Section 177: Claims of Creditors

Section 177 of the Insolvency and Bankruptcy Code, 2016 protects a creditor who proves a bankruptcy debt after one or more dividends have already been declared, while preserving distributions that were properly made before the debt was proved.

Legal context: A creditor who proves late cannot reopen or disturb an earlier dividend merely because the creditor did not participate in it. However, subject to the statutory conditions, missed dividends are payable from money available for a further dividend and are paid before that money is used for the further distribution.

Text of Section 177 - Claims of creditors

(1) A creditor who has not proved his debt before the declaration of any dividend is not entitled to disturb, by reason that he has not participated in it, the distribution of that dividend or any other dividend declared before his debt was proved, but-

(a) when he has proved the debt, he shall be entitled to be paid any dividend or dividends which he has failed to receive, out of any money for the time being available for the payment of any further dividend; and

(b) any dividend or dividends payable to him shall be paid before that money is applied to the payment of any such further dividend.

(2) No action shall lie against the bankruptcy trustee for a dividend, but if the bankruptcy trustee refuses to pay a dividend payable under sub-section (1), the Adjudicating Authority may order him to-

(a) pay the dividend; and

(b) pay, out of his own money-

(i) interest on the dividend; and

(ii) the costs of the proceedings in which the order to pay has been made.

Meaning and effect of Section 177

Earlier distributions are not reopened

Sub-section (1) prevents a creditor who had not proved the debt before declaration of a dividend from disturbing that distribution merely because the creditor did not participate. The same principle applies to other dividends declared before the debt was proved.

Right to missed dividends after proof

Once the creditor proves the debt, the creditor becomes entitled to any dividend or dividends previously missed, but payment is made from money then available for payment of a further dividend. Those missed dividends must be paid before that money is applied to the further dividend.

Remedy where the bankruptcy trustee refuses payment

Sub-section (2) states that no action lies against the bankruptcy trustee for a dividend. If the trustee refuses to pay a dividend that is payable under sub-section (1), the Adjudicating Authority may order payment. It may also order the trustee to pay interest on the dividend and the costs of the proceedings out of the trustee's own money.

Key points

A creditor who proves a debt late cannot disturb dividends distributed before the debt was proved.
After proof, missed dividends may be recovered from money available for a further dividend.
Missed dividends have to be paid before that available money is used for the further dividend.
The statutory remedy for refusal by the bankruptcy trustee lies before the Adjudicating Authority.
The trustee may personally bear interest and proceeding costs if ordered under sub-section (2).

Related IBC provisions

Section 171 deals with proof of debt. Section 174 governs interim dividends, Section 176 deals with final dividend, and Section 178 sets out the priority of payment of debts.

Current legal framework

The Insolvency and Bankruptcy Code, 2016 has been amended from time to time, including by the Insolvency and Bankruptcy Code (Amendment) Act, 2026. The applicable commencement notifications, rules and regulations should be checked on the official IBBI legal framework for a particular proceeding.

Page reviewed for the legal framework available as of September 2026.