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The Bankruptcy Act, 1997

 Introduction
 In Bangladesh there were two different laws – The
Insolvency (Dacca) Act, 1909 and the Insolvency Act,
1920 prior to the present Bankruptcy Act, 1997.
 It was enacted in 1997 and came into force on 1st
August, 1997 repealing both the previous Acts and re-
enacted the law on insolvency using the expression
“bankruptcy” in place of “insolvency”.
 It is to be noted that the present law substantially
follows the scheme and pattern of the previous Acts it
repealed.
 In general sense, a man is said to be bankrupt when he
is unable to pay his debts. But he cannot be called a
bankrupt unless he is declared bankrupt by a
competent Court.
 In the olden ages, the condition of a debtor was
pitiable and the creditors could cut the debtor’s body
into pieces.
 Then came the law of imprisoning the debtor and
subjecting him to stripes and hard labour and
sometimes selling him, his wife and children.
 At a later stage if the debtor ceded all his fortune to
his creditors, he was secured from being dragged to
jail.
• Then came the stage when it was realised that not all
defaults were deliberate and failure to pay may be due
to misfortune of the debtor.
• To cover the situation, the law of insolvency or
bankruptcy was enacted. The law had three specific
purposes
1. To adjudicate a debtor as bankrupt and to protect him
from harassment by the creditors ;
2. To arrange for realisation and equitable distribution of
his assets among the creditors in the most expeditious
and economical manner so that there may not be any
challenge over the assets and some creditors getting
undue preference to others, and
 3. To discharge the debtor after distribution of the
assets and giving him a new lease of life free
from the demands of his creditors so far with
respect of unsatisfied debts.
 The present law has a further purpose of taking
effective measures against defaulting borrowers
of the banks in Bangladesh who are in many
cases remains outside the reach of the old law of
insolvency particularly for the companies.
 Who can be declared Bankrupt?
 Any person, man or woman, who has attained
majority and is not a lunatic can be declared bankrupt
1) when he is a debtor and his assets are insufficient to
meet all his debts and
2) he has committed an act of bankruptcy.
 The old laws were applicable to natural persons and
were not applicable to legal persons like companies
and corporations.
 S.9 of the Insolvency Act, 1920 specifically excluded
such legal persons from the mischief of that law.
 The present law has a further purpose of making
provisions whereby the debts of companies and other
legal persons may be realised through the mechanism
of the bankruptcy law.
 Act of Bankruptcy
 To initiate a proceeding of bankruptcy, it has to be
seen whether the person proceeded against is a
debtor and whether he has committed an act of
bankruptcy. S.9 enumerates the acts of bankruptcy as
follows:
a) If in Bangladesh or elsewhere, the debtor makes a
transfer of all or substantial properties to a third
person for the benefit of his creditor.
b) If in Bangladesh or elsewhere, he makes a transfer of his
property or any part thereof, with the intent to defraud or
delay his creditors.
c) If in Bangladesh or elsewhere, he makes any transfer of his
property or any part thereof, which under the law of
insolvency or any other law be void as fraudulent
preference if he were adjudged bankrupt.
d) If with the intent to delay or defeat his creditors, the
debtor (i) departs from or remains out of Bangladesh, (ii)
departs from his dwelling house or usual place of business
or otherwise absents himself, (iii) secludes himself so as to
deprive his creditors of the means of communicating, or(iv)
submits collusively or fraudulently to an adverse decree,
judgment or order of any court or other authority.
e) If his property has been sold in execution of a decree
for payment of money.
f) If he files a plaint for being adjudged bankrupt.
g) If he gives notice to any of his creditors that he has
suspended payment of his debt.
h) If he is imprisoned in execution of a decree for payment
of money.
i) If one or more creditors, having a valid and matured
debt against the debtor for an amount of not less than
Tk. 5 lacs ( i.e. approximately US10,000/00) has served
notice demanding payment and the debtor has failed
to pay within 90 days of service of the demand.
• Bankruptcy Court, Its Power and Jurisdiction
• All the District Judges are bankruptcy courts and
empowering them to authorise Additional District Judge to
deal with and dispose of bankruptcy matters.
