Loopholes of The Bankruptcy Act, 1997

 1. Abstract:

In ancient times, the condition of the bankrupted or insolvent person was pitiable. Since they were considered as criminals, the creditors could cut the debtor’s body into pieces and threw them in the sea because of non-payment of the debts. Besides, their wives and children used to sold and tortured as slaves. Then came the law with another form of brutality. The debtors got imprisoned subjecting him to hard labour. At the later stage, the creditors got started to confiscate the properties of the debtors in order to release their claims in an illegal way and only on that fact the debtors got secured from jail.

Such attitudes of the earliest society and the legal concepts were really very cruel and unpleasant. It is considered that the debtors should not be treated like a criminal. All the defaults made by him may not be deliberate. It may happen due to his misfortune. To cover up the situation, the law of bankruptcy or insolvency was enacted with a motive to protect the debtors from harassment by the creditor, to arrange equitable distribution of his assets between the creditors in a good manner so that the creditors gets their undue preference and to discharge the debtors from all liabilities and giving him a new life free from the demands of the creditors.

2. Background of the Act:

Bangladesh inherited two laws into its legal system when it was a part of British-India.

ü  The Presidency Towns Insolvency Act, 1909

ü  The Provincial Insolvency Act, 1920

These two laws were enforceable until 1997. The Bankruptcy Act, 1997 was enacted on 15th September, 1997 and coming into force on 31st December, 1997 as a repeal law. It has repealed both the said acts and re-enacted the law of insolvency replacing the expression “Bankruptcy” in place of “Insolvency”. The present law of insolvency substantially follows the schemes and patterns of this Act. One of the reasons of the enactment of the act is, during the mid-nineties there grew a loan defaulting culture among the businessman community. They were not paying back the borrowed money which was opposed to the public policy and the economical condition was in a great danger.

3. Conceptual overview of the Act:

The Bankruptcy Act, 1997 deals with bankruptcy of individuals only. It holds around nine chapters including 119 sections. Under The Bankruptcy Act, It is the power of the District Court to deal with and dispose the bankruptcy proceeding. The District judges may authorize the Additional District Judges under this proceeding. This court has the full power to decide all the questions arising out the bankruptcy proceeding.

A man is considered to be a bankrupted when he is unable to pay his debts but he is not said to be a bankrupted until he is declared as a bankrupt by a competent court. Section-12 and section-13 deals with some conditions for filing a plaint before the court by the creditors as well as the debtors where the debtor is expected to be a bankrupt. The court decides a person whether he is a bankrupted or not depending on some acts of bankruptcy on the part of the debtor. Section-09 of the Act consists with 10 acts of bankruptcy and under the fulfillment of those performances, the debtor is considered to be a bankrupt.

This Act is totally reorganized the whole economical system with a new dimension and method on the ground of insolvency law by placing some effective and fair observations. Firstly, it safeguards the interests of the creditors by distributing the debtor’s assets in an equitable manner as far as possible. On the other hand, it also protects the debtor by releasing him from his unpaid debts and the disqualifications relating to the bankruptcy by giving him a ‘Fresh Start’ of a new life. At this stage of development, the law of Bankruptcy abide by the following rules and regulations repealed by The Bankruptcy Act, 1997.

ü  Constitution, Power & Procedure and Jurisdiction of court

ü  Acts of bankruptcy, Plaint of submission

ü  Order of Adjudication

ü  Interim proceedings consequent upon the order of adjudication

ü  Annulment of adjudication Composition.

ü  Arrangement and Reorganization

ü  Discharged and Undischarged Bankrupts

ü  Distribution of debtor’s property

ü  Realization of property

ü  Disqualifications of Undischarged Bankrupts

ü  Appeal and Review

ü  Offences and Penalties.

4. Loopholes of the Act:

Although The Bankruptcy Act, 1997 is practically convenient and has enacted with the aim for the purpose to have action for recovering the creditor’s claims against the debtors, as a recovery law, to facilitate fast recovery of defaulted loan and to get rid of the loan defaulted culture, but it is a matter of sorrow that the Act could not run towards its goal diligently. It is found that this Act could not successful as a recovery law by facilitating the realization of public money from the business persons or individual who has failed to pay their debts.

