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      Question

      Section 13(7) of the SARFAESI Act deals with the

      application of money received by the secured creditor after taking action under Section 13(4). In the absence of any contract to the contrary, in what order should the money received be applied?
      A First, discharge of secured creditor's dues; second, costs and expenses; third, residue to the borrower Correct Answer Incorrect Answer
      B First, residue to the borrower; second, costs and expenses; third, dues of secured creditor Correct Answer Incorrect Answer
      C First, costs, charges and expenses; second, discharge of secured creditor's dues; third, residue to the person entitled Correct Answer Incorrect Answer
      D Equally between the secured creditor and the borrower Correct Answer Incorrect Answer
      E First, workmen's dues; second, dues of secured creditor; third, costs and expenses Correct Answer Incorrect Answer

      Solution

      Section 13(7) provides that where action is taken against a borrower under Section 13(4), all costs, charges and expenses properly incurred are recoverable from the borrower. The money received by the secured creditor shall, in the absence of any contract to the contrary, be held in trust and applied in the following order: FIRST - payment of such costs, charges and expenses; SECOND - discharge of the dues of the secured creditor; and THIRD - the residue shall be paid to the person entitled thereto in accordance with his rights and interests (typically the borrower or subsequent encumbrancers). This priority of application is an important procedural safeguard ensuring that enforcement costs are recovered first before principal.

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