October 2, 2026

Must Operational Creditors Be Paid in Cash under a Resolution Plan? Section 30(2)(b) of the IBC after Gupta Textiles

Ensuring Fairness in Resolution: The NCLAT's Stance on Cash Payments to Operational Creditors

Resolution applicants sometimes propose to satisfy operational creditors with securities instead of cash, including equity shares, preference shares, or instruments payable in the future. Whether such securities can satisfy the payment requirement under Section 30(2)(b) of the IBC was considered by the National Company Law Appellate Tribunal (NCLAT) in an appeal by an operational creditor against the approval of a resolution plan.

The Statutory Requirement

Section 30(2)(b) of the IBC requires a resolution plan to provide for payment of the debts of operational creditors in the manner specified by the Insolvency and Bankruptcy Board of India, which shall not be less than the higher of:

  • the amount to be paid to such creditors in the event of liquidation of the corporate debtor under Section 53; or
  • the amount that would have been paid to such creditors if the amount to be distributed under the plan had been distributed in accordance with the order of priority in Section 53(1).

Regulation 38(1) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provides that the amount due to operational creditors under a resolution plan shall be paid in priority over financial creditors.

In Jaypee Kensington Boulevard Apartments Welfare Association v. NBCC (India) Ltd., (2022) 1 SCC 401, the Supreme Court considered the treatment of operational creditors and the requirement of priority in payment.

The Decision in Gupta Textiles

In Gupta Textiles v. Darshan Patel & Ors. (NCLAT, New Delhi, 1 April 2024), as reported, an operational creditor challenged the approval of a resolution plan which proposed a small cash component for operational creditors and satisfied the balance by issuing partly paid redeemable preference shares.

The Appellate Tribunal held that the amount payable to operational creditors under Section 30(2)(b) has to be paid in priority and by way of cash payment, not by issuing equity or partly paid redeemable preference shares. The reported reasoning draws on Jaypee Kensington, where the Supreme Court dealt with the position of operational creditors in the distribution mechanism of a plan.

The practical reason is straightforward. The comparison required by Section 30(2)(b) is with what the creditor would receive in a liquidation or under a Section 53(1) distribution, both of which are distributions of money. An instrument whose value depends on the future performance of the resolved company, or which is only partly paid, is not equivalent to that entitlement.

What this Does not Decide?

  • The quantum. The decision concerns the form of payment. The amount remains governed by the statutory formula, and the committee of creditors’ commercial judgment on distribution is otherwise respected, as held in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531.
  • Voluntary acceptance. Where an operational creditor agrees to take securities, different considerations may arise on the facts.
  • Timing. Payment in priority concerns the order in which classes are paid; the plan may still provide a payment schedule, subject to the requirement of priority.

Position After 26 May 2026

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 left the operational creditor formula in Section 30(2)(b) intact, with its “higher of” comparison. What changed is the treatment of dissenting financial creditors: the portion of clause (b) dealing with them was omitted and replaced by new clause (ba), which fixes their minimum at the lower of the two comparable figures and declares such a distribution fair and equitable. By Explanation II, clause (ba) does not apply where the plan had already been approved by the committee of creditors, or liquidation had been ordered or intimated, before 26 May 2026.

The result is a visible asymmetry in the amended Section 30(2): operational creditors take the higher of the two measures, dissenting financial creditors the lower.

Two further changes are relevant to plan scrutiny:

  • Section 30(4) now requires the committee of creditors to record reasons for approving a plan.
  • A proviso to Section 31(2) allows the Adjudicating Authority, before rejecting a plan, to give notice to the committee of creditors to rectify defects, which offers a route to correct a non-compliant payment mechanism rather than reject the plan outright.

Practical Points

  • A plan that pays operational creditors in securities is open to challenge on the form of payment, regardless of the notional value attributed to those securities.
  • Resolution applicants should model the Section 30(2)(b) comparison in cash terms and state the cash amount clearly in the plan.
  • Operational creditors who object should raise the point before the Adjudicating Authority at the approval stage; appeals under Section 61 lie on the grounds listed in Section 61(3), and the NCLAT must now dispose of appeals within three months under Section 61(6).

FAQs

1. Can operational creditors be paid through shares under Section 30(2)(b) IBC?
The Gupta Textiles ruling held that the statutory payment to operational creditors must be made in cash, rather than through equity or partly paid redeemable preference shares.

2. What is the minimum payment to operational creditors under Section 30(2)(b)?
The plan must provide at least the higher of the amount payable under Section 53 in liquidation or the amount payable under the Section 53(1) distribution priority.

3. Does Section 30(2)(b) IBC require priority payment?
Yes. Operational creditors must receive their statutory entitlement in the manner required under the IBC and applicable regulations, including the prescribed priority.

Legal Information Disclaimer

This article provides general information about Indian law as it stood on 16 September 2026. It is not legal advice, and reading it does not create an advocate–client relationship. Statutes, rules and judicial interpretations change, and their application depends on the facts of each matter. Readers should consult the current official text of the laws and judgments cited and should not act on this information without advice specific to their circumstances. This article is published for legal awareness and education and is not intended to advertise or solicit professional work.

Sources / Authorities

  1. Insolvency and Bankruptcy Code, 2016 — Sections 30, 31, 53, 61 (as amended) — IBBI – Legal Framework
  2. Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026), clauses 18, 19 and 43 — Gazette text (IBBI); Notification S.O. 2625(E) dated 22 May 2026 — IBBI
  3. IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 — Regulation 38 — IBBI – Regulations
  4. Gupta Textiles v. Darshan Patel & Ors., NCLAT, New Delhi, 1 April 2024 — report, LiveLaw
  5. Jaypee Kensington Boulevard Apartments Welfare Association v. NBCC (India) Ltd., (2022) 1 SCC 401, Supreme Court of India, 24 March 2021
  6. Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531, Supreme Court of India, 15 November 2019
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