Insolvency and Bankruptcy Code, 2016 | Section 110

Rights of Secured Creditors in Relation to Repayment Plan - Section 110

Section 110 of the Insolvency and Bankruptcy Code, 2016 (IBC) governs how secured creditors participate and vote on a repayment plan, when enforcement of security is restricted, and when their concurrence is necessary.

Key principle: A secured creditor may vote on a repayment plan, but voting on the secured debt has consequences for enforcement of the security during the plan period. A creditor seeking to preserve enforcement rights must follow the affidavit procedure for voting only on the unsecured portion.

Meaning and scope of Section 110

A secured creditor is a creditor in whose favour a security interest is created. Under the IBC, a security interest generally refers to a right, title, interest or claim to property created to secure payment or performance of an obligation, including a mortgage, charge, hypothecation or assignment (see Section 3(30) and Section 3(31) of the IBC). A repayment plan is the debtor's proposal, prepared in consultation with the resolution professional under Section 105, to restructure debts or affairs.

Section 110 is part of the insolvency resolution framework for individuals and partnership firms under Part III of the Code. Its practical application must be read with the relevant commencement notifications and rules, including those applicable to personal guarantors to corporate debtors; it should not be assumed that every Part III provision is operational for every category of individual or firm.

Section 110 explained, subsection by subsection

Section 110(1) - Participation and voting

Secured creditors are entitled to participate and vote in meetings of creditors. Their voting is subject to the voting-share and eligibility provisions of Section 109.

Section 110(2) - Effect of voting on security enforcement

A secured creditor who participates and votes in relation to the repayment plan forfeits the right to enforce the security during the period of the repayment plan, in accordance with the plan's terms. This is a restriction tied to the defined plan period, not a general statement that the security is permanently extinguished.

Section 110(3) - Affidavit when enforcement rights are retained

Where a secured creditor does not forfeit the right to enforce security, the creditor must submit an affidavit to the resolution professional at the creditors' meeting stating:

Clause (a): voting is exercised only for the unsecured part of the debt; and
Clause (b): the estimated value of that unsecured part.

Section 110(4) - Separate treatment of debt

If a secured creditor votes by submitting the affidavit under subsection (3), the secured and unsecured parts of the debt are treated as separate debts for the purposes of that voting arrangement.

Section 110(5) - Concurrence of non-voting secured creditor

If a secured creditor does not vote on the repayment plan but a provision of the plan affects the creditor's right to enforce security, that creditor's concurrence must be obtained.

Explanation - Period of the repayment plan

For Section 110, the period of the repayment plan begins on the date of the order under Section 114 and continues until the resolution professional gives notice under Section 117 (completion of the plan) or submits a report under Section 118 (premature end of the plan), as applicable.

How Section 110 works with other IBC provisions

Section 105: preparation and content of the repayment plan.
Sections 108 and 109: conduct of creditors' meetings and determination of voting rights.
Section 111: approval of the repayment plan or modification by more than three-fourths in value of creditors present in person or by proxy and voting.
Sections 114 and 115: adjudicating authority's approval or rejection and the effect of an approved plan.
Sections 117 and 118: notice of completion or report on premature termination, relevant to the defined plan period.

Practical implications for secured creditors

Before voting, a secured creditor should identify the secured and unsecured portions of its claim, assess how the proposed plan treats the security, and decide whether to vote on the debt subject to Section 110(2) or retain enforcement rights while following Section 110(3). A plan that affects a non-voting secured creditor's enforcement rights requires concurrence under Section 110(5). The creditor should also check applicable procedural rules and regulations, claim verification and valuation requirements.

Official legal sources

For the statutory text and applicable framework, consult the Insolvency and Bankruptcy Code, 2016 on India Code and the IBBI legal framework for rules, regulations, notifications and amendments. The interpretation above is a guide; the statutory provisions and currently applicable notifications govern.