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CS Professional · Insolvency and Bankruptcy - Law and Practice · Insolvency Resolution of Individuals and Partnership Firms

Mehta Traders, a partnership firm, owes ₹8 lakh to a supplier under a contract. Of this, the supplier holds security covering ₹5 lakh, and the balance is unsecured. The firm also owes ₹50,000 as a court-imposed fine. Counting only the amounts that qualify, what is the amount of qualifying debt (ignoring the recency condition, which is not triggered)?

The qualifying debt is ₹3,00,000. A court-imposed fine is an excluded debt and a debt to the extent it is secured is also excluded, so only the unsecured ₹3 lakh of the supplier's claim counts as qualifying debt.

  1. A₹8,50,000
  2. B₹3,00,000Correct
  3. C₹8,00,000
  4. D₹3,50,000

Explanation

Qualifying debt excludes excluded debt and a debt to the extent it is secured. A fine imposed by a court is an excluded debt, so ₹50,000 is out. The ₹5 lakh secured portion is out. Remaining qualifying debt is 8,00,000 - 5,00,000 = ₹3,00,000. Option D wrongly adds back the fine to the unsecured part.

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