Who is an 'Undischarged Insolvent' under the Constitution of India?

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This is a very common question. Many a times, we get confused and decide to give dictionary meaning to this term. However, insolvency is a technical subject and it would not be appropriate to ascribe a general meaning to it especially in the context of our Constitution. Let us try to understand the meaning of ‘undischarged insolvent’ in the Constitution of India.

Under Section 2(8) of the Sale of Goods Act, an insolvent is defined as a person who had ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they become due, whether he has committed an act of insolvency or not.

Suffice it to say that, the general meaning of the word insolvent is that he is a person who is unable to pay his debts as and when they become due or whose assets are not sufficient to meet his obligations as and when they arise.

Now, let us see the provisions of our Constitution that have used this term.

Article 102 (1) (c) - A person shall be disqualified for being chosen as, and for being, a member of either House of Parliament if he is an undischarged insolvent.

Article 191 (1) (c) - A person shall be disqualified for being chosen as, and for being, a member of the Legislative Assembly or Legislative Council of a State if he is an undischarged insolvent.

Article 317 (3) (a) - Notwithstanding anything in clause (1), the President may by order remove from office the Chairman or any other member of a Public Service Commission if the Chairman or such other member is adjudged an insolvent.

Under the Sale of Goods Act, the question of insolvency of a buyer is of considerable importance in the context of the seller’s lien [Seller's Lien means the Legal right of a seller to retain title and possession of goods sold, until their price is paid in full]. It is in this special context a meaning is given to the expression ‘insolvent’(under the Sale of Goods Act) even though a person had not been adjudged an insolvent in the Insolvency Act to be insolvent. That definition cannot be imported into the Representation of People Act. The definition given in the Sale of Goods Act is merely declaratory in character. It does not differentiate between a discharged insolvent and an undischarged insolvent.

In the case of Thampanoor Ravi v. Charupara Ravi & Ors., the court said that the term used under article 102 and article 191 is ‘undischarged insolvent’ and not merely ‘insolvent’. We have the Provincial Insolvency Act of 1920. This act does not define the term ‘insolvent’. However, it does explain when a person could be adjudged as an ‘insolvent’. Once a person has been adjudged as an ‘insolvent’, under Section 41 of the Insolvency Act, it is provided that a debtor may apply to the court for an order of discharge and the court may grant or refuse such discharge.

Also, under Section 73 of the Insolvency Act, an order of insolvency has been considered as a disqualification to hold certain elective offices. Thus, the Insolvency Act is a complete code and determination of all questions regarding insolvency including a question as to whether:

(1) A person is an insolvent or not, or

(2) An insolvent be discharged or not and subject to what conditions, can be decided by the court constituted under that Act alone.

Article 191 and Article 102 do not contemplate mere impecuniosity or incapacity of a person to repay ones debts but he should not only be adjudged insolvent but also remain undischarged. Such a contingency could only arise under insolvency law. If the expression ‘undischarged insolvent’ has acquired a special meaning under the law of insolvency, we must understand that that is the meaning that is sought to be attributed to the expression used in our Constitution. Hence, when the Legislature has used the expression undischarged insolvent that expression must be given its full meaning.

Even under article 317, the meaning of ‘insolvent’ would be taken from the Provincial Insolvency Act. Article 317 uses the term ‘is adjudged an insolvent’. Now, a person could be adjudged an insolvent only by a competent court of law. The only competent court of law for adjudging an insolvent is one setup under the Provincial Insolvency Act.