IBC Section 172: Proof of debt by secured creditors

Section 172 of Insolvency and Bankruptcy Code, 2016: Proof of debt by secured creditors

Official Bare Act Text

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

(1) Where a secured creditor realises his security, he may produce proof of the balance due to him.

(2) Where a secured creditor surrenders his security to the bankruptcy trustee for the general benefit of the creditors, he may produce proof of his whole claim.

Legal Commentary & Landmark Judgments: Section 172

Section 172 establishes the statutory rights and procedures for Proof of Debt by Secured Creditors in bankruptcy proceedings.

Realization Outside Bankruptcy: A secured creditor may realize his security interest outside the bankruptcy process and prove for the remaining unpaid balance of his debt.
Surrender of Security: May surrender his security interest to the bankruptcy trustee for the general benefit of creditors and prove for the whole of his debt as an unsecured creditor.
Valuation and Proof of Balance: If the creditor neither realizes nor surrenders his security, he must estimate its value in his proof and is admitted to vote and receive dividends only for the balance.

Key Landmark Precedents:

Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat (2023) 10 SCC 60: The Supreme Court examined the rights of secured creditors to realize or surrender security, holding that electing to stand outside leaves them to recover solely from their charged asset.
Committee of Creditors of Essar Steel v. Satish Kumar Gupta (2020) 8 SCC 531: Affirmed that secured creditors' distribution entitlements depend strictly on whether they relinquish or retain their security interests.

Courtroom Practice & Strategic Litigation Guidance:

Secured creditors choosing to stand outside under Section 172 must ensure their private sale recovers fair market value; any surplus proceeds after satisfying their debt must be immediately remitted to the bankruptcy trustee.