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CS Professional · Corporate Restructuring, Valuation and Insolvency · Debt Recovery and SARFAESI

Kaveri Infra issued listed secured debentures. It defaulted, and the debenture trustee served a notice of ninety days on it. The dues remain unpaid in part. The trustee is registered with SEBI and appointed for secured debt securities. Which conclusion follows under the Recovery of Debts and Bankruptcy Act, 1993?

The unpaid liability is a debt and the trustee is a financial institution. The Act includes liability on debt securities left unpaid after a ninety-day notice by the debenture trustee, and expressly treats a SEBI-registered debenture trustee for secured debt securities as a financial institution.

  1. AThe unpaid liability towards debt securities is included in 'debt' and the trustee is a financial institutionCorrect
  2. BThe liability is not a debt because debentures are not loans from a bank
  3. CThe liability is a debt only if the trustee is a public financial institution
  4. DThe trustee is a bank, so the liability is a debt

Explanation

Debt includes liability towards debt securities that remains unpaid in full or part after a ninety-day notice served by the debenture trustee. A debenture trustee registered with the Board and appointed for secured debt securities is expressly a financial institution. So both parts hold, and the trustee is not a bank.

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