• Besides them, two other courts one in Capital City of Dhaka
and the other in Port City of Chittagong have been
established to deal with the Bankruptcy cases.
• Subject to the provisions of the Act, the bankruptcy courts
shall under s.5 have full power to decide all questions,
whether of title or priority, or of any nature whatsoever, and
whether involving matters of law or of fact, which may arise
in any bankruptcy, or which the court may deem it expedient
or necessary to decide to do complete justice or to make a
complete distribution of property.
• The power to decide all question of title and priority
includes the power to try a question of title raised on the
basis of a transfer which took place prior to the
presentation of the plaint for adjudication to decide all
questions of title to property as between the Receiver and
a stranger to decide a dispute between the purchaser of
property from the Receiver and the alleged transferee
from the bankrupt and hold that the transfer is fictitious or
to decide the title of a stranger in possession when he is
sought to be dispossessed by the purchaser from the
Receiver or to set aside not only alienation by the bankrupt
but also alienation by the bankrupt’s transferees, if the
transferees did not raise independent considerations and
depended on the title of the bankrupt’s transferee.
• Where a transfer by a bankrupt is declared void, a
subsequent transfer made by the transferee of the
bankrupt is also void.
• Where the estate has devolved on the bankrupt by
inheritance and there are creditors of his predecessor
and also his creditors; the question of priority
between the two classes has to be decided by the
bankruptcy court.
• The bankruptcy court shall have in respect of bankruptcy
proceedings the same powers as they have in the exercise of
original civil jurisdiction (s.6).
• Thus, the bankruptcy court has the power to set aside exparte
order to order rustication similar to that conferred by s.34 of
the C.P. Code to review its orders or to allow amendment of
the plaint but the bankruptcy court cannot refer to arbitration
proceedings in bankruptcy.
• Where default is made by a debtor in obeying any order or
direction given by the court, the court may order such
defaulting debtor to comply with the order or direction and
upon finding of good cause therefor may make an immediate
order for committal of such defaulting debtor or person in civil
prison (s.7)
• The procedure of the court shall be governed by the
Act and by the provisions of the Code of Civil
Procedure except s.11 thereof. (s.8).
• Appeal and Review
• From decisions and orders specified in s.96(5) appeal
shall lie to the High Court Division within 60 days of
the decision or order and to file the appeal notice
should be given to the bankruptcy court within 10
days of the decision or order.
• Such appeal has to be disposed of within 60 days from
the date of filing the Memorandum of Appeal.
• Against the non-appealable decision or order of
bankruptcy court and from decision or order of the
Receiver a review may be filed within 30 days of the
decision or order to the bankruptcy court or the
Receiver as the case may be and such review petition
has be disposed of within 30 days of filing of the
review petition. (s.99)
• Order of Adjudication
• Bankruptcy proceeding is initiated by filing of a plaint
either by a creditor or by a debtor. No plaint can be
accepted by a bankruptcy court against any
governmental organization, charitable or religious body,
statutory bodies whose principal object is not financial
gain and autonomous bodies established by or with
financial assistance of the government.(s.11(2))
• Conditions to be fulfilled for filing of plaint by a creditor
are specified in s.12. Important conditions are that the
debt owed by the debtor must be Tk. 5 lacs (i.e. apprx
i.e.US # 10,000/00) or more and the plaint is filed within
one year of committing the act of bankruptcy.
• In case of plaint by a debtor, the conditions
mentioned in s.13 have to be fulfilled. The plaint has
to be presented in the bankruptcy court having
jurisdiction in the local limits of which -
a) the debtor ordinarily resides or carries on business or
personally works for gain, or if he has been arrested
or is in custody, or
b) in the case of a debtor not being an individual, its
head office or registered office is situated (s.14).
• The plaint has to be verified in the manner prescribed
by C.P. Code (s.15). Notice of filing of the plaint has to
be given to the debtor.
