CS Executive · Company Law and Practice · Charges
Gujarat Steels Ltd. went into liquidation. It had created a charge in favour of Lender X, which was never registered, and no certificate of registration was issued. Which statement is correct under Section 77(3) and (4)?
The liquidator need not take the unregistered charge into account, but the lender's contract or obligation for repayment of the secured money remains unaffected. Section 77(3) denies effect to the security without registration and certificate, while Section 77(4) saves the debt, so the lender becomes an unsecured creditor.
- AThe liquidator need not take the charge into account, but Lender X's contract for repayment of the money is not prejudicedCorrect
- BThe charge is valid against the liquidator, but the debt itself is extinguished
- CBoth the charge and the obligation to repay the money become void
- DThe charge is valid if Lender X holds the original instrument
Explanation
Section 77(3) says an unregistered charge, without a certificate, is not taken into account by the liquidator or any other creditor. Section 77(4) preserves any contract or obligation to repay the money secured. The debt survives; only the security effect is lost. The option saying the debt is extinguished is therefore wrong.
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