CA Inter P2 · Chapter 5 · Question 7 of 10
Peak Ltd borrowed ₹50 lakh from a bank against a charge on its machinery but never registered the charge. Peak Ltd later went into liquidation. Which of the following is correct?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The charge is not taken into account by the liquidator, but the bank can still prove for the ₹50 lakh as an unsecured creditor
Explanation
Under section 77(3), a charge is not taken into account by the liquidator or any creditor unless it has been registered and a certificate of registration issued. Section 77(4) adds that this does not prejudice any contract or obligation for repayment of the money secured. The bank loses its security but the debt survives, so it ranks as an unsecured creditor.
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