• The court may at the time of making an order fixing
the date for hearing the plaint filed by a creditor may,
and the plaint filed by a debtor generally shall,
appoint an interim Receiver to take charge of the
properties of the debtor following the conditions set
forth in s. 64(1) and such Receiver shall have the
power of a Receiver under Order 40 of the Code of
Civil Procedure and also the powers specified in ss. 65
to 69 and 71 of the Act; as the court may direct.
(s.23).
• At the time of making order fixing a date for hearing or
at any subsequent stage, the Court may order
i. a debtor other than an individual debtor to designate an
individual as his representative to be called as
Responsible Officer and in default the Court may itself
designate one or more Responsible Officers who are
owners of or Directors, Chief Executives in relation to
the activities of the debtor,
ii. the debtor or Responsible Officer to prepare such report
gather such property, enter in to or refrain from such
transactions, appear at such meetings and hearings and
take such other actions as the court deems appropriate,
iii. debtor or Responsible Officer to give security for his
appearance in court,
iv. attachment by actual seizure of the whole or part of
the property in possession or under control of the
debtor, and
v. a warrant to issue for arrest of the debtor or
Responsible Officer who has failed to comply with any
order given under (ii) or (iii) above and has absconded
or departed from the local limits of the jurisdiction of
the Court or failed to disclose or has concealed,
destroyed etc. with intent to delay or defeat his
creditors or to avoid the process of the Court (S.24).
• Duties of the Debtor
• On fixation of the date of hearing of the plaint and
thereafter the debtor shall, as required by the
bankruptcy court or the Receiver, (a) produce all
books of accounts, (b) give such inventories of his
property and such list of his creditors and debtors and
of the debts dues to and from them, (c) submit to
such examination in respect of his property, his
creditors and debtors, (d) execute necessary
instruments in relation to properties, and (e) generally
do all such other necessary acts and things. (s.25(1).
• On fixation of the date of hearing of the bankruptcy
plaint and up to the time the plaint is dismissed; or
adjudication is made or adjudication is annulled or
until the court otherwise directs, the debtor shall be
barred from filing any civil case or take any legal action
against any creditor in respect of any claim.( s. 25(2)).
• Where a plaint is presented by an eligible creditor, the
debtor may within specified time file a short written
objection. (s.27).
• At the hearing, the court shall require proof of the
debt of the petitioning creditor and of the debtor’s act
of bankruptcy.
• If all the necessary facts are proved the court will
issue the order of adjudication. (s.30).
• By the order of adjudication, a debtor is declared
bankrupt.
• If the debtor appears and proves that he is not
indebted or he is able to pay his debts or that he is
nor a willful default (s.28(1)) or if he pays the amount
dues to the petitioning creditor no order of
adjudication will be passed ‘Willful default’ has been
defined to mean a debtor who is liable for bank debt
in excess of Tk. 5 lacs for a period of at least one year
after issue of formal demand.(s.28(1)).
• Effect of Order of Adjudication
• The order of adjudication passed by the bankruptcy
court takes effect from the date of presentation of the
plaint.
• The bankrupt is required to truly assist in realisation
of his property and the distribution of the proceeds
among his creditors. (s.31(1)).
• Upon passing of the order, all the properties of
debtor, except those exempted under se.32, vests in
the Receiver or in the court liable to distribution
among the creditors and are called “the Estate”.
(s.31(2)).
• No creditor can commence any suit or legal
proceeding against the Estate or exempted property
without the leave of bankruptcy court. (s.31 (3)), but
it will not affect the right of a secured creditor to
proceed against his security for realisation of his dues.
(s.31(4)).
• A suit or proceeding relating to a claim for money or
other property pending against the bankrupt on the
date of passing of the order of adjudication shall be
transferred to the bankruptcy court and appeals and
revisions arising from such suits or proceedings shall
be transferred to appellate court as specified in s.96
(s.33)
• Interim Proceedings Upon Adjudication
• Protection order. An adjudged bankrupt may apply to
the bankruptcy court for a protection order for
protection from arrest and detention for any debt and
the court may with notice to the creditors pass such
an order (s.35(1)) in respect of all or some of the
debts of the bankrupt and the court may revoke or
renew such order.
• A debtor shall not be arrested or detained for the
debt in respect of which the protection order is made
and if the bankrupt is in custody shall be released.
