The Dissenting Secured Creditor – Minimum Recoverable Value Under Section 30 Of The Insolvency And Bankruptcy Code, 2016

Introduction

The Insolvency and Bankruptcy Code, 2016 ("IBC"), was enacted with the twin objectives of resolving distressed debt in a time-bound manner and maximising the value of corporate debtors' assets. It represented a paradigm shift from a fragmented insolvency regime under multiple statutes to a consolidated framework that sought to empower creditors while simultaneously preserving enterprise value. One of the central design features of the IBC is the shift from a "debtor-in-possession" regime to a "creditor-in-control" model, whereby the committee of creditors ("CoC") exercises primary decision-making power in the corporate insolvency resolution process ("CIRP").

Within this architecture, the entitlement of dissenting financial creditors ("DFCs"), especially dissenting secured creditors, has been a particularly controversial topic. DFCs are creditors who do not support a resolution plan that has been approved by the necessary majority of the CoC, considering they have security interests over the corporate debtor's assets. This article revolves around a seemingly straightforward legal question: under Section 30(2)(b) of the IBC, what is the minimum entitlement of a dissenting secured creditor?

The answer, however, has been anything but straightforward. On one hand, certain judgments emphasize the primacy of collective resolution and the commercial wisdom of the CoC, thereby limiting the entitlement of dissenting creditors to liquidation value. On the other hand, certain judgments recognize the sanctity of secured creditors' rights, suggesting that they cannot be compelled to accept less than the realizable value of their collateral. This article critically examines the statutory framework, judicial oscillation, constitutional implications, and proposed legislative amendments to provide a comprehensive analysis of this legal conundrum.

Statutory Framework

The treatment of dissenting secured creditors rests primarily upon the interplay of the following provisions in the IBC:-

Section 30(2)(b): This provision mandates that any resolution plan must provide for the payment of debts of dissenting financial creditors, and such payment must not be less than the amount they would have received in the event of liquidation under Section 53 of the IBC.¹

Section 30(4): This provision lays down that the CoC in its consideration of feasibility and viability of a resolution plan, 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.²

Section 52: This provision confers upon secured creditors in liquidation the right to (i) either realise their security interest outside the liquidation estate in accordance with applicable law, or (ii) relinquish their security interest and receive proceeds in accordance with the Section 53 waterfall mechanism.³

A crucial difference between the legal process governing liquidation and that governing resolution is that while liquidation, through the mechanism of Section 52, allows secured creditors to enforce their security interest outside the collective estate of the corporate debtor, on the other hand, a resolution plan to revive a corporate debtor requires all security interests held by secured creditors to be relinquished.

Section 53: This section sets out the priority for payment of dues in case of liquidation as follows:

1. insolvency resolution process costs and liquidation costs;
2. workmen dues for the 24 months preceding the liquidation commencement date and secured creditors who have relinquished security interest u/s 52;
3. wages and unpaid dues of employees other than workman,
4. financial debts to unsecured creditors;
5. government dues and outstanding debt to secured creditors who have enforced their security interest u/s 52;
6. remaining debts and dues;
7. preference shareholders; and
8. equity shareholders

This structure ensures that secured creditors enjoy relatively high priority, though their recovery is subject to the liquidation value of the corporate debtor.⁴

The statutory floor created by Section 30(2)(b) guarantees dissenting creditors at least their liquidation value. However, ambiguity arises where the value of the security interest exceeds such liquidation value. Should the secured creditor be entitled to the higher collateral value, or only the liquidation value? This tension between collective insolvency and individual property rights is the fulcrum of the discourse, particularly considering that the property rights in issue are those of financial institutions which deal with public money and lend hefty amounts on the strength of the assured security.

Judicial Pronouncements: Divergent Approaches

The Supreme Court has delivered multiple decisions on this question, which, taken together, reveal a certain amount of uncertainty in judicial reasoning.

Essar Steel: In the case of Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, the Supreme Court maintained that the CoC's commercial wisdom should take precedence when it comes to allocating proceeds under a resolution plan.⁵ The Court refused to impede the CoC's distribution determinations, but it did affirm that dissenting financial creditors must receive at least the liquidation value.

Amit Metaliks: In India Resurgence ARC Pvt. Ltd. v. Amit Metaliks Ltd., the Court addressed the specific entitlement of a dissenting secured creditor.⁶ It concluded that the whole value of the collateral cannot be demanded by a dissident secured creditor. Instead, the entitlement must be restricted to the value of liquidation as established by Section 53. The Court reasoned that recognizing higher entitlements would undermine the resolution plan, disrupt equitable distribution, and defeat the collective insolvency process.

