IBC Section 135: Voting rights of creditors

Section 135 of Insolvency and Bankruptcy Code, 2016: Voting rights of creditors

Official Bare Act Text

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

(1) Every creditor mentioned in the list under section 132 or his proxy shall be entitled to vote in respect of the resolutions in the meeting of the creditors 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) The following creditors shall not be entitled to vote under this section, namely:-

(a) creditors who are not mentioned in the list of creditors under section 132 and those who have not been given a notice by the bankruptcy trustee;

(b) creditors who are associates of the bankrupt.

Legal Commentary & Landmark Judgments: Section 135

Section 135 governs the voting rights of creditors in bankruptcy meetings, tying voting power directly to the admitted financial value of their respective claims.

Proportionate Voting Share: Every creditor is entitled to vote in proportion to the value of the debt owed to him that has been admitted by the bankruptcy trustee.
Secured Creditors' Voting Restrictions: A secured creditor is entitled to vote only in respect of the unsecured balance of his debt, unless he unconditionally surrenders his security interest to the bankruptcy estate.
Bar on Related Parties: A creditor who is an associate or related party of the bankrupt has no right to vote in any meeting of creditors under Chapter IV.

Key Landmark Precedents:

Phoenix ARC Pvt. Ltd. v. Spade Financial Services Ltd. (2021) 3 SCC 475: The Supreme Court held that statutory exclusion of related parties from voting is mandatory to prevent tainted entities from sabotaging genuine recoveries.
State Bank of India v. V. Ramakrishnan (2018) 17 SCC 394: Emphasized that voting mechanisms under individual insolvency must strictly prevent fraudulent self-dealing by associates of the bankrupt.

Courtroom Practice & Strategic Litigation Guidance:

Financial creditors voting in Section 135 meetings must calculate their net voting entitlement by deducting the appraised valuation of any retained collateral to prevent post-vote challenges to resolution validity.