IBC Section 171: Proof of debt

Section 171 of Insolvency and Bankruptcy Code, 2016: Proof of debt

Official Bare Act Text

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

(1) The bankruptcy trustee shall give notice to each of the creditors to submit proof of debt within fourteen days of preparing the list of creditors under section 132.

(2) The proof of debt shall-

(a) require the creditor to give full particulars of debt, including the date on which the debt was contracted and the value at which that person assesses it;

(b) require the creditor to give full particulars of the security, including the date on which the security was given and the value at which that person assesses it;

(c) be in such form and manner as may be prescribed.

(3) In case the creditor is a decree holder against the bankrupt, a copy of the decree shall be a valid proof of debt.

(4) Where a debt bears interest, that interest shall be provable as part of the debt except in so far as it is owed in respect of any period after the bankruptcy commencement date.

(5) The bankruptcy trustee shall estimate the value of any bankruptcy debt which does not have a specific value.

(6) The value assigned by the bankruptcy trustee under sub-section (5) shall be the amount provable by the concerned creditor.

(7) A creditor may prove for a debt where payment would have become due at a date later than the bankruptcy commencement date as if it were owed presently and may receive dividends in a manner as may be prescribed.

(8) Where the bankruptcy trustee serves a notice under sub-section (1) and the person on whom the notice is served does not file a proof of security within thirty days after the date of service of the notice, the bankruptcy trustee may, with leave of the Adjudicating Authority, sell or dispose of any property that was subject to the security, free of that security.

Legal Commentary & Landmark Judgments: Section 171

Section 171 regulates the formal Proof of Debt by creditors seeking to participate in the distribution of the bankrupt's estate.

Mode of Proof: Creditors must prove their debts by delivering or sending by registered post or electronic means a formal affidavit of proof of debt in the prescribed form.
Supporting Evidence: The proof must specify vouchers, accounts, loan documents, decree certificates, or invoices substantiating the existence and quantum of the debt.
Costs of Proof: The creditor bears the cost of proving his debt unless the Adjudicating Authority or regulations expressly order otherwise.

Key Landmark Precedents:

Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17: Held that the proof of debt procedure is a foundational statutory mechanism ensuring that only verified financial and operational claims participate in recoveries.
Dena Bank v. C. Shivakumar Reddy (2021) 10 SCC 330: Emphasized that statutory proof of debt must be established by reliable contemporaneous financial ledgers and banking records.

Courtroom Practice & Strategic Litigation Guidance:

Creditors submitting proofs of debt under Section 171 must attach sworn calculations of interest up to the date of the bankruptcy order; interest accruing after the date of the bankruptcy order cannot be included in proved claims.