IBC Section 109: Voting rights in meeting of creditors

Section 109 of Insolvency and Bankruptcy Code, 2016: Voting rights in meeting of creditors

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

(1) A creditor shall be entitled to vote at every meeting of the creditors in respect of the repayment plan in accordance with the voting share assigned to him.

(2) The resolution professional shall determine the voting share to be assigned to each creditor in the manner specified by the Board.

(3) A creditor shall not be entitled to vote in respect of a debt for an unliquidated amount.

(4) A creditor shall not be entitled to vote in a meeting of the creditors if he-

(a) is not a creditor mentioned in the list of creditors under section 104; or

(b) is an associate of the debtor.

Legal Commentary & Landmark Judgments: Section 109

Section 109 defines the statutory voting rights of creditors at the meeting, providing that voting shares are determined strictly in proportion to the value of debts owed.

Proportionate Voting Share: Every creditor shall be entitled to vote at every meeting in proportion to the voting share assigned to him based on the value of his admitted debt.
Related Party Exclusion (Section 109(2)): A creditor who is an associate or related party of the debtor shall not be entitled to vote at any meeting of creditors.
Voting in Person or Proxy: Creditors may vote in person, by proxy, or by electronic voting.
Unliquidated Claims Bar: Creditors holding unliquidated or contingent claims cannot vote until their claims are valued.

Key Landmark Precedents:

Dilip B. Jiwrajka v. Union of India (2024) 5 SCC 436: The Supreme Court noted that Section 109 establishes a strictly democratic voting system where financial weight dictates decision-making, while excluding conflicted related parties.
Phoenix ARC Pvt. Ltd. v. Spade Financial Services Ltd. (2021) 3 SCC 475: The Supreme Court held that the disqualification of related parties under insolvency voting provisions is vital to prevent sham voting rings from hijacking resolution plans.

Courtroom Practice & Strategic Litigation Guidance:

Scrutinize the voting share table before the vote under Section 109. If family members or affiliated entities have submitted claims to dilute independent banks, move the RP to exclude them under Section 109(2) as related parties.