Calculating the New IBC Floor for Dissenting Financial Creditors

Since 26 May 2026, a resolution plan must pay a dissenting financial creditor not less than the lower of two amounts: its entitlement on liquidation under section 53(1) of the Insolvency and Bankruptcy Code, 2016, or its share of the actual plan proceeds, computed on the same priority order. Before that date, the 2019 amendment to section 30(2) guaranteed only the liquidation figure, and for some lenders the new test now produces a smaller payout. This post works through how each comparator is calculated, which one applies, and what the change does to the value of a dissent vote.

From Nothing Guaranteed to a Priced Floor

When the Insolvency and Bankruptcy Code, 2016 (the Code) began operating, section 30(2)(b) protected operational creditors alone. A financial creditor outvoted in the committee of creditors (the CoC) took whatever the plan gave it, and in several early resolutions that was close to nothing. The reasoning was collective: financial creditors vote as a body, and the minority is carried by the majority.

What Did the 2019 Amendment Actually Guarantee?

The Insolvency and Bankruptcy Code (Amendment) Act, 2019 rewrote the clause. A plan then had to pay a dissenting financial creditor not less than the amount payable to it under section 53(1) if the corporate debtor were liquidated. Operational creditors got a more generous formula: the higher of their liquidation entitlement or their share of a notional section 53 distribution of the plan proceeds. The asymmetry was intentional, since operational creditors have no vote and dissenting financial creditors do.

A defect in that drafting surfaced once plans began failing on arithmetic rather than on merit. Liquidation value is a valuer's estimate of forced-sale realisations, and nothing ties it to what a resolution applicant is willing to pay. Where a plan's distributable proceeds came in below liquidation value, the aggregate entitlement of the dissenters could exceed the money in the plan, and a creditor with a small voting share could dissent in order to take a first call on the pot.

What Essar Steel Settled, and the Question It Left Open

Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta [(2020) 8 SCC 531] fixed the framework in which all of this operates. The Supreme Court set aside the appellate tribunal's attempt to distribute resolution proceeds rateably across all creditors at a uniform percentage. It held that the CoC may approve a plan providing differential payment to different classes of creditor, that equitable treatment means treating similarly situated creditors alike rather than treating every creditor identically, and that the equality principle cannot be stretched to treating unequals equally. Neither the National Company Law Tribunal (the NCLT) nor the appellate tribunal has an unchartered jurisdiction in equity over an approved plan.

The Court upheld the 2019 amendment and called it beneficial to dissenting financial creditors, since a 66 per cent majority could otherwise consign a class of financial creditors to nil recovery. What it did not decide was whether a secured dissenter must be paid something referable to the value of its security. That question returned in India Resurgence ARC Pvt. Ltd. v. Amit Metaliks Ltd. [Civil Appeal No. 1700 of 2021, decided on 13 May 2021], where a secured creditor holding about 3.94 per cent of the voting share was refused permission to challenge a plan on the footing that its charge was worth several times what the plan offered.

The Larger Bench Reference That the Amendment Has Overtaken

In DBS Bank Ltd. Singapore v. Ruchi Soya Industries Ltd. [2024 SCC OnLine SC 3] a two-judge bench read section 30(2)(b)(ii) the other way and referred to a larger bench the question whether a dissenting financial creditor must be paid the minimum value of its security interest. That reference was pending when Parliament legislated. The 2026 Amendment answers the question from the other end: the floor is now measured by two comparators, neither of which is the value of the security.

The Two Comparators, and How Each Is Computed

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 received assent on 6 April 2026, and Ministry of Corporate Affairs notification S.O. 2625(E) dated 22 May 2026 brought the bulk of it, including the section 30 and section 53 changes, into force on 26 May 2026. Since that date a plan must pay a dissenting financial creditor not less than the lower of two amounts, and a distribution that meets that figure is declared fair and equitable to the creditor.

Comparator One, the Liquidation Entitlement

The first is what the creditor would receive under section 53(1) on a liquidation of the corporate debtor. That is derived from the liquidation value assessed by the registered valuers appointed in the process, reduced by liquidation costs and then taken down the waterfall. A secured creditor is assumed to have relinquished its security to the estate, which places it at section 53(1)(b)(ii), ranking pari passu with workmen's dues for the twenty-four months preceding the liquidation commencement date.

Comparator Two, the Notional Waterfall on Plan Proceeds

The second comparator asks a different question of a different pot. Take the amount actually available for distribution under the plan, apply the same section 53(1) order of priority, and identify what this creditor would get. The money is the applicant's, not the valuer's estimate of what the assets might fetch.

Since the ranking is identical in both calculations, the comparison usually collapses into one variable: whether distributable resolution proceeds exceed distributable liquidation value. Where the plan clears liquidation value, comparator one is the lower figure and the floor is what the 2019 text already delivered. Where it does not, comparator two bites and the floor sits below the old guarantee. A dissenter can no longer claim more than its proportionate share of the money the plan actually produces.

