Extortionate credit transactions [ Section 50 & 51 ] - Insolvency Resolution And Liquidation For Corporate Persons - IBC

Extortionate credit transactions Section 50 and section 51 of the IBC deal with extortionate credit transactions. As per section 50 of the IBC, the liquidator or the RP may make an application to the AA for avoidance of an extortionate credit transaction. Where the corporate debtor is party to an extortionate credit transactions [ Section 50(1) ] Where the corporate debtor has been a party to an extortionate credit transaction involving the receipt of financial or operational debt during the period within two years preceding the insolvency commencement date, the liquidator or the resolution professional as the case may be, may make an application for avoidance of such transaction to the Adjudicating Authority if the terms of such transaction required exorbitant payments to be made by the corporate debtor. IBBI to specify [ Section 50(2) ] The Board may specify the circumstances in which a transactions which shall be covered under section 50(1). Exception of section 50 it is clarified that any debt extended by any person providing financial services which is in compliance with any law for the time being in force in relation to such debt shall in no event be considered as an extortionate credit transaction. Regulation 11 of the IBBI (Liquidation Process) Regulations, 2016 state that a transaction shall be considered an extortionate credit transaction under section 50(2) where the terms- (1) require the corporate debtor to make exorbitant payments in respect of the credit provided; or (2) are unconscionable under the principles of law relating to contracts. Order of Adjudicating authority [ Section 51 ] Where the Adjudicating Authority after examining the application made under section 50(1) is satisfied that the terms of a credit transaction required exorbitant payments to be made by the corporate debtor, it shall, by an order - (a) Restore the position as it existed prior to such transaction; (b) Set aside the debt created on account of the extortionate credit transaction; (c) Modify the terms of the transaction; (d) Require any person who is/ was, a party to the transaction to repay any amount received by such person; or (e) Require any security interest that was created as part of the extortionate credit transaction to be relinquished in favour of the liquidator or the resolution professional, as the case may be.