When an insolvency petition has been filed in the Court, in respect of a customer of the bank, the bank shall immediately stop paying cheques drawn by the customer irrespective of cheque dated before or after the date of the petition. While dealing with such accounts, bankers need be to extra careful. Any act of stopping the operation by the bankers on wrong information received by them may put them in embarrassment and difficulty.
Once the customer is adjudicated as insolvent by the Court, the relation between the bank and insolvent customer stands terminated. All assets of the insolvent person vests with Court Receiver/Official Assignee appointed by the Court ,who would distribute (administer ) the assets of the insolvent to the Creditors as per procedure laid down in the Presidency Towns Insolvency Act 1909/ Provisional Insolvency Act 1920. No account should be opened in the name of an un-discharged insolvent. Minors, Lunatics, Corporations cannot be declared as insolvent.
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