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CS Professional · Strategic Management and Corporate Finance · Raising of Funds from Debt and Procedural Aspects

Mehta Foods Ltd created a charge on 10 January in favour of Bank A, registered it on 20 February (within the permitted extension). Meanwhile, on 1 February, Mr Rao acquired a right over the same property. Which statement is correct?

Mr Rao's right is protected. The Act says subsequent registration of a charge does not prejudice any right acquired in the property before the charge is actually registered. Bank A's registration on 20 February was permitted, but it does not relate back to override his earlier right.

  1. AThe later registration does not prejudice the right Mr Rao acquired before the charge was actually registeredCorrect
  2. BBank A's charge relates back to 10 January and defeats Mr Rao's right
  3. CBank A's charge is void because registration exceeded thirty days
  4. DMr Rao's right lapses on registration

Explanation

A provision states that any subsequent registration of a charge shall not prejudice any right acquired in respect of any property before the charge is actually registered. Mr Rao acquired the right on 1 February, before the 20 February registration, so it is protected. Late registration is permitted with additional fees, so the charge is not void.

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