Recalibrating the Economics of Dissenting Financial Creditors

Section 30(2)(ba) of the Insolvency and Bankruptcy Code, 2016 (“IBC”), inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2026, recalibrates the economics of dissent in the corporate insolvency resolution process (CIRP). Its significance lies not in conferring a security-linked uplift on dissenting financial creditors, but in revising their statutory minimum entitlement under a resolution plan.

The amendment is intended to operate from a date to be separately notified by the Central Government. It also contains a transition provision which clarifies that the amended framework shall not apply to CIRPs in which, on or before commencement, the committee of creditors (CoC) has approved a resolution plan, the Adjudicating Authority has passed a liquidation order, or the CoC has approved intimation to the Adjudicating Authority to initiate liquidation.

Prior to the amendment, a financial creditor that did not vote in favour of a resolution plan was entitled to receive at least the amount it would have received under Section 53 in liquidation. This protection was designed to ensure that a dissenting creditor was not compelled to accept less than its liquidation entitlement merely because the requisite CoC majority approved the plan. Section 30(2)(ba) now provides that a resolution plan must pay financial creditors who do not vote in favour of it at least the lower of: (i) the amount payable to them in liquidation under Section 53; or (ii) the amount they would receive if the amount distributable under the resolution plan were distributed in accordance with the priority waterfall in Section 53(1).

The difference is commercially material. The earlier framework treated the liquidation entitlement as the minimum floor. The new provision compares that amount with the creditor’s notional share of the resolution proceeds under the Section 53 waterfall and selects the lower figure. For example, if a dissenting financial creditor would receive ₹60 crore in liquidation but would receive ₹40 crore if the resolution plan distribution pool were allocated under Section 53, the statutory minimum under Section 30(2)(ba) is ₹40 crore. The provision establishes a floor, rather than a ceiling i.e. a resolution plan may provide more than this amount, but it is not required to provide the higher liquidation figure merely because the creditor dissented.

The liquidation value is notional and creditors could be incentivised to dissent where a viable resolution plan yielded less than the liquidation value entitlement. The ‘lower-of” test has therefore been introduced to discourage strategic dissent aimed at extracting a higher liquidation outcome or pushing the corporate debtor towards liquidation. This marks a strengthening of the collective decision making architecture of the CoC. Dissent remains available as a voting position, but it is less likely to function as an economically attractive means of preserving a higher minimum payout. The amendment therefore reinforces the ability of the requisite majority to implement a feasible and viable resolution plan while retaining a defined statutory safeguard for dissenting financial creditors.

The amendment should not, however, be understood as a provision that directly rewards secured creditors for the value of their collateral. Section 30(2)(ba) applies to financial creditors who do not vote in favour of a resolution plan, it does not distinguish between secured and unsecured financial creditors. Nor does it provide that a dissenting secured creditor must receive the value of its exclusive or shared security interest under the plan. Security may nevertheless remain relevant indirectly because both limbs of the ‘lower-of” test depend on Section 53. The 2026 amendments to Section 53 clarify that where the value of the security interest relinquished by a secured creditor is less than the total debt owed to it, that creditor is treated as secured only to the extent of the value of that security interest and unsecured for the balance. The manner of determining the value of the security interest is to be specified by the IBBI.

Explanation I to Section 30(2)(ba) further provides that distribution under the clause must be ‘fair and equitable’ to dissenting financial creditors. This is likely to become an important area of interpretation. The phrase cannot simply be assumed to recreate the earlier liquidation value floor, because the statute expressly adopts the lower-of test. Its role may instead be to guide the assessment of whether the plan’s treatment complies with the statutory minimum and whether the distribution mechanism applies the relevant Section 53 assumptions coherently.

The amendment consequently shifts the focus of plan negotiations. Creditors and resolution applicants will need to identify the distributable plan amount, determine the creditor’s liquidation entitlement, model the Section 53 allocation of plan proceeds, and document why the resulting payment meets the statutory threshold. Resolution professionals will also need to ensure that the plan clearly records the assumptions underlying these calculations.

Section 30(2)(ba) is thus best understood as a recalibration of dissent rather than an expansion of dissenting creditors’ rights. It preserves a statutory minimum while reducing the incentive to dissent solely to capture a higher notional liquidation entitlement. Its success will depend on clear regulations, disciplined valuation practices and judicial interpretation that preserves both the IBC’s resolution objective and the statutory protections afforded to minority financial creditors.