Section 167: Extortionate Credit Transactions under the Insolvency and Bankruptcy Code 2016
Section 167 of the Insolvency and Bankruptcy Code, 2016 deals with extortionate credit transactions involving a bankrupt. On an application by the bankruptcy trustee, the Adjudicating Authority may grant specified relief where the statutory requirements are satisfied.
Text of Section 167 - Extortionate Credit Transactions
(1) Subject to sub-section (6), on an application by the bankruptcy trustee, the Adjudicating Authority may make an order under this section in respect of extortionate credit transactions to which the bankrupt is or has been a party.
(2) The transactions under sub-section (1) should have been entered into by the bankrupt during the period of two years ending on the bankruptcy commencement date.
(3) An order of the Adjudicating Authority may-
(a) set aside the whole or part of any debt created by the transaction;
(b) vary the terms of the transaction or vary the terms on which any security for the purposes of the transaction is held;
(c) require any person who has been paid by the bankrupt under any transaction, to pay a sum to the bankruptcy trustee;
(d) require any person to surrender to the bankruptcy trustee any property of the bankrupt held as security for the purposes of the transaction.
(4) Any sum paid or any property surrendered to the bankruptcy trustee shall be included in the estate of the bankrupt.
(5) For the purposes of this section, an extortionate credit transaction is a transaction for or involving the provision of credit to the bankrupt by any person-
(a) on terms requiring the bankrupt to make exorbitant payments in respect of the credit provided; or
(b) which is unconscionable under the principles of law relating to contracts.
(6) Any debt extended by a person regulated for the provision of financial services in compliance with the law in force in relation to such debt, shall not be considered as an extortionate credit transaction under this section.
Meaning of Extortionate Credit Transaction
For Section 167, the Code identifies an extortionate credit transaction by reference to the terms on which credit is provided. The statutory definition covers credit requiring the bankrupt to make exorbitant payments or a transaction that is unconscionable under the principles of contract law.
Two-Year Look-Back Period
Section 167(2) limits the relevant transactions to those entered into by the bankrupt during the period of two years ending on the bankruptcy commencement date. Accordingly, the timing of the credit transaction is a threshold issue when relief is sought under this section.
Powers of the Adjudicating Authority
Where Section 167 applies, the Adjudicating Authority may grant one or more of the statutory remedies. These include setting aside all or part of the debt, varying transaction or security terms, directing repayment to the bankruptcy trustee, and requiring surrender of property of the bankrupt held as security.
Effect on the Estate of the Bankrupt
Section 167(4) provides that money paid or property surrendered to the bankruptcy trustee under the section becomes part of the estate of the bankrupt. The recovered value is therefore brought into the bankruptcy estate for administration in accordance with the Code.
Exception for Regulated Financial Services
Section 167(6) excludes a debt extended by a person regulated for the provision of financial services where the debt was extended in compliance with the law in force relating to that debt. This statutory exclusion must be considered before treating a credit arrangement as an extortionate credit transaction under Section 167.
Related Bankruptcy Provisions
Section 167 appears among the provisions governing administration of the estate of a bankrupt. It follows Section 166 on the effect of orders relating to certain antecedent transactions and precedes Section 168 on obligations under contracts.
This article provides general legal information. The current Code, applicable rules, regulations, notifications and judicial decisions should be examined for a specific case.