Bankruptcy Laws in India
- Indian law has various guidelines in place for bankruptcy.india image by giantorre from Fotolia.com
Created to assist individuals and businesses when their finances become unsustainable, bankruptcy laws exist in many countries across the world, including India. Since 1874, bankruptcy laws have existed in India in various forms, both to separate the assets of a business or individual from those of the family and to protect those family assets from creditors. - In 1874, the Indian government passed the Married Women's Property Act. This allows a married man to name an insurance policy in benefit of his wife and children, and thus protect it from creditors. Even if a widower or divorced, a man can still take out an insurance policy under this act and name it in the benefit of the children. This act was the first of its kind in India and was the first law to protect any assets of an Indian citizen from creditors. Passed at a time when married women rarely owned any property on their own, the act protects the policy beneficiaries from taxes and even bankruptcy proceedings.
- Passed in 1909, this act provides a basic bankruptcy code for citizens living in Calcutta, Madras and Mumbai. Having jurisdiction over the far-reaching Provincial Insolvency Act passed some years later within these three cities, this act thoroughly discusses the requirements of "insolvency," or bankruptcy, who qualifies as insolvent and how creditors may proceed. The court considers the debtor insolvent when he submits his petition to the government under this act.
- Passed in 1920, the Provincial Insolvency Act bears many similarities to the Presidency Towns Insolvency Act, but covers the rest of India, as opposed to only the three cities. Differing from the former act, the court does not immediately consider the debtor insolvent and must wait for the court to send notices to him creditors. Once the creditors respond to the court's notice, only then does the government consider him insolvent and proceedings may begin.
- While these acts present some basic bankruptcy protections, India lacks a strong bankruptcy code. Some companies have asked the government to rectify this and craft a new set of laws for the protection of both creditors and debtors. The current laws don't provide a firm set of instructions for liquidation of assets. In the case of corporations, everyone on the board of directors must agree to the terms, not just a majority. Also, it can take up to seven years to close a business, and thus a window exists for debtors to potentially take advantage of the time lag to the creditor's detriment.
