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CS Professional · Insolvency and Bankruptcy - Law and Practice · Bankruptcy for Individuals and Partnership Firms

A bankruptcy order is passed against Deepak Rao on 1 March. Canara Bank holds a mortgage over his flat as security for a loan. The bank takes no action to realise the security until 15 April. What is the consequence under the Code?

The bank keeps its right to realise the security but loses entitlement to interest after the bankruptcy commencement date, because it took no action to realise within thirty days of that date. The security itself is not extinguished by the delay.

  1. AThe bank loses its security interest entirely
  2. BThe bank is not entitled to interest on its debt after the bankruptcy commencement date, as it did not act within thirty daysCorrect
  3. CThe bank must hand the flat to the bankruptcy trustee and claim as an unsecured creditor
  4. DThe bank continues to earn interest because the order does not affect secured creditors

Explanation

The order does not affect a secured creditor's right to realise its security, subject to section 123. But if the creditor takes no action to realise within thirty days of the bankruptcy commencement date, it is not entitled to interest after that date. The security is not lost, so the first and third options overstate the consequence.

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