Ruchi Soya: On the other hand, the Court took a very different stance in DBS Bank Ltd., Singapore v. Ruchi Soya Industries Ltd. ⁷ wherein DBS Bank being the appellant challenged the NCLT and NCLAT order approving the resolution plan submitted by the resolution applicant that would result in DBS Bank recovering INR 99,74,00,000 (Indian Rupees Ninety Nine Crore Seventy Four Lakh Only) less than the liquidation value of its security interest, while having a larger admitted claim against the corporate debtor. The Court underscored that a dissenting secured creditor's "minimum entitlement" should not be "nullified" by Section 30(2)(b) and emphasized that a secured creditor ought not to be made to accept less than the collateral's realizable value when it is legally obligated to give up its collateral as part of a resolution plan. The Court stated that the CoC while approving a resolution plan must take into account the priority and value of the security interests of secured creditors and where a secured creditor is dissatisfied by the amount to be recouped from the resolution plan, they may vote against it and shall be entitled to the liquidation value of the security per provisions of section 53(1). The two-judge bench in Ruchi Soya, recognizing that its reasoning was in conflict with the decision of a coordinate bench in Amit Metaliks referred the core question of a dissenting secured creditor's entitlement to a larger bench for an authoritative and final determination.⁸

As the law stands interpreted today, it can be said that there is indeed a great deal of uncertainty plaguing the insolvency resolution system. Without knowing if dissenting secured creditors can assert collateral value, resolution applicants find it challenging to create plans. For their part, creditors are uncertain if dissenting could practically result in larger recoveries.

The judicial conflict elucidated above emphasises the importance of the common law principle of stare decisis, i.e., to stand behind decided cases. The principle lays down that the law enunciated when a judgment is pronounced by a competent court without any material mistake or error, is binding law of the land. The idea behind the doctrine is to ensure certainty and uniformity of law for those that are governed by such law. It is unfortunate that the difference in the implications of the Amit Metaliks and Ruchi Soya judgments, instead creates uncertainty for lenders and borrowers alike.

Comparative Analysis: Collective Insolvency vs. Property Rights

The collective insolvency theory is reflected in the Amit Metaliks' stance. Under insolvency and bankruptcy law, it is accepted that at its core, maximizing enterprise value takes precedence over individual recovery efforts. Regarding the principle of maximization of asset value and equitable treatment of similar class of creditors forming the bedrock of the IBC, the UNCITRAL Legislative guide on Insolvency, states as follows,"...the manner in which avoidance provisions treat prior transactions, for example, can ensure that creditors are treated equitably and enhance the value of the debtor's assets by recovering value for the benefit of all creditors." ⁹

Indeed, the Bankruptcy Legislative Reforms Committee (BLRC) in its report dated November 4, 2015 also recognised the need to shift from individual recovery actions to maximum realisation of economic value of the defaulting entity.¹⁰

The Ruchi Soya stance emphasizes property rights, as discussed above. The foundation of secured lending is the belief that, in the event of default, a creditor may realize the value of the collateral. By preserving the fundamental agreement of secured transactions, this interpretation aims to strengthen credit markets.

From a policy perspective, Amit Metaliks seeks to provide certainty and predictability to resolution applicants, thereby fostering competitive bidding. However, it reduces the incentive for creditors to dissent, effectively subordinating their property rights. Ruchi Soya, while more protective of creditors, increases litigation risks, reduces predictability, and may deter resolution altogether.

Constitutional Dimension: Article 300A and Secured Creditors' Rights

Article 300A of the Constitution of India declares that no person shall be deprived of property save by authority of law.¹¹ The right of a secured creditor to enforce its security interest is essentially a right in property. The IBC, having the force of "authority of law," can circumscribe this right. The question, therefore, is whether extinguishing security interests without adequate compensation violates constitutional guarantees.

If a dissenting secured creditor is compelled to accept only liquidation value, even when collateral is worth more, it may amount to deprivation without just recompense. It can be argued that such treatment undermines the sanctity of security interests, deters lending, and could invite constitutional challenge. Proponents respond that insolvency law is inherently redistributive, and that the collective interest justifies curtailment of individual rights.

This disharmony calls for legislative clarity and the need for balance between competing interests.

