Group companies routinely lend to one another. When one of them enters a corporate insolvency resolution process (“CIRP”) under the Insolvency and Bankruptcy Code, 2016 (“IBC”), a related-party creditor under the IBC may find itself in an unusual position: its debt is recognised, but it has no right to vote in the committee of creditors (“CoC”), and a resolution plan may provide it little or nothing. Whether such a creditor can challenge differential treatment as discrimination was considered by the National Company Law Appellate Tribunal (“NCLAT”) in an appeal involving a related-party creditor.

Who is a Related Party

Section 5(24) defines “related party” in relation to a corporate debtor through an extensive list, including directors and their relatives, key managerial personnel, holding, subsidiary and associate companies, persons who control the composition of the board, and persons under whose instructions the directors are accustomed to act.

Section 5(24A) contains a parallel definition for individuals, relevant in Part III proceedings.

No Vote in the Committee of Creditors

The first proviso to Section 21(2) provides that a financial creditor who is a related party of the corporate debtor shall have no right of representation, participation or voting in the committee of creditors (“CoC”). The second proviso carves out a financial creditor that is a related party solely on account of a conversion or substitution of debt into equity before the insolvency commencement date.

The exclusion is about control, not about the existence of the debt: a related-party financial debt remains a claim, and is admitted as such by the resolution professional.

Following the Insolvency and Bankruptcy Code (Amendment) Act, 2026, Section 5(28) defines voting share by reference to the financial debt owed to the members of the CoC who are eligible to vote, which makes the arithmetic consistent with the exclusion.

The NCLAT Decision

In Manav Investments and Trading Co. Ltd. v. Pratim Bayal & Ors. (NCLAT, New Delhi, January 2024), as reported, a related-party creditor challenged the treatment of its claim in an approved resolution plan. The case considered whether a related-party financial creditor under the IBC could claim treatment comparable to unrelated unsecured financial creditors.

The reported holding is that related parties cannot claim entitlement to any particular amount under a resolution plan, and cannot claim discrimination by comparison with payments made to unrelated unsecured financial creditors.

The reasoning builds on the Supreme Court’s decision in M.K. Rajagopalan v. Dr. Periasamy Palani Gounder, (2024) 1 SCC 42, where the Court held that there is no provision in the IBC requiring related parties to be paid on par with unrelated parties, and that differential payment to different classes is a matter for the CoC’s commercial judgment.

A later NCLAT decision, Shankar Mukherjee v. Ravi Sethia (14 May 2025), applied the same approach, observing that the Code permits differential treatment between related and unrelated parties, and that where an entire class of unsecured financial creditors receives nil under a plan, no discrimination arises against one member of that class.

The Boundaries

These decisions do not permit arbitrary treatment of a related-party creditor under the IBC within a class. The relevant limits are:

• Equal treatment within a class. A plan that treats similarly placed creditors within the same class differently, without a rational basis, remains open to challenge. The NCLAT has directed modification of plans in such cases.
• Statutory minimums. Section 30(2)(b) fixes the floor for operational creditors, and from 26 May 2026 Section 30(2)(ba) fixes the floor for financial creditors who do not vote in favour. A related-party financial creditor does not vote at all, which raises questions about the application of clause (ba) to it that have yet to be worked out in reported decisions.
• Recorded reasons. Section 30(4) now requires the CoC to record reasons for approving a plan, which gives a reviewing tribunal material against which to test a differential distribution.
• Avoidance provisions. Related-party transactions face a longer look-back under Section 43: two years, now measured from two years preceding the initiation date and ending on the insolvency commencement date.

Practical Implications

For group lenders. Advancing funds to an affiliate carries an insolvency consequence beyond credit risk: no vote, and no entitlement to insist on treatment matching unrelated creditors. Where possible, the commercial terms and the documentation should be at arm’s length and contemporaneously recorded, since that is what determines both the classification of the debt and the scrutiny of any repayments.

For committees of creditors and resolution applicants. Differential treatment of related parties is permissible, but the reasons should be recorded, and the plan should state clearly how each class is treated and why.

For resolution professionals. Identification of related parties affects the constitution of the CoC and the validity of its decisions, and is among the matters most often litigated after a plan is approved.

Frequently Asked Questions

Can a related-party financial creditor vote in the CoC?
No. Section 21(2) generally excludes a related-party financial creditor from representation, participation and voting in the CoC.

Can a related-party creditor challenge a resolution plan?
It may challenge the plan on legally recognised grounds, but it cannot claim payment equal to unrelated creditors merely because its debt is admitted.

Can related-party creditors be treated differently under the IBC?
Yes. The IBC permits differential treatment, subject to statutory requirements and the limits on arbitrary discrimination within a class.

Does a related-party financial debt remain valid?
Yes. Related-party status affects participation and voting rights in the CoC; it does not by itself extinguish the underlying debt or claim.

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 5(24), 5(24A), 5(28), 21, 30, 43 (as amended) — IBBI – Legal Framework
2. Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026) — Gazette text (IBBI); Notification S.O. 2625(E) dated 22 May 2026 — IBBI
3. Manav Investments and Trading Co. Ltd. v. Pratim Bayal & Ors., NCLAT, New Delhi, January 2024 — summary, IBC Laws
4. M.K. Rajagopalan v. Dr. Periasamy Palani Gounder, (2024) 1 SCC 42, Supreme Court of India, 3 May 2023 — Indian Kanoon
5. Shankar Mukherjee v. Ravi Sethia, Company Appeal (AT) (Ins.) No. 01 of 2024, NCLAT, 14 May 2025 — Indian Kanoon