms requiring the bankrupt to make exorbitant payments in respect of the credit provided;
or
(b) which is unconscionable under the principles of law relating to contracts.
(6) Any debt extended by a person regulated for the provision of financial services in compliance
with the law in force in relation to such debt, shall not be considered as an extortionate credit transaction
under this section.
168. Obligation under contracts.—(1) This section shall apply where a contract has been entered
into by the bankrupt with a person before the bankruptcy commencement date.
(2) Any party to a contract, other than the bankrupt under sub-section (1), may apply to the
Adjudicating Authority for—
(a) an order discharging the obligations of the applicant or the bankrupt under the contract; and
(b) payment of damages by the party or the bankrupt, for non-performance of the contract or
otherwise.
(3) Any damages payable by the bankrupt by virtue of an order under clause (b) of sub-section (2)
shall be provable as bankruptcy debt.
(4) When a bankrupt is a party to the contract under this section jointly with another person, that
person may sue or be sued in respect of the contract without joinder of the bankrupt.
169. Continuance of proceedings on death of bankrupt.—If a bankrupt dies, the bankruptcy
proceedings shall, continue as if he were alive.
170. Administration of estate of deceased bankrupt.—(1) All the provisions of Chapter V relating
to the administration and distribution of the estate of the bankrupt shall, so far as the same are applicable,
apply to the administration of the estate of a deceased bankrupt.
109
(2) While administering the estate of a deceased bankrupt, the bankruptcy trustee shall have regard to
the claims by the legal representatives of the deceased bankrupt to payment of the proper funeral and
testamentary expenses incurred by them.
(3) The claims under sub-section (2) shall rank equally to the secured creditors in the priority
provided under section 178.
(4) If, on the administration of the estate of a deceased bankrupt, any surplus remains in the hands of
the bankruptcy trustee after payment in full of all the debts due from the deceased bankrupt, together with
the costs of the administration and interest as provided under section 178, such surplus shall be paid to the
legal representatives of the estate of the deceased bankrupt or dealt with in such manner as may be
prescribed.
171. Proof of debt.—(1) The bankruptcy trustee shall give notice to each of the creditors to submit
proof of debt within fourteen days of preparing the list of creditors under section 132.
(2) The proof of debt shall—
(a) require the creditor to give full particulars of debt, including the date on which the debt was
contracted and the value at which that person assesses it;
(b) require the creditor to give full particulars of the security, including the date on which the
security was given and the value at which that person assesses it;
(c) be in such form and manner as may be prescribed.
(3) In case the creditor is a decree holder against the bankrupt, a copy of the decree shall be a valid
proof of debt.
(4) Where a debt bears interest, that interest shall be provable as part of the debt except in so far as it
is owed in respect of any period after the bankruptcy commencement date.
(5) The bankruptcy trustee shall estimate the value of any bankruptcy debt which does not have a
specific value.
(6) The value assigned by the bankruptcy trustee under sub-section (5) shall be the amount provable
by the concerned creditor.
(7) A creditor may prove for a debt where payment would have become due at a date later than the
bankruptcy commencement date as if it were owed presently and may receive dividends in a manner as
may be prescribed.
(8) Where the bankruptcy trustee serves a notice under sub-section (1) and the person on whom the
notice is served does not file a proof of security within thirty days after the date of service of the notice,
the bankruptcy trustee may, with leave of the Adjudicating Authority, sell or dispose of any property that
was subject to the security, free of that security.
172. Proof of debt by secured creditors.—(1) Where a secured creditor realises his security, he may
produce proof of the balance due to him.
(2) Where a secured creditor surrenders his security to the bankruptcy trustee for the general benefit
of the creditors, he may produce proof of his whole claim.
173. Mutual credit and set-off.—(1) Where before the bankruptcy commencement date, there have
been mutual dealings between the bankrupt and any creditor, the bankruptcy trustee shall—
(a) take an account of what is due from each party to the other in respect of the mutual dealings
and the sums due from one party shall be set-off against the sums due from the other; and
110
(b) only the balance shall be provable as a bankruptcy debt or as the amount payable to the
bankruptcy trustee as part of the estate of the bankrupt.
(2) Sums due from the bankrupt to another party shall not be included in the account taken by the
bankruptcy trustee under sub-section (1), if that other party had notice at the time they became due that an
application for bankruptcy relating to the bankrupt was pending.
174. Distribution of interim dividend.—(1) Whenever the bankruptcy trustee has sufficient funds in
his hand, he may declare and distribute interim dividend among the creditors in respect of the bankruptcy
debts which they have respectively proved.
(2) Where the bankruptcy trustee has declared any interim dividend, he shall give notice of such
dividend and the manner in which it is proposed to be distributed.
(3) In the calculation and distribution of the interim dividend, the bankruptcy trustee shall make
provision for—
(a) any bankruptcy debts which appear to him to be due to persons who, by reason of the distance
of their place of residence, may not have had sufficient time to tender and establish their debts; and
(b) any bankruptcy debts which are subject of claims which have not yet been determined;
(c) disputed proofs and claims; and
(d) expenses necessary for the administration of the estate of the bankrupt.
175. Distribution of property.—(1) The bankruptcy trustee may, with the approval of the committee
of creditors, divide in its existing form amongst the creditors, according to its estimated value, any
property in its existing form which from its peculiar nature or other special circumstances cannot be
readily or advantageously sold.