A Worked Illustration

The figures below are hypothetical, and all amounts are in INR crore. Assume a single-plant manufacturer. Liquidation value available for distribution after liquidation costs is 150. The plan makes 120 available after insolvency resolution process costs. Workmen's dues for the relevant twenty-four month period are 20. Every secured creditor relinquishes security to the estate.

Creditor	Admitted claim	Value of security interest	Entitlement on liquidation	Entitlement on a section 53 distribution of plan proceeds	Statutory floor
Bank A (exclusive first charge)	120	120	90	72	72
Bank B (second charge, under-secured)	100	60	45	36	36
NBFC C (unsecured financial creditor)	80	Nil	Nil	Nil	Nil
Workmen, dues for 24 months (ranks with secured creditors)	20	Not applicable	15	12	Not applicable

Rank 53(1)(b) carries 200 of claims here: 20 of workmen's dues, Bank A's 120 secured claim, and the 60 secured portion of Bank B's claim. Liquidation proceeds of 150 satisfy 75 per cent of that rank; the plan's 120 satisfies 60 per cent. Nothing reaches section 53(1)(d), where unsecured financial debt sits, so NBFC C and the unsecured 40 balance of Bank B's exposure both carry a floor of nil. Raise the plan proceeds to 200 and the final column reverts to the liquidation column.

The Section 53 Explanation and the Under-Secured Lender

The arithmetic turns on a second change made by the same Amendment on the same date. An explanation added to section 53 confirms that a creditor is secured only to the extent of the value of its security interest. The balance of the admitted claim is unsecured financial debt and drops to section 53(1)(d), below workmen's and employees' dues at section 53(1)(c).

For a lender whose charge covers a fraction of its exposure, this is where the value goes, and the lower-of test is not the reason. Bank B has an admitted claim of 100 and a floor of 36 because only 60 of that claim ranks at 53(1)(b)(ii); the rest sits at a rank the money never reaches. A related explanation in section 3(31) confirms that a security interest exists only where created by agreement, which matters to any lender relying on a charge asserted by operation of statute.

The floor is therefore a function of a valuation the lender does not control. If the valuers ascribe a low realisable value to the charged asset, both comparators shrink with the secured tranche, and perfection of security starts to matter in a way it did not when the floor was a single liquidation figure.

Is Dissent Still Worth the Vote?

On the numbers, dissent is worth less in exactly the situations where it used to be worth most. Its strategic value lay in the gap between what the plan offered and what section 30(2)(b) obliged the plan to pay. Capping the entitlement at the creditor's share of the actual proceeds closes that gap where the plan is priced below liquidation value, and that is where the gap was widest.

Two things survive. Dissent still converts a plan entitlement into a payment obligation, and regulation 38 of the CIRP Regulations requires dissenting financial creditors to be paid in priority to those who voted in favour, which is a timing benefit rather than a quantum one. A creditor whose real objection is to the identity of the applicant, to a section 29A infirmity, or to a related-party claim never relied on the floor and is unaffected.

What Does the Duty to Record Reasons Give a Dissenter?

The Amendment also requires the CoC to record its reasons for approving a plan. Read with the declaration that a compliant distribution is fair and equitable, this shifts the available ground of challenge from outcome to process.

The outcome ground is largely closed: a dissenter cannot argue that a distribution meeting the statutory floor is unfair when the statute says it is fair and equitable. Section 30(4) has for years required the CoC to consider the feasibility and viability of the plan and the manner of distribution, which may take into account the order of priority in section 53(1) including the priority and value of the security interest of a secured creditor. Those considerations used to sit inside an unreviewable commercial judgment. Recorded reasons turn them into a document, and a dissenter whose security value or ranking is nowhere addressed on the face of that record is better placed under section 61(3) than one complaining about quantum.

For a resolution applicant the point runs in reverse. Reasons recorded in the CoC minutes should engage with each objecting creditor's stated grounds, identify the valuation relied on, and explain the distribution by reference to rank and security value rather than by assertion. A thin record is now the likeliest source of a successful appeal against a plan that is otherwise sound.

Frequently Asked Questions

Does the new floor apply to a resolution plan submitted before 26 May 2026 but still awaiting approval?

Section 30(2) states what a plan must provide, and compliance is certified by the resolution professional and examined by the NCLT. There is no transitional provision, so the better view is that a plan not yet approved must satisfy the clause as it now stands. Re-run the distribution on both comparators; where the plan clears liquidation value the answer will not change.

Is a dissenting financial creditor entitled to the value of its security interest?

No. Neither comparator is measured by the value of the security. That argument failed in India Resurgence ARC in 2021, was referred to a larger bench in DBS Bank in 2024, and has now been settled by statute. Your security value still matters, but as the input that fixes where your claim ranks under section 53, not as an entitlement in itself.

Can a dissenting creditor still challenge a plan on the ground that the distribution is unfair?

