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CS Professional · Insolvency and Bankruptcy - Law and Practice · Adjudication and Appeals for Corporate Persons

During the liquidation of Sundar Auto Ltd, the liquidator finds a loan taken by the company at exorbitant terms from a related lender. After the Adjudicating Authority is satisfied on an application that the terms required exorbitant payments by the corporate debtor, which order is NOT among those the Code empowers it to pass?

The Adjudicating Authority cannot direct imprisonment of the lender in an extortionate credit order. It can restore the earlier position, set aside the debt, modify the terms, require repayment of amounts received, or require security interest to be relinquished to the liquidator or resolution professional.

  1. ARestore the position as it existed before the transaction
  2. BModify the terms of the transaction
  3. CRequire the lender to repay amounts received and relinquish the security interest in favour of the liquidator
  4. DDirect that the lender be imprisoned for the transactionCorrect

Explanation

Section 51 lists restoring the earlier position, setting aside debt, modifying terms, requiring repayment of amounts received, and requiring relinquishment of security interest. Imprisonment is not an order available under it, so that option is the one not empowered.

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