Section 109 Voting Rights in Meeting of Creditors under the Insolvency and Bankruptcy Code, 2016

Section 109 of the Insolvency and Bankruptcy Code, 2016 governs voting rights at meetings of creditors in the insolvency resolution process for individuals and partnership firms. It links a creditor's vote to the voting share assigned by the resolution professional and identifies debts and creditors that cannot carry voting rights.

Text of Section 109 - Voting rights in meeting of creditors

Meaning and purpose of Section 109

Section 109 establishes who may vote and the weight of each eligible creditor's vote when creditors consider a repayment plan. The provision is part of the meeting framework under Sections 107 to 112 and should be read with the applicable regulations made by the Insolvency and Bankruptcy Board of India.

Voting according to assigned voting share

Under Section 109(1), an eligible creditor is entitled to vote at every meeting concerning the repayment plan in accordance with the voting share assigned to that creditor. The Code therefore does not treat every creditor as having an equal numerical vote. Voting power is determined by the assigned voting share.

Who determines the voting share?

Section 109(2) places the responsibility on the resolution professional to determine the voting share of each creditor in the manner specified by the Insolvency and Bankruptcy Board of India. For proceedings involving personal guarantors to corporate debtors, the applicable IBBI regulations should be checked for the current method of determining voting shares and related meeting procedure.

Unliquidated debt does not carry a vote

Section 109(3) excludes voting in respect of a debt for an unliquidated amount. In this context, an unliquidated amount is one that has not been ascertained or quantified into a definite monetary sum for the purpose of the voting process. The statutory exclusion prevents an uncertain amount from being used to determine voting power.

Creditor must appear in the Section 104 list

Under Section 109(4)(a), a creditor who is not mentioned in the list of creditors prepared under Section 104 is not entitled to vote at the meeting. The preparation of an accurate list under Section 104 is therefore directly connected with voting eligibility.

Associate of the debtor cannot vote

Section 109(4)(b) disqualifies an associate of the debtor from voting at the meeting of creditors. The expression "associate" is defined for Part III of the Code in Section 79. The statutory definition should be applied to the facts of the particular creditor-debtor relationship rather than treating every commercial or personal connection as an associate relationship.

Secured creditors and Section 110

Section 110 contains specific rules for secured creditors. A secured creditor is entitled to participate and vote, but the exercise of voting rights can affect the creditor's right to enforce security during the repayment plan. Where the secured creditor does not forfeit enforcement rights, the Code provides for voting in respect of the unsecured part of the debt subject to the requirements of Section 110.

Approval threshold under Section 111

Voting shares determined under Section 109 are relevant to the statutory majority required under Section 111 for approval of the repayment plan or a modification to it. The voting entitlement under Section 109 should therefore be distinguished from the separate question of whether the required majority has been achieved.

Key points at a glance

• An eligible creditor may vote at every creditors' meeting concerning the repayment plan.
• The weight of the vote depends on the voting share assigned to the creditor.
• The resolution professional determines voting shares in the manner specified by the IBBI.
• A debt for an unliquidated amount does not carry voting rights.
• A creditor not included in the Section 104 list cannot vote.
• An associate of the debtor cannot vote.
• Secured creditors are additionally governed by Section 110.
• The voting shares are relevant to the approval threshold under Section 111.

Related provisions

Section 109 should be read with Section 108 on conduct of the meeting of creditors, Section 104 on preparation of the list of creditors, Section 110 on secured creditors, Section 111 on approval of the repayment plan and Section 112 on the resolution professional's report of the meeting.

This page provides statutory reference material and general legal information. The current Code, applicable rules, regulations, notifications and binding judicial decisions should be checked for a particular proceeding.