(s.35(3)).
• It is in the discretion of the court to grant or to make a
limited order or not to make a protection order at all.
• But the court should not refuse protection to the
bankrupt where prima facie the bankrupt has no
means at all having been stripped of all his property
which has become vested in the Receiver and there is
no proof that he has concealed assets.
• Creditors’ committee
• When the number of eligible creditors having claim of matured
debt of at least Tk. 5 lacs is more than 10, the court may form a
Creditors’ Committee who may adivse the Receiver in
discharge of his function and the Receiver is, as far as
practicable, to abide by such advise. (s.36)
• Power of Arrest After Adjudication
• At any time after adjudication, the court may order arrest of
individual debtor or Responsible Officer on the application of
the Creditors’ Committee or the creditors or the Receiver if the
individual debtor or the Responsible Officer absconds or
departs from the local limits of the court’s jurisdiction with the
intent to avoid any obligation under the Act and may detain
him in civil prison for three months.(s.37)
• Schedule of Creditors and Provable Debts
• After adjudication, all persons claiming themselves to be
creditors shall present in prescribed form a summarized
demand with particulars of debts and shall tender proof
of such debt and the court shall frame a schedule of such
persons and debts. (s.38).
• If some debts have not been included in the Schedule on
the ground that their value is incapable of fair estimation
and all debts and liabilities, present or future, certain or
contingent at the time of adjudication in case of debtors
other than individual debtors and at the time of discharge
in case of individual debtors shall be provable under this
Act unless the court otherwise determines.(s.39).
• Annulment of Adjudication
• Where it appears that the adjudication order ought
not to have been passed or the debts have all been
paid in full, the court may annul the adjudication. (ss.
40 to 42).
• Composition, Arrangements and Reorganization
• After an order of adjudication is made, the debtor can
come to an understanding with the creditors on
payment of the debts.
• Such understanding or settlement may be of two
types: (i) “composition” of the debts or (ii) “scheme of
arrangement”.
• When the debtor pays immediately, or by agreed
instalments some money to the creditors less than
what is due to them and the latter agree to accept
such lesser amount in full satisfaction of their claims,
there is said to be a composition of the debts.
• On the other hand, when the debtor and the creditors
agree to a scheme by which the debts are gradually
liquidated there is said to be a “scheme of arrangement”.
• A proposal for composition or arrangement submitted by
a debtor to the court is to be examined by the Receiver
who is to prepare a report on it.
• If two-third in value of all creditors whose debts are
proved resolve to accept the proposal, the court may
after hearing and considering the report of the Receiver
refuse to approve the proposal if it is of opinion that the
terms of the proposal are not reasonable or not
calculated to benefit the general body of creditors. (s. 43).
• No composition or scheme of arrangement shall be approved
which does not provide for the payment of the debts specified
in s.75 in priority to other debts.
• In cases other than those mentioned in sub-sections (1) to (6) of
s. 43, the court has discretion either to accept or refuse the
proposal.
• Thus even though the creditors do not consent to the proposal
under s. 43(2), the court may approve the proposal under s.
43(7), but some exceptional circumstances would be necessary
before the court to approve.
• If the proposal is approved, the court shall specify the terms of
approval and about the order of annulment of adjudication and
on approval, the composition or scheme of arrangement shall
be binding on all creditors. (s.44).
• If the debtor fails to pay instalments in terms of
composition or scheme or it appears to the court that
the composition or the scheme cannot be
implemented without injustice to the creditor or
undue delay or the approval of the court was
obtained by practicing fraud, the court may annul the
composition or scheme and re-adjudge the debtor
bankrupt (s.45).
• A debtor other than an individual debtor who is
described as ‘ eligible debtor’ may before or after
adjudication apply to the court to reorganize his debts
stating the grounds therein along with a plan of
reorganization.
• The court shall have the report from the Receiver and the
eligible creditors may file written objection or suggestion
with regard to the proposal and if two-third in value of all
the creditors give written consent to there organization
plan, the court upon consideration of the report of the
Receiver and the objection and suggestion of the creditors
and upon consideration of the national interest, interest
of creditors and interest of the debtor make a
reorganization order.
