IBC Section 175: Distribution of property

Section 175 of Insolvency and Bankruptcy Code, 2016: Distribution of property

Official Bare Act Text

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

(1) The bankruptcy trustee may, with the approval of the committee of creditors, divide in its existing form amongst the creditors, according to its estimated value, any property in its existing form which from its peculiar nature or other special circumstances cannot be readily or advantageously sold.

(2) An approval under sub-section (1) shall be sought by the bankruptcy trustee for each transaction, and a person dealing with the bankruptcy trustee in good faith and for value shall not be required to enquire whether any approval required under sub-section (1) has been given.

(3) Where the bankruptcy trustee has done anything without the approval of the committee of creditors, the committee may, for the purpose of enabling him to meet his expenses out of the estate of the bankrupt, ratify the act of the bankruptcy trustee.

(4) The committee of the creditors shall not ratify the act of the bankruptcy trustee under sub-section (3) unless it is satisfied that the bankruptcy trustee acted in a case of urgency and has sought its ratification without undue delay.

Legal Commentary & Landmark Judgments: Section 175

Section 175 governs the distribution of property in specie where specific assets cannot be readily or advantageously sold by the Bankruptcy Trustee.

Distribution in Specie: With the approval of the committee of creditors, the trustee may divide amongst the creditors in its existing form any property that cannot be readily or advantageously sold.
Creditor Majority Approval: Requires an affirmative vote of sixty-six percent of creditors present and voting in a meeting convened for this specific purpose.
Valuation and Allotment: The property distributed in specie must be independently valued, and its appraised value deducted from the recipient creditor's admitted claim.

Key Landmark Precedents:

Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17: The Supreme Court affirmed that commercial flexibility in asset liquidation includes in-specie distribution where auctioning would destroy value.
Committee of Creditors of Essar Steel v. Satish Kumar Gupta (2020) 8 SCC 531: Underlined that creditor assemblies possess full commercial discretion to approve non-cash settlement mechanisms.

Courtroom Practice & Strategic Litigation Guidance:

Trustees distributing immovable property in specie must obtain registered valuation reports and ensure that stamp duty and registration costs are borne by the recipient creditor to avoid burdening the estate account.