Section 40: Admission or Rejection of Claims
Section 40 of the Insolvency and Bankruptcy Code, 2016 deals with the liquidator's decision on creditor claims after verification. A claim may be admitted or rejected wholly or partly, but rejection requires written reasons and the statutory decision must be communicated as provided by the Code.
Section 40 - Statutory provision
(1) The liquidator may, after verification of claims under section 39, either admit or reject the claim, in whole or in part, as the case may be:
Provided that where the liquidator rejects a claim, he shall record in writing the reasons for such rejection.
(2) The liquidator shall communicate his decision of admission or rejection of claims to the creditor and corporate debtor within seven days of such admission or rejection of claims.
Meaning of admission or rejection of a claim
Section 40 operates after verification under Section 39. Following verification, the liquidator may admit the entire claim, admit only part of it, or reject it. The provision therefore separates the evidentiary verification stage from the liquidator's formal decision on the claim.
Written reasons are required for rejection
The proviso to Section 40(1) expressly requires the liquidator to record reasons in writing when rejecting a claim. This statutory requirement applies whether the rejection concerns the whole claim or the relevant rejected part. A reasoned decision also enables the affected creditor to understand the basis of rejection and exercise any remedy available under the Code.
Communication within seven days
Under Section 40(2), the liquidator must communicate the decision admitting or rejecting a claim to both the creditor and the corporate debtor within seven days of the admission or rejection. This communication requirement follows the liquidator's decision on the verified claim.
How Sections 38, 39 and 40 work together
The claims process under the Code is sequential. Section 38 addresses submission and consolidation of claims. Section 39 requires verification and permits the liquidator to seek further documents or evidence. Section 40 then governs the decision to admit or reject the verified claim.
IBBI Liquidation Process Regulations
The Insolvency and Bankruptcy Board of India issues the IBBI (Liquidation Process) Regulations, 2016, which provide the detailed regulatory framework for corporate liquidation. The regulations have been amended periodically, including amendments in 2026, and should be consulted together with the Code for current procedural requirements concerning claims, stakeholder lists and liquidation filings.
Official legal resources
Current regulatory material can be checked on the IBBI Liquidation Process Regulations page and the IBBI circulars page. These official resources contain updated regulations, amendments and prescribed regulatory formats.