(2) An approval under sub-section (1) shall be sought by the bankruptcy trustee for each transaction,
and a person dealing with the bankruptcy trustee in good faith and for value shall not be required to
enquire whether any approval required under sub-section (1) has been given.
(3) Where the bankruptcy trustee has done anything without the approval of the committee of
creditors, the committee may, for the purpose of enabling him to meet his expenses out of the estate of the
bankrupt, ratify the act of the bankruptcy trustee.
(4) The committee of the creditors shall not ratify the act of the bankruptcy trustee under
sub-section (3) unless it is satisfied that the bankruptcy trustee acted in a case of urgency and has sought
its ratification without undue delay.
176. Final dividend.—(1) Where the bankruptcy trustee has realised the entire estate of the bankrupt
or so much of it as could be realised in the opinion of the bankruptcy trustee, he shall give notice—
(a) of his intention to declare a final dividend; or
(b) that no dividend or further dividend shall be declared.
(2) The notice under sub-section (1) shall contain such particulars as may be prescribed and shall
require all claims against the estate of the bankrupt to be established by a final date specified in the notice.
(3) The Adjudicating Authority may, on the application of any person interested in the administration
of the estate of the bankrupt, postpone the final date referred to in sub-section (2).
(4) After the final date referred to in sub-section (2), the bankruptcy trustee shall—
(a) defray any outstanding expenses of the bankruptcy out of the estate of the bankrupt; and
111
(b) if he intends to declare a final dividend, declare and distribute that dividend among the
creditors who have proved their debts, without regard to the claims of any other persons.
(5) If a surplus remains after payment in full with interest to all the creditors of the bankrupt and the
payment of the expenses of the bankruptcy, the bankrupt shall be entitled to the surplus.
(6) Where a bankruptcy order has been passed in respect of one partner in a firm, a creditor to whom
the bankrupt is indebted jointly with the other partners in the firm or any of them shall not receive any
dividend out of the separate property of the bankrupt until all the separate creditors have received the full
amount of their respective debts.
177. Claims of creditors.—(1) A creditor who has not proved his debt before the declaration of any
dividend is not entitled to disturb, by reason that he has not participated in it, the distribution of that
dividend or any other dividend declared before his debt was proved, but—
(a) when he has proved the debt, he shall be entitled to be paid any dividend or dividends which
he has failed to receive, out of any money for the time being available for the payment of any further
dividend; and
(b) any dividend or dividends payable to him shall be paid before that money is applied to the
payment of any such further dividend.
(2) No action shall lie against the bankruptcy trustee for a dividend, but if the bankruptcy trustee
refuses to pay a dividend payable under sub-section (1), the Adjudicating Authority may order him to—
(a) pay the dividend; and Final dividend.
(b) pay, out of his own money—
(i) interest on the dividend; and
(ii) the costs of the proceedings in which the order to pay has been made.
178. Priority of payment of debts.—(1) Notwithstanding anything to the contrary contained in any
law enacted by the Parliament or the State Legislature for the time being in force, in the distribution of the
final dividend, the following debts shall be paid in priority to all other debts—
(a) firstly, the costs and expenses incurred by the bankruptcy trustee for the bankruptcy process in
full;
(b) secondly,—
(i) the workmen’s dues for the period of twenty-four months preceding the bankruptcy
commencement date; and
(ii) debts owed to secured creditors;
(c) thirdly, wages and any unpaid dues owed to employees, other than workmen, of the bankrupt
for the period of twelve months preceding the bankruptcy commencement date;
(d) fourthly, any amount due to the Central Government and the State Government including the
amount to be received on account of Consolidated Fund of India and the Consolidated Fund of a
State, if any, in respect of the whole or any part of the period of two years preceding the bankruptcy
commencement date;
(e) lastly, all other debts and dues owed by the bankrupt including unsecured debts.
(2) The debts in each class specified in sub-section (1) shall rank in the order mentioned in that
sub-section but debts of the same class shall rank equally amongst themselves, and shall be paid in full,
unless the estate of the bankrupt is insufficient to meet them, in which case they shall abate in equal
proportions between themselves.
112
(3) Where any creditor has given any indemnity or has made any payment of moneys by virtue of
which any asset of the bankrupt has been recovered, protected or preserved, the Adjudicating Authority
may make such order as it thinks just with respect to the distribution of such asset with a view to giving
that creditor an advantage over other creditors in consideration of the risks taken by him in so doing.
(4) Unsecured creditors shall rank equally amongst themselves unless contractually agreed to the
contrary by such creditors.
(5) Any surplus remaining after the payment of the debts under sub-section (1) shall be applied in
paying interest on those debts in respect of the periods during which they have been outstanding since the
bankruptcy commencement date.
(6) Interest payments under sub-section (5) shall rank equally irrespective of the nature of the debt.
(7) In the case of partners, the partnership property shall be applicable in the first instance in payment
of the partnership debts and the separate property of each partner shall be applicable in the first instance
in payment of his separate debts.
(8) Where there is a surplus of the separate property of the partners, it shall be dealt with as part of the
partnership property; and where there is a surplus of the partnership property, it shall be dealt with as part
of the respective separate property in proportion to the rights and interests of each partner in the
partnership property.