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

Hind Reconstruction Co, a registered reconstruction company, acquired a loan which Patel Steels owes. The loan was secured by a charge on Patel's trade receivables, both existing and those to arise in future. Hind argues that receivables cannot be 'property' for security interest purposes. Under the Act's definitions, what is the position?

Receivables, whether existing or future, are expressly included in the Act's definition of property. A charge over them in favour of a bank or financial institution is therefore a security interest. The argument that receivables are excluded, or that only existing ones count, is wrong.

  1. AReceivables, whether existing or future, fall within 'property', so a charge on them can be a security interestCorrect
  2. BOnly immovable and movable property count, so receivables are excluded
  3. COnly existing receivables are property; future receivables are excluded
  4. DReceivables count only if they are intangible assets prescribed by the Reserve Bank

Explanation

The definition of 'property' lists immovable property, movable property, any debt or right to receive payment, and receivables, whether existing or future. Security interest includes a charge upon property created in favour of a bank or financial institution. So a charge on existing and future receivables qualifies; the 'only existing' option ignores the words 'whether existing or future'.

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