Does a Dissenting Secured Creditor Get the Value of Its Security under the IBC? The Unresolved Question and the 2026 Answer

Secured lenders do not all hold the same security. One may have an exclusive first charge over a valuable asset, while another may have a residual charge over the same estate. When a resolution plan distributes value, a lender with stronger security may question why it should receive the same proportion as a lender with weaker security. Under the Insolvency and Bankruptcy Code, 2016 (“IBC”), the treatment of a dissenting secured creditor has evolved over time, and in 2026 Parliament introduced a statutory formula.

Why Security Value Became Contentious

In liquidation, Section 52 allows a secured creditor either to relinquish its security to the liquidation estate and take its share under Section 53, or to realise the security itself. A creditor with strong security may therefore do better in liquidation than one without.

In a resolution, the plan binds all creditors, including those who vote against it. The question is whether a dissenting secured creditor’s minimum entitlement is measured by reference to its security.

The Divergence in the Case Law

• In Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531, the Supreme Court held that a dissenting financial creditor is entitled at least to what it would receive under Section 53(1) in a liquidation, and made observations recognising differences between secured creditors in the exercise of the committee’s commercial judgment.
• In India Resurgence ARC Pvt. Ltd. v. Amit Metaliks Ltd. (Supreme Court, 13 May 2021), the Court rejected a dissenting secured creditor’s claim to be paid according to the value of its security, emphasising the primacy of the committee of creditors’ commercial wisdom.
• In DBS Bank Ltd., Singapore v. Ruchi Soya Industries Ltd. & Anr., 2024 INSC 14 (3 January 2024), a two-judge Bench (Sanjiv Khanna and S.V.N. Bhatti, JJ.) reasoned that Section 53 should be read with Section 52, so that a dissenting secured creditor should receive the monetary value it would have realised from its security, while not being permitted to enforce the security itself. Finding this difficult to reconcile with India Resurgence ARC, the Bench referred the question to a larger Bench.

As on 16 September 2026, no judgment of a larger Bench answering that reference had been reported.

The Statutory Answer from 26 May 2026

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 removed the dissenting-creditor formula from Section 30(2)(b) and inserted clause (ba). A plan must now provide for payment to financial creditors who do not vote in favour of not less than the lower of:

1. the amount payable to them in a liquidation under Section 53; or
2. the amount they would receive if the amount to be distributed under the plan were distributed in the order of priority in Section 53(1).

Explanation I declares that a distribution in accordance with the clause shall be fair and equitable to such creditors. Explanation II excludes CIRPs where, on or before 26 May 2026, the committee had approved a plan, or liquidation had been ordered or intimated.

Two further provisions shape the computation:

• an Explanation to Section 53(1)(b)(ii) provides that a secured creditor who relinquishes security worth less than its debt is secured only to the extent of the value of that security, determined as specified, and unsecured for the balance; and
• an Explanation to Section 3(31) confines “security interest” to interests created by agreement, excluding those arising merely by operation of law.

The 2026 formula therefore addresses the quantum question through the liquidation waterfall and a plan-value comparison, rather than by giving a dissenting secured creditor under the IBC the realisable value of its security. Whether the larger Bench, when it decides the reference, will express a view on the relationship between its answer and clause (ba) remains to be seen.

Which Regime Applies?

Practical Points

• Lenders should record the basis of valuation of their security and the inter-creditor arrangements, since Section 53(2) now contains illustrations confirming that inter-creditor priority agreements between secured creditors are respected, while arrangements subordinating workmen are disregarded.
• For processes in the transitional category, the pre-amendment case law continues to matter, and the outcome of the reference could affect pending appeals.
• Dissent is not costless: under clause (ba), the floor is the lower of two measures, and the plan may in any case offer more than the statutory minimum.

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 3(31), 30(2), 52, 53 (as amended) — IBBI – Legal Framework
2. Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026), clauses 2, 18 and 32 — Gazette text (IBBI); Notification S.O. 2625(E) dated 22 May 2026 — IBBI
3. Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531, Supreme Court of India
4. India Resurgence ARC Pvt. Ltd. v. Amit Metaliks Ltd., Supreme Court of India, 13 May 2021
5. DBS Bank Ltd., Singapore v. Ruchi Soya Industries Ltd. & Anr., 2024 INSC 14, Supreme Court of India, 3 January 2024 — report, Verdictum