Unsecured Creditors under the IBC: What Rights They Actually Have

An unsecured creditor holds no charge over the debtor’s assets. When the debtor enters insolvency, the position of an unsecured creditor under the IBC depends on two things: whether its debt is financial or operational, and where it sits in the distribution order. This article sets out the rights that actually exist under the Insolvency and Bankruptcy Code, 2016 (“IBC”), including the changes in force from 26 May 2026.

Who Counts as an Unsecured Creditor under the IBC?

“Creditor” under Section 3(10) includes financial creditors, operational creditors, secured creditors, unsecured creditors and decree-holders. An unsecured creditor under the IBC may be:

• an unsecured financial creditor, owed a financial debt under Section 5(8) without security, such as an unsecured loan or debenture; or
• an operational creditor under Section 5(20), owed a debt for goods or services, employment dues, or dues payable to a government authority under law.

The classification is not a matter of choice. It follows from the nature of the transaction, as the Supreme Court explained in Global Credit Capital Ltd. v. Sach Marketing Pvt. Ltd. (25 April 2024).

Initiating CIRP as an Unsecured Creditor

Threshold. Section 4 applies Part II where the minimum default is ₹1 crore, as specified by notification S.O. 1205(E) dated 24 March 2020. The earlier ₹1 lakh figure applies only to applications filed before that date.

Operational creditors. Section 8 requires a demand notice; the corporate debtor has ten days to pay or to bring an existing dispute to the creditor’s notice. If it does neither, the creditor may apply under Section 9. A plausible pre-existing dispute defeats the application: Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353.

Unsecured financial creditors. An unsecured financial creditor under the IBC may initiate CIRP under Section 7 when a qualifying default has occurred. No demand notice under Section 8 is required.

From 26 May 2026: an operational creditor must, under amended Section 215(3), submit financial information to an information utility before filing under Section 9, and under Section 215(4) information not authenticated by the debtor within the specified period is deemed authenticated.

What Rights Do Unsecured Creditors Have in CIRP?

• Committee of creditors. Under Section 21, the committee comprises financial creditors. Unsecured financial creditors are members and vote; operational creditors are not members. Section 24(3)(c) requires notice of meetings to operational creditors or their representatives where their aggregate dues are at least ten per cent of the debt, but they have no vote.
• Related parties. Under the first proviso to Section 21(2), a financial creditor that is a related party of the corporate debtor has no right of representation, participation or voting.
• Classes of creditors. Where creditors in a class are numerous, such as allottees or debenture holders, Section 21(6A) provides for an authorised representative who votes as the class decides, under Section 25A.
• Claims. Claims are submitted to the interim resolution professional following the public announcement under Section 15. Section 18(b), as amended in 2026, requires the professional to verify claims and, if required, determine their value.

What Must a Resolution Plan Provide

Regulation 38(1) of the CIRP Regulations requires the amount due to operational creditors to be paid in priority over financial creditors, and the NCLAT has held that this payment must be in cash rather than in securities: Gupta Textiles v. Darshan Patel & Ors. (1 April 2024).

Position in Liquidation

Section 53(1) sets the order: insolvency and liquidation costs; workmen’s dues for twenty-four months and debts of secured creditors who relinquished security; employee wages for twelve months; unsecured financial creditors; Government dues for two years and unpaid balances of secured creditors who enforced security; remaining debts and dues; preference shareholders; and equity.

Operational creditors who are not employees or Government generally fall in the residual category, below unsecured financial creditors. Two 2026 changes matter here:

• 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 value of the security and unsecured for the balance, which increases the pool of unsecured claims competing at lower rungs; and
• an Explanation to Section 53(1)(e)(i) confines Government dues at that rung to the two years preceding the liquidation commencement date, placing the remainder in clause (f).

Remedies Where the Process is Misused

• Avoidance transactions. Under the substituted Section 47, a creditor, alone or jointly, may apply to the Adjudicating Authority where the resolution professional or liquidator has not reported a preferential, undervalued or extortionate transaction or fraudulent or wrongful trading, and the Adjudicating Authority may direct the IBBI to initiate disciplinary proceedings against the professional.
• Penalties. New Sections 64A and 183A provide for penalties of not less than ₹1 lakh and up to ₹2 crore for frivolous or vexatious proceedings; Section 67B penalises contravention of the moratorium or of an approved plan, and Section 67C penalises concealment by an operational creditor of a dispute or payment.
• Appeals.An unsecured creditor may appeal an order to the NCLAT under Section 61, subject to the statutory grounds and requirements. Where a resolution plan is challenged, Section 61(3) sets out the applicable grounds, while Section 61(6) now requires appeals to be disposed of within three months.

Practical Points

• File the claim in the correct form, with proof, within the timeline in Regulation 12; belated claims after the committee approves a plan are generally not admitted.
• Unsecured financial creditors should participate actively: the vote is the principal lever they have.
• Operational creditors should focus on the Section 30(2)(b) computation and the requirement of payment in cash and in priority.
• Once a plan is approved, Section 31(6) extinguishes claims that were not provided for, except against promoters, persons in management or control and guarantors.

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(10), 4, 5(8), 5(20), 7, 8, 9, 15, 18, 21, 24, 25A, 30, 31, 47, 53, 61, 64A, 67B, 67C, 183A, 215 (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. Ministry of Corporate Affairs, Notification S.O. 1205(E) dated 24 March 2020
4. IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 — Regulations 12 and 38 — IBBI – Regulations
5. Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353, Supreme Court of India
6. Global Credit Capital Ltd. v. Sach Marketing Pvt. Ltd., Supreme Court of India, 25 April 2024
7. Gupta Textiles v. Darshan Patel & Ors., NCLAT, New Delhi, 1 April 2024 — report, LiveLaw