It is a well-settled position under the Insolvency and Bankruptcy Code (IBC) that once a resolution plan is approved by the Committee of Creditors (CoC) in accordance with Section 30(4), and it fulfils all the requirements stipulated under Section 30(2), the Adjudicating Authority (NCLT) is mandated, under Section 31(1), to approve the resolution plan by way of an order. Upon such approval, the resolution plan becomes binding on the corporate debtor and all stakeholders, including its employees, members, creditors, and even the Central Government, State Government, and local authorities to whom statutory dues are owed under any law for the time being in force. It is also binding on guarantors and any other persons connected with the resolution plan. This binding nature ensures legal certainty, enforces discipline among stakeholders, and facilitates the effective implementation of the resolution plan for the revival of the corporate debtor.
Section 30(2) lays down the mandatory compliance checks that a Resolution Professional (RP) must conduct before presenting a resolution plan to the CoC. These checks are intended to ensure that the resolution plan is legally sound, financially fair, and consistent with the objectives of the Code. Specifically, the RP must verify that the plan:
1. Provides for the payment of the insolvency resolution process costs in priority to all other payments;
2. Pays the debts of Operational Creditors (OC) in a manner that is not less than what they would receive in liquidation under Section 53;
3. Ensures that Financial Creditors (FC) who do not vote in favor of the plan receive at least the amount they would get in liquidation;
4. Provides the implementation and supervision of the resolution plan;
5. Does not contravene any provisions of the law in force;
6. Complies with any other requirements as specified by the Board (Insolvency and Bankruptcy Board of India or IBBI).
These safeguards are crucial to maintain the integrity of the insolvency process, protect the interests of various stakeholders—particularly operational creditors—and ensure the resolution plan is equitable, lawful, and viable before it is considered for approval by the CoC.
Amendment in clause (b) of Section 30(2) of IBC.
It is pertinent to mention that clause (b) of Section 30(2) was substituted by the Insolvency and Bankruptcy Code (Amendment) Act, 2019 (Act No. 26 of 2019), dated 05.08.2019, and brought into effect from 16.08.2019 vide Notification S.O. 2953(E).
Prior to substitution, clause (b) of Section 30(2) read as under-
“(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than the amount to be paid to the operational creditors in the event of a liquidation of the corporate debtor under section 53.”
After said amendment, clause (b) of Section 30(2) read as under-
“(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than-
(i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section53; or
(ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53,
whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor.
Explanation 1.-For removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors.
Explanation 2.-For the purpose of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause shall also apply to the corporate insolvency resolution process of a corporate debtor-
(i) where a resolution plan has not been approved or rejected by the Adjudicating Authority;
(ii) where an appeal has been preferred under section 61 or section 62 or such an appeal is not time barred under any provision of law for the time being in force; or
(iii) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan;”
The purpose of the amendment to clause (b) of Section 30(2) was to clarify and protect the interests of operational creditors, and ensure fair treatment in resolution plans, especially in relation to the liquidation value they would otherwise be entitled to. An Explanation-1 was inserted after clause (b), which reads “For the removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors.”
The Explanation makes it clear that operational creditors must not be discriminated against in the distribution of payments under a resolution plan. They must receive at least what they would be entitled to under liquidation, and this distribution must be fair and equitable, not just formal or minimal. Prior to this amendment, resolution plans often favored financial creditors while offering nominal or negligible amounts to operational creditors. The Explanation was introduced to clarify legislative intent and reduce disputes over whether operational creditors were being treated fairly.
The amendment to clause (b) of Section 30(2) — specifically, the insertion of the Explanation — was aimed at ensuring that resolution plans are not only compliant in form but also fair in substance, especially to operational creditors, by emphasizing equity in distribution and preventing arbitrary or symbolic payments.
Before the amendment, there was uncertainty about what Dissenting Financial Creditors (DFC) (i.e., those who vote against the resolution plan) were entitled to receive. Some resolution plans offered them less favorable terms or lower payouts than other financial creditors who voted in favor. The amendment guarantees that a DFC must receive at least the amount they would be entitled to in liquidation, even if they vote against the resolution plan. This amendment protects them from being penalized for dissenting. It assures that all financial creditors, even dissenting ones, have a guaranteed liquidation floor, encouraging balanced participation in the voting process. By referencing Section 53(1), the amendment harmonizes resolution payouts with liquidation entitlements, upholding the overall scheme of the Code.
