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

A bankruptcy order was passed against Karan on 1 March. Bank X, a secured creditor, takes no step to realise its security. Under section 128, what is the consequence for Bank X's interest claim?

Bank X forfeits interest on its debt after the bankruptcy commencement date if it does not act to realise its security within thirty days from that date. Its right to enforce the security itself is preserved under section 128(2).

  1. AIts security is extinguished from 1 March
  2. BIt loses the right to interest after the bankruptcy commencement date if it does not act to realise the security within thirty days from that dateCorrect
  3. CIt loses interest only if it does not act within ninety days
  4. DIt continues to earn interest indefinitely without acting

Explanation

Section 128(2) preserves the secured creditor's right to realise its security as if no order had been passed, but the proviso denies interest after the bankruptcy commencement date if no action to realise is taken within thirty days from that date. Security is not extinguished, and ninety days is not the period.

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