Legislative Response: The Insolvency and Bankruptcy Code (Amendment) Bill, 2025

The Government has sought to resolve the uncertainty surrounding the entitlement of DFCs through the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 ("Bill") by introducing the Bill in the Lok Sabha on August 12, 2025. The Bill was referred to a 24 person Select Committee on The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, chaired by member, Mr. Baijayant Panda, recently the committee also invited comments and inputs from experts and stakeholders on the Bill.¹² The Bill seeks to amend Section 30 of the IBC to provide that dissenting financial creditors shall be paid not less than the lower of: (i) their liquidation value under Section 53, or (ii) the amount they would have received had the resolution plan proceeds been distributed in accordance with Section 53.¹³

While the amendment introduces clarity, it has been criticised as disproportionately curtailing secured creditors' rights. If the Bill passes muster, the consequence would be to restrict dissenting secured creditors to liquidation value or lower, irrespective of collateral worth. The stated rationale for this amendment is to discourage dissent and reduce litigation by implementing a uniform rule. In effect, the Bill adopts the same approach as the Amit Metaliks case. The payout amount may bear no rational nexus to the value of the security interest that has been taken from the dissenting creditor. Forcing a creditor, who prudently secured its loan with a high-value and exclusive asset, to accept the same diminished amount as recoupment, as a creditor with a subordinate charge over less valuable asset(s) could be perceived as being arbitrary and unjust. The termination of collateral rights without adequate compensation may render such action vulnerable to constitutional review under Article 300A of the Indian Constitution and the test of "fair compensation" under it.

Critical Evaluation

The challenge of striking a balance between individual rights and collective insolvency is demonstrated by legislative and jurisprudential developments as discussed above. Three important factors come into play:

1. Resolution effectiveness: For resolution applicants, clarity on the rights of dissenting secured creditors is essential. This certainty is provided by the Amit Metaliks strategy, which is sought to be codified through the Amendment Bill.
2. Property Rights Protection: The Ruchi Soya method emphasizes how crucial it is to acknowledge the expectations of secured creditors. Lending markets may be weakened if collateral value is ignored since creditors may be forced to price in more risk.
3. Harmonizing the objectives of the IBC: The twin objectives of the IBC, i.e. speedy resolution of distressed companies and maximizing asset realization to maximise debt recovery, need to be harmonised to protect the interest of all concerned parties, including secured creditors. The legislature, in the hope of concretising the resolution process and tiding over the current loopholes in the law, is seeking to amend the law. Yet, the expectation to ensure "fair and equitable" distribution to dissenting creditors, remains. In this context, it is pertinent to note that Explanation 1 of Section 30 of the IBC specifically provides for such fair and equitable distribution to DFCs. ¹⁴

Conclusion

Section 30's approach towards dissenting secured creditors perfectly captures the fundamental conflict in insolvency law: the conflict between individual and group rights. Uncertainty brought about by the judicial oscillation discussed in this article has, sadly, weakened the effectiveness of resolution.

The onus for clear and certain application of the IBC is now on the judiciary, which must set final precedent in the face of conflicting judgments. The collective interest of all creditors as opposed to individual creditor rights is the key dispute facing legislators and judges alike, and finding a sound balance is the need of the hour. The integrity of secured transactions may be compromised, and credit markets may be undermined, if the law leans too much in favour of collective settlement. Excessive privileges for secured creditors run the danger of impeding fair distribution and prompt settlement. The challenge is to create a framework that balances these conflicting demands while guaranteeing efficiency and fairness. Until then, dissenting secured creditors will remain at the centre of one of the IBC's most challenging unresolved debates.

Footnotes

1 Insolvency and Bankruptcy Code, 2016, § 30(2)(b).

2 Insolvency and Bankruptcy Code, 2016, § 30(4)

3 Id. § 52

4 Id. § 53

5 Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2019) 16 SCC 479

6 India Resurgence ARC Pvt. Ltd. v. Amit Metaliks Ltd., (2021) 10 SCC 483

7 DBS Bank Ltd., Singapore v. Ruchi Soya Industries Ltd., 2024 SCC OnLine SC 231

8 Id

9 UNCITRAL Legislative Guide on Insolvency Law, Pg 11-15 (June 25, 2004) available at https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-80722_ebook.pdf (Last visited on October 29, 2025)

10 T. K. Viswanathan, Bankruptcy Legislative Reforms Committee, 3.2.3 (November 4, 2015)

11 Constitution of India, 1950, Art. 300A.

12 https://sansad.in/ls/committee/other-committees/82-Select%20Committee%20on%20The%20Insolvency%20And%20Bankruptcy%20Code%20(Amendment)%20Bill,%202025-nameH=undefined (Last visited on October 29, 2025)

13 Insolvency and Bankruptcy Code (Amendment) Bill, 2025, cl. 18.

14 Explanation 1 under Insolvency and Bankruptcy Code, 2016, § 30(2)

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