With the amendment to clause (b) of Section 30(2), which ensured that DFC receive at least the amount payable to them under Section 53 in case of liquidation, sub-section (4) of Section 30 was also amended by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (Act No. 26 of 2018), effective from 06.06.2018. The purpose of this concurrent amendment to Section 30(4) was to enhance the decision-making framework of the CoC by mandating that the CoC, while approving a resolution plan, must not only consider its feasibility and viability, but also take into account other requirements as may be specified by the IBBI, including the treatment of DFC(s) and OC(s).
Amendment in Section 30(4) of IBC.
Section 30(4) has undergone multiple amendments to strengthen the decision-making framework of the CoC. Initially, sub-section (4) required the approval of a resolution plan by a vote of not less than seventy-five percent of the voting share of the financial creditors. This version was substituted by the Insolvency and Bankruptcy Code (Amendment) Act, 2018 (Act No. 8 of 2018), dated 18.01.2018, and deemed effective retrospectively from 23.11.2017. The amended provision added the requirement for the CoC to consider the feasibility and viability of the resolution plan, along with any other requirements specified by the Insolvency and Bankruptcy Board of India (IBBI).
Prior to substitution, sub-section (4) read as under-
“(4) The Committee of Creditors may approve a resolution plan by a vote of not less than seventy-five per cent of voting share of the financial creditors.”
After said amendment, sub-section (4) read as under-
“(4) The committee of creditors may approve a resolution plan by a vote of not less than seventy-five percent of voting share of the financial creditors, after considering its feasibility and viability and such other requirements as may be specified by the Board.”
Subsequently, the voting threshold was reduced from seventy-five percent to sixty-six percent by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (Act No. 26 of 2018), dated 17.08.2018, and made effective from 06.06.2018.
Further, Section 30(4) was again substituted by the Insolvency and Bankruptcy Code (Amendment) Act, 2019 (Act No. 26 of 2019), dated 05.08.2019, and brought into effect from 16.08.2019 vide Notification S.O. 2953(E). This latest amendment expanded the scope of considerations for the CoC by explicitly requiring them to evaluate the manner of distribution proposed in the plan, which may factor in the priority among creditors under Section 53, including the priority and value of security interests held by secured creditors, in addition to feasibility, viability, and regulatory requirements.
After said amendment, sub-section (4) read as under-
“(4) The committee of creditors may approve a resolution plan by a vote of not less than sixty-six percent of voting share of the financial creditors, after considering its feasibility and viability [the manner of distribution propose, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor], and such other requirements as may be specified by the Board.”
The purpose of the latest amendment to Section 30(4) of the IBC, introduced by the Insolvency and Bankruptcy Code (Amendment) Act, 2019 (effective from 16.08.2019), was to bring greater transparency, fairness, and alignment with the liquidation waterfall (under Section 53) in the approval of resolution plans by the CoC. The amendment requires the CoC to consider “the manner of distribution” proposed in the resolution plan. This ensures that the distribution of proceeds is done equitably and logically, taking into account established priority norms. While Section 53 applies to liquidation, the amendment allows CoC to “take into account” the order of priority among creditors under Section 53 even in resolution. This discourages arbitrary or unfair treatment of similarly placed creditors.
The amendment also emphasizes consideration of the “priority and value of the security interest” of secured creditors. This helps protect the rights of such creditors and gives them due importance in plan approval. The amendment mandates the CoC to assess not just feasibility and viability, but also distribution fairness and creditor hierarchy, promoting a more principled and transparent decision-making process. By setting out specific evaluation criteria for the CoC, the amendment aims to minimize post-approval disputes and challenges on grounds of unfair or unequal treatment among creditors.
Furthermore, as per Section 30(4) of the IBC, while assessing the viability and feasibility of a resolution plan, the CoC is also empowered to consider the order of priority as laid down in Section 53(1) of the Code — which governs distribution in a liquidation scenario. In doing so, the CoC may also take into account the underlying value of the security interests held by secured creditors. This ensures that the resolution plan reflects a fair and balanced treatment of stakeholders, particularly secured creditors, and aligns broadly with the principles of distribution that would apply in liquidation. It also enables the CoC to evaluate whether the proposed plan respects creditor hierarchy and security rights, thereby promoting equitable outcomes while ensuring commercial viability.
Right of Dissenting Financial Creditors.
DFC(s) often assert that they should be entitled to realize the full value of their security interest under a resolution plan, particularly in cases where they hold an exclusive charge over specific secured assets. They argue that the resolution plan should respect their secured rights and allow them to recover in accordance with the value of their collateral.
