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Rights and the liquidation process:-
- Rights of Secured Creditors:
- Secured creditors, like Hansraj Gupta, have a special right. They have a claim on certain assets of the company as a guarantee for the money they lent.
- Priority in Asset Distribution:
- During liquidation (when a company is being closed down), secured creditors have a higher priority in getting their money back compared to unsecured creditors. They get paid from the sale of the assets they were promised.
- Protection for Investments:
- This system ensures that people or businesses who lend money to companies are protected. They are more likely to invest or lend money to businesses knowing they have a guarantee to get their money back even if the business runs into trouble.
- Legal Support and Enforcement:
- The law (like the Indian Contract Act) supports and enforces these rights of secured creditors. It ensures that the promises made to secure the loans are legally valid and can be enforced in court.
- Balancing Business Stability and Creditor Protection:
- These rules strike a balance, making sure businesses can operate smoothly and grow while also safeguarding the interests of those who have lent money to these businesses. It’s a win-win to keep the business world stable and fair.