Not on quantum. A distribution meeting the new floor is declared fair and equitable to the dissenting creditor, and Essar Steel had already ruled out a free-standing equitable jurisdiction in the tribunals. What remains arguable is compliance: whether the floor was correctly computed, and whether the CoC's recorded reasons show that section 30(4) was addressed.

Does the floor protect a financial creditor that abstains rather than voting against?

The clause is directed at financial creditors who do not vote in favour of the plan, which on its terms covers an abstention as much as a negative vote. Treat that as the working position, but make sure the abstention is recorded clearly in the voting result circulated by the resolution professional, since a defective record is the usual reason such claims are contested.

What should a lender do differently at the claim admission stage?

Fix the security valuation early. Because secured status is capped at the value of the security interest, the number driving both comparators is the realisable value of your charged assets as assessed in the process, not the figure carried in your books. File the claim with supporting valuation, engage with the registered valuers' assumptions while the exercise is running, and raise any discrepancy before the plan is put to vote.

What is the difference between comparator one and comparator two under the new floor?

Comparator one is the amount a dissenting financial creditor would receive under section 53(1) of the Insolvency and Bankruptcy Code, 2016 if the corporate debtor were liquidated, based on the liquidation value assessed by registered valuers. Comparator two applies the same section 53(1) priority order to the money actually available for distribution under the resolution plan. Since 26 May 2026, the creditor is entitled to whichever of the two figures is lower.

What did the Essar Steel judgment decide about equal treatment of creditors?

In Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta [(2020) 8 SCC 531], the Supreme Court held that equitable treatment means treating similarly situated creditors alike, not treating every creditor identically, and that the CoC may lawfully approve a plan providing differential payment to different classes of creditor. It also held that neither the NCLT nor the appellate tribunal has an unchartered equitable jurisdiction to rewrite an approved plan's distribution.

Why does the value of a lender's security interest no longer guarantee its payout?

The Amendment confirms that a creditor is secured only to the extent of the value of its security interest, with the unsecured balance of the claim ranking at section 53(1)(d), below workmen's and employees' dues. Since both comparators are computed by applying section 53(1) priority to the relevant pool of money, an under-secured lender's floor is capped by how much of its claim actually ranks in the secured tier, not by the face value of its charge.

What happens to an unsecured financial creditor's dissent floor under the new rule?

An unsecured financial creditor's claim ranks at section 53(1)(d), below secured creditors and workmen's and employees' dues. Where the distributable pool, whether on liquidation or under the plan, is exhausted before reaching that rank, the statutory floor for that creditor is nil, and the change in section 30(2) does not alter this outcome since it was already the position under the 2019 formula's liquidation-value comparator.

Does regulation 38 of the CIRP Regulations still give dissenting creditors a payment priority?

Yes. Regulation 38 of the CIRP Regulations continues to require dissenting financial creditors to be paid in priority to those who voted in favour of the plan. The 2026 Amendment changes how much a dissenter is guaranteed, not the timing advantage; dissent still converts a plan entitlement into an earlier payment obligation even where the quantum guaranteed has fallen.

Can a dissenting creditor challenge a plan on the ground that the applicant is ineligible under section 29A?

Yes. The statutory floor and the fair-and-equitable declaration in section 30(2) address only the quantum paid to a dissenting creditor; they do not immunise a plan from a challenge based on the resolution applicant's eligibility under section 29A, a related-party claim, or another infirmity unconnected to payout quantum, since a dissenter relying on those grounds was never relying on the floor in the first place.

What should a resolution applicant do differently when structuring distributions to dissenting creditors?

A resolution applicant should compute both comparators for every dissenting financial creditor, confirm the distribution meets the lower of the two, and ensure the CoC's recorded reasons explain the distribution by reference to section 53(1) rank and security value rather than by bare assertion. A plan whose minutes do not engage with an objecting creditor's specific ranking or valuation argument is now the likeliest point of a successful appeal under section 61(3).

How is the liquidation value used in comparator one actually determined?

Liquidation value is estimated by registered valuers appointed during the corporate insolvency resolution process, representing what the corporate debtor's assets would realise in a forced sale, reduced by the costs of liquidation before being distributed down the section 53(1) waterfall. Because this is a valuer's estimate rather than a figure fixed by the market, its accuracy directly affects both comparators and is a common point of dispute for creditors challenging the computed floor.

Vikrant D. Shetty | Vikrant D. Shetty leads the Insolvency and Arbitration Practice at the law firm Vikrant D. Shetty & Associates, Advocates & Solicitors, which advises financial creditors, operational creditors, and corporate debtors in proceedings before the National Company Law Tribunal (NCLT), Mumbai Bench, including committee of creditors voting, resolution plan compliance under section 30(2), and challenges to plan approval, and represents parties in domestic and international commercial arbitrations seated in India and abroad, including enforcement and challenge proceedings before the Bombay High Court.

Related reading: IBC vs SARFAESI: Which Route Delivers Faster Asset Realisation.

This article is for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please seek direct consultation with an advocate.