On the other hand, Resolution Professionals (RPs), aiming to ensure equitable treatment and collective resolution, typically advocate for a distribution mechanism where all financial creditors (FCs) are paid in proportion to their voting share in the CoC, regardless of the value or nature of their security interest. This approach is intended to promote a balanced recovery framework and avoid preferential treatment, aligning with the principle of maximization of value for all stakeholders under the IBC.
If a corporate debtor is to be liquidated, a secured financial creditor has two distinct options under the Insolvency and Bankruptcy Code (IBC):
1. Under Section 52, the secured creditor may choose to enforce its security interest outside the liquidation proceedings, i.e., realize its security independently, in accordance with applicable law; or
2. Under Section 53(1), the secured creditor may relinquish its security interest to the liquidation estate and, in return, claim payment in priority over unsecured and other lower-ranked creditors in the distribution waterfall.
However, a secured creditor who opts to enforce its security separately under Section 52 and then finds that the realization falls short of the total dues, can only claim the balance amount as an unsecured creditor. This unpaid portion is treated like any other unsecured debt and is ranked significantly lower in the payment waterfall prescribed under Section 53(1). Therefore, while enforcement under Section 52 preserves the creditor’s right to its collateral, it also entails the risk of subordination for any shortfall, making relinquishment under Section 53 a more attractive option in certain cases.
Fundamentally, two key safeguards have been incorporated under the IBC to protect the interests of DFC(s):
1. Statutory Protection under Section 30(2)(b): A dissenting financial creditor is entitled to receive an amount not less than what it would receive in the event of liquidation under Section 53(1) of the IBC. This safeguard was reinforced through an amendment inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2019, with effect from August 16, 2019, ensuring that the distribution to dissenting creditors is fair and equitable, irrespective of their vote on the resolution plan.
2. Regulatory Safeguard under Regulation 38(1) of the CIRP Regulations, 2016: According to Regulation 38(1) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the resolution plan must provide that DFC(s) are paid in priority over those financial creditors who voted in favour of the resolution plan. This reinforces their position in the distribution hierarchy and protects them from being disadvantaged due to dissent.
These safeguards aim to balance the collective decision-making powers of the CoC with the individual rights of financial creditors who choose to dissent, thereby promoting fairness, non-discrimination, and transparency in the resolution process.
A financial creditor is entitled to dissent from a resolution plan if it finds the plan to be discriminatory or contrary to the provisions of law. However, such a dissenting financial creditor cannot invoke Section 30(2)(b) to claim a higher or preferential distribution merely on the basis of dissent. Specifically, a secured creditor cannot claim priority over other secured creditors during the distribution stage solely on the ground of dissent or assent to the resolution plan. Allowing such differentiation would render the distribution arbitrary and discriminatory, which is contrary to the principles of equitable treatment embedded in the IBC.
Whether a dissenting creditor’s entitlement is based on the actual value of security or CoC voting share.
As mentioned earlier, dissenting creditors often claim that they should receive the full value of their security interest, especially when they have an exclusive charge over specific assets. However, the purpose of a resolution plan is to ensure that all financial creditors are treated fairly and are paid in proportion to their voting share in the Committee of Creditors (CoC), regardless of the value or type of security they hold.
In this context, it is important to note the case of India Resurgence ARC Pvt. Ltd. v. Amit Metaliks Ltd. & Anr. (Civil Appeal No. 1700 of 2021) [India Resurgence or Amit Metaliks case], where India Resurgence ARC—a secured financial creditor—challenged a resolution plan approved by the Committee of Creditors (CoC). It argued that the amount offered to it under the plan (Rs. 2 crore) was significantly lower than the value of its security interest (Rs. 12 crore). Having dissented from the plan, it demanded the full value of its security. The matter eventually reached the Hon’ble Supreme Court, which, in its judgment dated 13th May 2021, clearly held (in paragraph 13.1) that the amount payable to different classes or subclasses of creditors, as per the provisions of the Code and related Regulations, falls within the domain of the commercial wisdom of the CoC. A dissenting secured creditor, like the appellant, cannot insist on a higher amount based solely on the value of its security interest.
The Hon’ble Supreme Court, in paragraph 15 of the judgment, clearly stated that the limit on how much a dissenting financial creditor can receive is built into Section 30(2)(b) of the IBC. This has also been explained in earlier judgments. The Court clarified that the legislature never intended for a dissenting financial creditor, just because they hold a security interest, to claim more than other financial creditors in the same class. Allowing this would create an unfair situation, where one creditor gets more than others—beyond the liquidation value set for that class of creditors.
