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CS Professional · Insolvency and Bankruptcy - Law and Practice · Debt Recovery and Securitization

Canara Fin, a financial institution, sold to Vega ARC (a registered reconstruction company) a non-performing loan to Dev Plastics. The loan was an unsecured one and had been assigned by Canara Fin. Dev argues that the dues cannot be a 'debt' under the Act because the loan is unsecured and was assigned. Which statement is correct?

Dev's argument fails. The Act defines debt as liability claimed as due by a bank or financial institution, whether secured or unsecured, or assigned, provided it is subsisting and legally recoverable on the application date. Being unsecured and assigned does not exclude the dues from debt.

  1. AThe definition covers liability claimed as due whether secured or unsecured, or assigned, so Dev's argument failsCorrect
  2. BOnly secured liabilities are debt, so Dev is right
  3. CAssigned liabilities are excluded from debt, so Dev is right
  4. DUnsecured liabilities qualify but assigned ones do not

Explanation

The definition of debt covers any liability, inclusive of interest, claimed as due by a bank or financial institution during its business, in cash or otherwise, 'whether secured or unsecured, or assigned'. It must also be subsisting and legally recoverable on the date of the application. Neither unsecured nature nor assignment takes it outside the definition.

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