• In making the reorganization order, the court may make
modification in the plan or reorganization and may
impose conditions as may be necessary to protect the
interest of dissenting creditors, various classes of
creditors and the general body of creditors.
• There organization order shall be binding on the debtor and all
creditors so far as it is related to any debt provable under the
act.
• On making the reorganization order, the order of adjudication,
if already passed, shall stand annulled. (s.46(7)).
• The court may, however, modify or annul the reorganization
order under circumstances specified in s. 46(13) and incase of
annulment of the reorganization order, the court shall proceed
to make an order of adjudication which shall relate back to the
date of filling the plaint.
• It may be noted that an eligible debtor is not entitled to an
order of discharge under Chapter V, but can have a discharge
only pursuant to the terms of an approved plan of
reorganization (s.46(11)(d)).
• Discharge of Bankrupt
• Chapter V deals with discharge of bankrupts. This
chapter is applicable only in case of individual
bankrupts.
• The order of discharge is an order by which the
bankrupt is released from the burden of his pre-existing
debts (except few specified debts) and is relieved of the
personal disqualification, which follows from
bankruptcy.
• From the date of the order of adjudication, an
individual debtor becomes an “undercharged bankrupt”
and after the order of discharge, the term “bankrupt”
cannot be applied to him.
• Effect of Order of Discharge
• An absolute order of discharge (i) releases the bankrupt
from all debts which were provable in bankruptcy and (ii)
removes the personal disqualifications from which an
undischarged bankrupt suffers, e.g., inability to hold
certain posts.
• But the order does not release the bankrupt from (a) the
debts due to the Government, (b) the debts or liability
incurred by means of fraud or breach of trust, (c) debt or
liability in respect of which the bankrupt has obtained
forbearance by means of fraud and (d) any order for
maintenance in favour of wife or children of the bankrupt
insolvent issued under the Code of Criminal Procedure.
• The bankrupt is bound to meet these obligations from his
after-acquired property or earnings.(s.51(1)).
• The order of discharge does not terminate the
bankruptcy proceedings. It terminates the bankruptcy
proceedings only so far as the bankrupt is concerned.
• The court retains power to direct the distribution of the
properties remaining in the hands of the Receiver and in
case there was an error in their distribution, the
bankruptcy court has power to direct redistribution.
• A creditor who failed to prove his claim before discharge
can prove his claim after discharge provided there are
assets in the hands of the Receiver and he can be paid
without disturbing the previous distribution.
• Disqualification of Undischarged Bankrupt
• An undischarged bankrupt shall be disqualified in the
following matters until the order of adjudication is
annulled or the court makes an order discharging him:
a) election as a member of Parliament or of a legal
authority or other statutory body or sitting or voting
in the proceedings thereof;
b) appointment of a Judge, Magistrate, Justice of Peace
or any other office in the service of the Republic or
acting as such;
c) appointment as a Receiver or acting as such;
d) obtaining loan from bank or financial institution.
• Administration of Property
• The present Act has omitted the definition of secured
creditor. However, the language of s. 54 leaves no
doubt that the expression in s.54 means a person
whose claim for money is secured by mortgage of, or
charge or lion on a property.
• Thus a bank lending money against the personal
guarantee of a borrower or a third person is not a
secured creditor.
• The position of secured creditor is different. Where he
realises his security, he may prove for the balance
dues deducting the amount realised.
• But if he has not realised the security before the order of
adjudication, the property subject to the security vests in the
Receiver who subject to the direction of the court finally
determine the realisable value of the property and if it is
sufficient to satisfy the secured creditor’s claim proved in court,
the Receiver shall sell the property and pay the secured creditor
and the balance, if any, shall form part of the Estate.
• If the realisable value is not so sufficient, the Receiver shall, at
the option of the secured creditor, sell the property and pay the
proceeds to the creditor subject to some deductions or deliver
such property to the secured creditor and the secured creditor
may claim against the Estate for the deficiency along with other
creditors. The secured creditor may relinquish his security in
favour of the Estate and may prove for whole debts. (s.54).
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