Law: Transfer of Property (Pakistan) Ordinance (IV of 1947)

Section: 3

  (a) Insolvency (Karachi Division and Dacca) Act (III of 1909) Ss. 49 & 12-Debts due to Government (including tax liability) have priority over all other debts-Secured creditor may stand upon security-Such creditor ranks not with preferential creditors mentioned in S. 49. Under section 49 of the Insolvency (Karachi Division and Dacca) Act (III of 1909), certain debts are to be paid in priority to all other debts and among these is mentioned the debts due to the Government which would of course include income-tax liability. The other dues mentioned in section 49 are not the debts of secured creditors and it would be an error to hold that the Government is a preferential creditor entitled to rank with secured creditors. Secured creditors are indeed placed in an entirely different category as various provisions of the Insolvency Act clearly show. Attention might particularly be paid to section 17 of Insolvency Act which expressly provides that despite the fact that upon the making of an order of adjudication the property of the insolvent vests in the Official Assignee and becomes divisible amongst his creditors, this provi sion is not to affect the power of any secured creditors to realise or otherwise deal with the security. When a petition for adjudica tion is made by a secured creditor then under subsection (2) of section 12 of the Insolvency Act the secured creditor has the option either to give up his security for the benefit of all the creditors and, in that case, to be treated in the same fashion as any other creditor or to state the value of his security and to be treated as an unsecured creditor for the balance. Due provision is made for this by rules 9 and 10 of the Second Schedule made under section 48 of the Insolvency Act which relate to the mode of proof by the secured creditor either for the entire sum if he had surrendered his security or for the balance after deducting the value of the security. The proposition, therefore, is correct that the secured creditor may stand upon the security and that he ranks not with the preferential creditors mentioned in section 49 but may realise his security as if there was no insolvency. (b) Insolvency…