What is Section 109 of the IBC?
Section 109 of the Insolvency and Bankruptcy Code, 2016 governs voting rights at meetings of creditors considering a debtor's repayment plan in the insolvency resolution process under Part III of the Code. It specifies the basis of voting entitlement and important disqualifications. The provision must be read with the rules and regulations applicable to the particular proceeding.
Section 109 explained, subsection by subsection
Section 109(1): Voting according to assigned share
A creditor is entitled to vote at every meeting of creditors concerning the repayment plan in accordance with the voting share assigned to that creditor. Voting strength is therefore not necessarily one vote per creditor; the assigned share determines the weight of the vote, subject to statutory exclusions.
Section 109(2): Resolution professional determines voting share
The resolution professional must determine the voting share of each creditor in the manner specified by the Insolvency and Bankruptcy Board of India (IBBI). The determination should be supported by the creditor records, admitted or otherwise relevant claim information, and applicable regulatory requirements. Section 109 itself does not prescribe a universal numerical formula.
Section 109(3): No voting for an unliquidated debt
A creditor is not entitled to vote in respect of a debt for an unliquidated amount. An unliquidated amount is one that has not yet been determined or quantified, such as an unresolved damages claim. This restriction concerns the vote attributable to that debt; the precise treatment of any other eligible claim must be assessed separately.
Section 109(4): Creditors excluded from voting
A creditor cannot vote at a creditors' meeting if that creditor:
- is not included in the list of creditors prepared under Section 104; or
- is an associate of the debtor, as defined for the purposes of the Code.
The restriction helps maintain the integrity of the creditors' decision-making process and avoids voting by persons with disqualifying relationships to the debtor.
Important legal definitions
Creditor
Under Section 3(10), a creditor is a person to whom a debt is owed and includes a financial creditor, operational creditor, secured creditor, unsecured creditor and decree-holder. Eligibility to vote in a particular Part III meeting remains subject to Section 109 and the applicable framework.
Debt
Section 3(11) defines debt as a liability or obligation in respect of a claim which is due from any person, including financial debt and operational debt.
Resolution professional
In this context, the insolvency professional appointed to carry out statutory functions in the individual insolvency resolution process, including preparation or verification of relevant creditor information and determination of voting shares.
Associate of the debtor
Section 79(2) provides the definition of an associate in relation to the debtor for Part III. The definition covers specified family, employment, partnership, trust and control relationships, depending on the circumstances. The statutory definition, rather than an informal notion of closeness, determines whether the voting exclusion applies.
How voting rights work in practice
| Situation | Section 109 consequence |
|---|---|
| Creditor appears on the Section 104 list, has an eligible quantified claim and is not an associate | May vote according to the voting share determined by the resolution professional. |
| Creditor's relevant debt is for an unliquidated amount | No vote in respect of that unliquidated debt under Section 109(3). |
| Creditor does not appear on the Section 104 list | Cannot vote at the meeting under Section 109(4)(a). |
| Creditor is an associate of the debtor | Cannot vote at the meeting under Section 109(4)(b). |
Relationship with other IBC provisions
- Section 102: public notice inviting claims from creditors.
- Section 103: registration of creditors' claims.
- Section 104: preparation of the creditors' list, relevant to voting eligibility.
- Section 105: debtor's repayment plan prepared in consultation with the resolution professional.
- Section 106: resolution professional's report on the plan.
- Section 107: notice and documents for the creditors' meeting, including proxy voting forms.
- Section 108: conduct of the meeting, modifications and adjournment.
- Section 110: rights of secured creditors in relation to the repayment plan.
- Section 111: approval of the repayment plan by creditors, including the statutory voting threshold.
Voting rights and approval of a repayment plan
Section 109 determines who may vote and with what voting share; it does not by itself decide whether a repayment plan is approved. Section 111 addresses approval of the plan by the requisite majority of voting share of creditors present in person or by proxy and voting on the resolution. The meeting and voting process should be read together with Sections 107, 108, 110 and 111.
Application to personal guarantors
Part III insolvency resolution provisions relevant to personal guarantors to corporate debtors were brought into force from 1 December 2019. Their proceedings operate within the applicable statutory and regulatory framework, including the rules and IBBI regulations for personal guarantors. This should not be understood as a statement that the entire Part III framework has been brought into operation for every individual or partnership firm. For personal guarantors to corporate debtors, the National Company Law Tribunal may be the Adjudicating Authority under Section 60, as applicable.
Frequently asked questions
Does every creditor have an equal vote?
No. Section 109(1) provides for voting according to the voting share assigned to the creditor.
Can an associate of the debtor vote?
No. Section 109(4)(b) expressly excludes an associate of the debtor from voting at the creditors' meeting.
Can a creditor vote without appearing on the list of creditors?
No. Section 109(4)(a) excludes a creditor who is not mentioned in the Section 104 list.
Can a creditor vote on a claim for unquantified damages?
Not in respect of a debt for an unliquidated amount, under Section 109(3). Whether an amount has become liquidated or otherwise qualifies must be assessed on the facts and applicable law.
Who calculates voting shares?
The resolution professional determines them in the manner specified by the IBBI, as required by Section 109(2).
Official statutory sources
For the current legislative text, commencement notifications, rules and regulations, consult the official sources:
- India Code - Insolvency and Bankruptcy Code, 2016
- India Code - Insolvency and Bankruptcy Code text (PDF)
- IBBI - Legal Framework
- IBBI - Rules
- IBBI - Regulations
Legal information only. The governing law, notifications and regulations should be checked as applicable on the date of a particular proceeding.