The key findings of the aforesaid judgment may be summarized as under-
- Section 30(2)(b) ensures that dissenting financial creditors get at least the amount they would receive in liquidation, not necessarily the full value of their security interest.
- The commercial wisdom of the CoC is paramount and cannot be questioned merely because the plan offers less than what a secured creditor might get outside insolvency.
- A dissenting secured creditor is not entitled to insist on the full realisable value of its security interest within a resolution plan.
The Hon’ble Supreme Court clarified that the minimum payment obligation to dissenting secured creditors is tied to their voting share, not to the realisable value of the underlying security.
It is important to note that the judgment in the India Resurgence (i.e. Amit Metaliks) case was consistently followed and remained unchallenged for some time. However, a different view was later taken by the Supreme Court in the case of DBS Bank Ltd. v. Ruchi Soya Industries Ltd. In that case, the Court observed a conflict in the interpretation of the law and therefore referred the matter to a larger bench to decide the correct interpretation of Section 30(2)(b)(ii) of the IBC.
It is pertinent to mention that the aforesaid position was explicitly affirmed by the Hon’ble National Company Law Appellate Tribunal (NCLAT) in DBS Bank Ltd. v. Mr. Shailendra Ajmera, the Resolution Professional of Ruchi Soya Industries Limited, & Ors. Judgment dated 18th November, 2019. In paragraph 10, the Hon’ble NCLAT held that that a ‘secured creditor’ cannot claim preference over the other ‘secured creditor’ at the stage of distribution out of the ‘resolution plan on the ground of ‘dissenting’ or ‘assenting’, ‘secured financial creditor’ otherwise the distribution would be held to be arbitrary and discriminatory. Section 30(2)(b)(ii) cannot be interpreted in a manner to give advantage to a ‘dissenting secured financial creditor’. In fact Section 30(2)(b)(ii) has been amended only to ensure that ‘dissenting financial creditor’ should not get anything ‘less than liquidation value’ but not for ‘getting maximum of the secured assets’.
Some Key Facts of the case are as under-
- DBS Bank gave a loan of around $50 million (Rs. 243 crores) to Ruchi Soya, backed by strong security i.e. exclusive first charge over certain assets.
- Later, Ruchi Soya went into insolvency (CIRP) in 2017.
- DBS bank submitted its claim which was admitted at Rs. 242 crores.
- Patanjali Ayurved Ltd. submitted a resolution plan to take over Ruchi Soya, and the creditors approved it.
- DBS did not agree to the plan (became a dissenting financial creditor).
Later, Patanjali Ayurved Ltd. submitted a resolution plan offering Rs.4,134 crores against the total admitted claims of approximately Rs.8,938 crores by financial creditors. This meant the resolution plan proposed a recovery of about 49.22% for the financial creditors. Accordingly, DBS Bank, which had a secured claim valued at around Rs.218 crores, was allocated only about Rs. 119 crores under the plan (i.e., 49.22% of its claim). DBS Bank objected, arguing that as a secured and dissenting financial creditor, it was entitled to receive the full value of its security interest—Rs.218 crores—and not just a proportionate share based on the overall payout in the plan.
Later on DBS Bank file an Civil Appeal before the Hon’ble Supreme Court of India in DBS Bank Ltd (Singapore) vs. Ruchi Soya Industries Ltd. & Another
Supreme Court of India – Civil Appeal No. 9133 of 2019. On January 3, 2024, the Hon’ble Supreme Court heard the appeal and held that under Section 30(2)(b)(ii) (as amended in 2019), dissenting secured creditors must receive at least the liquidation value of their security interest in monetary terms — not just a proportional share as per the plan. The bench concluded there was a clear conflict with the earlier India Resurgence (i.e. Amit Metaliks) decision, and thus referred the key issue — i.e., whether a dissenting creditor’s entitlement is based on the actual value of security or CoC voting share — to a larger bench. The matter was formally placed before the Chief Justice to schedule the larger bench hearing
This referral means no final resolution yet — the Supreme Court has yet to settle the interpretation definitively. The decision of the larger bench will determine whether dissenting secured creditors like DBS must be paid based on their full liquidation value or merely a pro rata share. Its outcome will influence future resolution plans, creditor voting dynamics, and the protection of secured creditor rights under the IBC. The case is still pending. The larger bench is yet to be convened and a final judgment is awaited.
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