The IBC Amendment Bill, 2025 and the Evolving Fate of Dissenting Financial Creditors
Introduction
A Corporate Insolvency Resolution Process (“CIRP”) is initiated against a Corporate Debtor[1] under Section 7, Section 9, or Section 10 of the Insolvency and Bankruptcy Code, 2016 (“IBC”/“Code”), by way of a public announcement for CIRP initiation against such Corporate Debtor (“CD”) and followed by a call for all creditors of such CD to submit their claims.[2] Simultaneously, an Interim Resolution Professional (“IRP”) is also appointed in the manner as laid down in Section 16 of the IBC.
The IRP, after collating all claims received against the CD, and determining its financial position, constitutes a Committee of Creditors (“CoC”).[3] This CoC comprises of all the Financial Creditors of the CD.[4] Besides, it is pertinent to note that Section 5 of the IBC defines “Financial Creditor” as any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to.[5]
Once CoC is constituted, the Resolution Professional (“RP”) is required to invite resolution plans from the prospective resolution applicants (PRAs). The RP examines each of these resolution plans received to check whether they comply with Section 30(2) of the IBC[6]. Once completed, the RP presents these resolution plans to the CoC for its approval.[7] The CoC may approve a resolution plan only if it has received approval of at least66% of voting share of the Financial Creditors in the manner prescribed under IBC.[8]
Financial Creditors, who have not voted in favour of or who have provided their disapproval on any such successful resolution plan are termed as “Dissenting Financial Creditors”. The treatment of these Dissenting Financial Creditors is governed under Section 30(2)(b) of the Code, which ensures that they receive at least the amount which they would have received in case of a liquidation process under Section 53(1) of the IBC. In the present scheme of things, section 30 (2)(b) of the Code can reasonably be considered as a safeguard for Dissenting Financial Creditors to ensure that they are not shortchanged, even though they have not supported the proposed resolution plan.
Judicial Precedents interpreting the present framework of Dissenting Financial Creditors
In India Resurgent ARC Pvt. Ltd. vs. Amit Metaliks Ltd[9], a secured creditor holding 3.94% of voting share challenged the resolution plan, claimed that it failed to reflect the true value of its security interest. However, the Hon’ble Supreme Cour has upheld the primacy of the CoC’s commercial judgment in this matter by stating that the dissenting financial creditors are entitled only to the liquidation value and not to the full value of their security. This ruling had clearly reinforced the limited scope of judicial interference in case of CoC decisions, especially regarding financial distribution.
However, surprisingly, in the recent matter of DBS Bank Ltd. vs. Ruchi Soya Industries Ltd.,[10] the Hon’ble Supreme Court has taken a different approach on this issue. While determining this matter involving a secured creditor objecting to the resolution plan on the basis that it did not reflect the liquidation value of its exclusive security, the Apex Court upheld that the creditor’s right to receive compensation should be aligned with the value of its secured asset in liquidation. It has emphasized that, while insolvency proceedings are collective in nature, individual rights of secured creditors must still be respected; particularly when those rights are backed by enforceable security interests.
While the Hon’ble Supreme Court has referred this matter to a larger bench for definitive resolution, its contradictory judgements in the above cases have created ambiguity in relation to the payout mechanism to Dissenting Financial Creditors in this regard, thus, compelling resolution experts and CoCs to exercise greater caution in navigating the rights of Dissenting Financial Creditors against the broader interests of the insolvency process.
The Legal Impact of the IBC Amendment Bill, 2025
While this issue is pending for consideration before the larger bench (basis reference made by the Hon’ble Supreme Court), the legislative authority has meanwhile introduced an amendment bill for the IBC, namely the IBC Amendment Bill, 2025[11] (“Amendment Bill”).
This Amendment Bill aims to bring a notable shift in how Dissenting Financial Creditors are to be treated under the Code. The Amendment Bill seeks to amend Section 30(2)(b) of the IBC by introducing the following provision as Section 30(2)(ba):[12]
“ …..
(b)after clause (b), the following clause shall be inserted, namely:––
“(ba) provides for the payment of debts of the financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified, which shall not be less than the lower of the amount––
(i) to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or
(ii) 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,
as the case may be.
From the above extract, it can be ascertained that the Amendment Bill aims to introduce a ‘whichever is lower’ test (“Lower Value Test”) that would replace the existing framework of directly linking the minimum payout of Dissenting Financial Creditors to the liquidation value per section 53(1) of the IBC.
As per this Lower Value Test, the minimum payout to a Dissenting Financial Creditor would be the lower of:-
(a) the liquidation value that the Dissenting Financial Creditor would receive under Section 53;
or
(b) the amount that the Dissenting Financial Creditor would get if the total distributable pool (from the resolution plan) were to be divided hypothetically pursuant to the priority order set out in Section53(1) of the IBC.
The Lower Value Test can be further elucidated based on the following illustration –
Illustration:
Let us assume that a Dissenting Financial Creditor has a claim of INR 10,00,00,000/- against the CD and has an exclusive security having a liquidation value of INR 2,00,00,000/- against the said debt.
Under the present framework, the Dissenting Financial Creditor is entitled to receive at least the liquidation value of the exclusive secured asset under the resolution plan i.e, INR 2,00,00,000/-.However, as per the Lower Value Test, if say, the total payments to be made to various creditors under the resolution plan is fixed at INR 4,00,00,000/, then this INR 4,00,00,000/- will be distributed among all the creditors (including the Dissenting Financial Creditor) in priority order set out in Section 53 of IBC, in which case, the Dissenting Financial Creditor will have no choice but to accept the liquidation value which is lower of – (a) its exclusive security asset value of INR 2,00,00,000/-; or (b) the amount allocated basis the hypothetical distribution pool.
From the above illustration, it can be clearly ascertained that the application of the Lower Value Test may lead to the possibility of Dissenting Financial Creditors receiving even lesser than the liquidation value if the resolution plan’s distributable pool is limited. While this amendment may streamline the approval of plans with tighter financial margins, it also raises concerns about whether Dissenting Financial Creditors will continue to have meaningful protection as they currently do under the Code.
Conclusion
If enacted, the Amendment Bill could dilute the financial safeguards currently afforded to the Dissenting Financial Creditors. The liquidation value, which now serves as a baseline for payouts, may no longer be guaranteed. This shift empowers the majority within the CoC and risks sidelining minority creditors who hold valid security interests. Although the government argues that flexibility is needed to avoid blocking viable resolution plans, this change may discourage dissent altogether, thus, undermining the principle of equitable treatment embedded in the Code. Considering the shift to the rights of such Dissenting Financial Creditors, the street would certainly adapt to new mechanisms and contractual safeguards to protect the interest of Dissenting Financial Creditors in coming times.
References
[1] Section 2(8) of IBC
[2] Section 15 of IBC
[3] Section 21 of IBC
[4] Section 21 of IBC
[5] Section 5(7) of IBC
[6] Section 30(2) of IBC
[7] Section 30(3) of IBC
[8] Section 30(4) of IBC
[9] India Resurgent ARC Pvt. Ltd. vs. Amit Metaliks Ltd.(2021) 19 SCC 672
[10] DBS Bank Ltd. vs. Ruchi Soya Industries Ltd. (2024)3 SCC 752
[11] Bill No. 107 Of 2025 - The Insolvency and Bankruptcy Code (Amendment) Bill, 2025
[12] Clause 18 of the Bill No. 107 Of 2025- The Insolvency and Bankruptcy Code (Amendment) Bill, 2025