The Insolvency And Bankruptcy Code, 2016

Introduction

The Insolvency And Bankruptcy Code, 2016 was enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner. The Code established a regime of conditional creditor primacy during the Corporate Insolvency Resolution Process by conferring exclusive decision-making authority on the Committee of Creditors under Section 21, subject to the statutory grounds of review under Section 30(2) and Section 61(3). This conditionality was never as stable as it appeared: the floor available to secured dissenting financial creditors (hereinafter referred to as DFCs) under Section 30(2)(b) remained contested for years, producing two conflicting Supreme Court interpretations before Parliament intervened through the Insolvency and Bankruptcy Code (Amendment) Act, 2026. This paper argues that the amendment is itself an admission that "conditional" creditor primacy was never a fixed statutory feature and that even this correction has not settled the boundary so much as relocated it, leaving several open ended questions.

Conditional Control of Creditors

While the Supreme Court has upheld the primacy of the ‘commercial wisdom’ of CoC in several judgments, K. Sashidhar v. Indian Overseas Bank & Ors provides the much-needed lucidity regarding the scope of NCLT and NCLAT in enquiring into the commercial decisions of CoC. The Supreme Court held that commercial decisions of the CoC are not justiciable and the intervention of NCLT is justified only upon the satisfaction of Section 31(1) read with Section 30(2), and by the NCLAT under Section 32 read with Section 61(3) of the IBC. This means that NCLT's evaluation of an approved resolution plan is limited to compliance with the conditions mentioned in Section 30(2), which contains:

1.   Payment of CIRP costs;

2. Payment to Operational Creditors;

3. Payment to DFCs;

4. Providing for the management of the corporate debtor post-approval;

5. Observance of the plan to existing laws.

Further, a plan approved by the NCLT can be challenged in the NCLAT on the limited statutory grounds mentioned in Section 61(3), such as illegality, material irregularity, and compliance failures. The aforementioned provisions are the only bounds that make creditor control ‘conditional’.

While most of the above enabling grounds are settled, the floor concerning payments to secured DFCs remained highly contested, making it one of the only ‘subjective’ grounds for judicial review, with the uncertainty giving rise to problems that ultimately required legislative attention.

The Contradictory Judgements

The Conflict of Interests and Legislative Choice

An important factor to note is that both cases were decided after the 2019 amendment, which significantly strengthened the rights of dissenting financial creditors and operational creditors by explicitly linking Section 30(2)(b) to Section 53, ensuring that they receive at least the amount they would have realized under the Section 53 liquidation waterfall. The amendment also introduced changes to Section 30(4) which directed the CoC to consider the manner of distribution proposed in the resolution plan including priority and value of the security interest held by secured creditors which further advanced the position of DFCs.

Both Supreme Court benches interpreted the amended provisions differently, which ultimately led to antithetical verdicts. In Amit Metaliks, the Court held that the priority of payment of secured creditors present in Section 53 was not embedded in Section 30(2)(b), reflecting an active legislative choice. It further held that the amendment to the sections should be referred to only for the provision of a minimum amount to different classes of operational and financial creditors. The Court essentially held that the CoC is not bound by the amended Section 30(4) to treat secured creditors differentially, as the amended provision is only directory to the CoC to ensure fair distribution among similarly situated stakeholders. DBS Bank on the other hand took a literal approach. It held that the amended provisions promised DFCs an amount no less than what they would have received in liquidation proceedings, i.e., the value of their security. Due to the conflict in the Judgements, the matter was referred to a larger bench.

Analysis of the legal friction created by the judgments is pivotal because extremely important trade-offs are involved, i.e., individual interests v. collective benefit. If Amit Metaliks is upheld, then a wave of caution would spread beyond insolvency proceedings. Creditors would be hesitant to extend credit to financially vulnerable companies, even with security. Whereas, if DBS Bank is upheld, it would create an incentive to dissent even if a competent resolution plan is proposed.

The legislature reflected on such logical observations and made an explicit policy choice in the 2026 amendment that concretely disabled judicial discretion in the matter. The 2026 Amendment Act added the new Section 30(2)(ba). The provision completely settles the floor for DFCs. It states that they are entitled to the value they would have obtained in the case of liquidation in accordance with Section 53, or the value arrived at through the resolution plan itself, whichever is lower. This effectively nullifies the effect of DBS Bank by providing a lower baseline. In the current scenario, even if a dissenting financial creditor has a security of high value, they would be bound by the distribution mentioned in the resolution plan, which substantially increases the power of the CoC.

The Unresolved Boundaries of the New Floor (Concluding Remarks)

Though the Amendment settles the floor, there are several dimensions that need to be visualised. The following are some of my observations.

1)     Explanation II to Section 30(2) provides that the ‘lower of’ standard applies prospectively and will not affect already initiated proceedings. Hence, right now, there is a gap in clarity as to the principles that would be applied for proceedings initiated between 2024 (DBS Bank) and 2026 (Amendment). The matter was referred to a larger bench, but a judgment hasn't yet come in that regard.

2)     The narrow judicial review that was provided in Sashidhar becomes narrower as the then subjective contested floor for DFCs has now been settled. Moving forward there wouldn't be any remedy available even where a plainly unjust outcome occurs (Ex: The CoC majority may approve a plan where the value provided might be substantially lower than the value that could have been obtained through liquidation).

3)     The floor has been settled but there are echt questions on the adequacy of the said floor. As mentioned above, the ‘lower of’ standard can — depending on how a plan structures its total payout — produce an unfavourable outcome to the DFCs. This disturbs the principle enshrined in Explanation I of 30(2) which requires the distribution to DFCs to be ‘fair and equitable’. It also affects the broader presumption (attributable to the BLRC Report, 2015) that stakeholders must not be worse off under a resolution plan than under liquidation. This very presumption morally and otherwise justifies binding the dissenting minority to the majority's commercial wisdom. Hence the ‘lower of’ model does not accurately address the ‘adequacy’ question.

Author: Charvi S. (Law Student)

National Law School of India University, Bengaluru