Banking · Charges and Securities
A large textile conglomerate, 'Indo-Fabrics Ltd', obtained a working capital limit from a consortium of banks secured by a floating charge on its stocks and book debts. During financial distress, a receiver is appointed by debenture holders while tax authorities attempt to freeze accounts for unpaid GST. In this legal context, what is the effect of 'Crystallization' of the floating charge regarding the bank's rights over the stock?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank loses its right because floating charges are not recognized as secured interests.
- 2Crystallization applies only to immovable property, so tax authorities retain priority over stock.
- 3The floating charge crystallizes into a fixed charge upon appointment of a receiver, giving the bank priority over subsequent claims.✓
- 4The charge remains floating until the bank sells the assets, giving tax authorities first right.
Correct answer
The floating charge crystallizes into a fixed charge upon appointment of a receiver, giving the bank priority over subsequent claims.
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