ü  The loopholes of The Bankruptcy Act, 1997 are described below:

I. Failed to appreciate the philosophical perspective behind the two existing laws:

The Presidency Towns Insolvency Act, 1909 and The Provincial Insolvency Act, 1920 was the two existing Act in the British-Indian period of Bangladesh. This two Acts was based on the principal of humanity where a debtor is allowed to have a ‘Fresh Start’ of life after realization of his debts. But The Bankruptcy Act, 1997, as a recovery Act, fails to accept this principle. The sole issue of the law is only to release the debt from the debtor at any cost which is directly opposed to the said motive. Thus, it is said that The Bankruptcy Act, 1997 has failed to enunciate as a full and fair recovery law.

II. Causation of enactment The Money Loan Courts Act, 2003:

Though The Bankruptcy Act, 1997 serves to recover the claim against the debtors but in practical sense it is failed to perform the early loan recovery. More than 85% orders/decisions of the newly established Bankruptcy courts were challenged before the High Court Division of the Supreme Court of Bangladesh under revisional jurisdiction and thereby it is a frustrating purpose for early loan recovery. Thus, the Government had to resort to enact a new recovery law called The Money Loan Courts Act, 2003.

III. Enacted without mentioning the reasons of enactments:

The preamble of The Bankruptcy Act, 1997 without assigning specific reasons for such enactment only provided that this law is expedient relating to management of bankruptcy issues in Bangladesh. As so, there arise a question to the fact that why it was found to be necessary to enact a new law on the same purpose.

IV. Bar to submission of a plaint against statutory bodies:

Section-11 (2) of The Bankruptcy Act, 1997 deals with the persons subject to bankruptcy proceeding. This section lay down that no plaint shall be accepted by the court against any Governmental organizations includes parliament and a judicial body, any charitable or religious body, any statutory body or any autonomous governmental body dealing with financial assistance.

Here, this act gives full freedom and independency to the Governmental bodies without placing any bar or bindings upon its performance. Besides, it is sometimes very unpleasant that all the statutory bodies are not always under fair part of their performance, they may also found to be corrupted. So, this section seems to be inappropriate on the principle that ‘No one is beyond the law’.

V. No specific timeframe of the repayment of debts:

A recent study on a report published by ‘The Daily Star’, Bangladesh Bank is seek for some recommendations of The Bankruptcy Act, 1997. The unscrupulous borrowers usually keep disputed assets as collateral to take loans which then create a tough situation for the lenders to recover the loan, said Imran Ahmed Bhuiyan, a deputy attorney general. When the lenders try to auction off the properties put up as collateral, they were sending back from to take auction sell as the properties are disputed. In the later, it contains a huge period of time to overcome those disputes. So, the problem with the existing Bankruptcy Act is that there is no specific timeframe by which the creditors will get their funds back after the court declares the defaulters as bankrupt.

VI. No scope to file a case:

It is not possible to file a case under The Bankruptcy Act, 1997. As the creditors are often found difficulties to the recovery of their payment due to the fraudulent attempt taken by the debtors by presenting false documents or shares of their properties, it is found to be needed a ground to sue against the debtor. But the said Act didn’t enunciate one of those limitations anyhow in any manner.

VII. Limited number of Bankruptcy court:

This legal error of bankruptcy law is very common in our country and it gets increasing day by day but the legal authorities could not get rid over this due to the insufficient number of governmental bodies. So the government should set up a dedicated bankruptcy courts in every district to speed up the proceedings.

VIII. Lengthy Procedure:

The procedure of the bankruptcy proceeding mentioned in this Act is quite lengthy and hazy. To get the payment back, the creditors has to run through a long way as there is no timeframe of the order of adjudication. Sometimes, the creditors failed to file a plaint before the court as it is under a long process and several numbers of conditions has to be fulfilled thereon. The proceeding is supposed to be on a time-bound manner.

IX. Only the jurisdiction of the court is not enough:

In India, they even have a Bankruptcy Board of India to oversee the bankruptcy proceedings.5 But in Bangladesh, the proceeding of the bankruptcy act is only bound under minimum number of courts which found tackles to dispose all the defaults under this ground. So, it is considered that this act is seek for a need to the formation of committee, Board of authorities and some other legal bodies in the field of bankruptcy law.

5. Conclusion: In no doubt, the Bankruptcy Act has been formed to give relief the debtors from pressure of burdens of his creditors. The Act protects the debtors from any inhuman torture of the creditor, arrest and detention for any debt. But it is obvious that some provisions of the Act need to be amended with some recommendations for a fair trial and justice to speed up the recovery of debts. Therefore, it requires a careful consideration and a wide study for the fulfillment of such needs or new enactment to meet up the upcoming challenges and to serve the desired purposes under the insolvency law.

Written By ---
Tanwee Saha
Department of Land Management & Law
Jagannath University, Dhaka