Section 110: Rights of Secured Creditors in Relation to Repayment Plan
Section 110 of the Insolvency and Bankruptcy Code, 2016 regulates how secured creditors participate in a creditors' meeting, vote on a debtor's repayment plan and protect their rights to enforce security.
What is Section 110 of the IBC?
Section 110 is part of the individual insolvency resolution framework in Part III of the Insolvency and Bankruptcy Code, 2016. It balances the participation of secured creditors in collective repayment decisions against their separate rights over charged assets.
Secured creditor: A creditor in whose favour a security interest is created. Under section 3(30), a secured creditor is a creditor in favour of whom a security interest is created; section 3(31) defines security interest, subject to its statutory exclusions. Examples include a mortgage or charge securing repayment of a loan.
Repayment plan: A proposal prepared by the debtor in consultation with the resolution professional under section 105 for restructuring debts or affairs, subject to the statutory consideration and approval process.
Unsecured portion: For the purpose of the section 110 affidavit, the estimated part of a debt not covered by the value of the security. The figure must be assessed carefully and supported by records.
Section 110: Subsection-by-subsection explanation
Section 110(1): Participation and voting
Secured creditors are entitled to participate and vote in meetings of creditors. Their voting entitlement must also be read with section 109, which governs voting shares and restrictions on voting.
Section 110(2): Effect of voting on security enforcement
A secured creditor participating in creditors' meetings and voting in relation to the repayment plan forfeits the right to enforce its security during the period of the repayment plan, in accordance with the terms of that plan. This is a statutory consequence of the voting choice, not a statement that the underlying security is automatically extinguished for all purposes.
Section 110(3): Affidavit when enforcement rights are retained
If a secured creditor does not forfeit its right to enforce the security, it must submit an affidavit to the resolution professional at the creditors' meeting stating both of the following:
- Its voting right is exercised only in respect of the unsecured part of the debt.
- The estimated value of the unsecured part of the debt.
The affidavit mechanism allows the creditor to distinguish the unsecured exposure for voting purposes from the secured exposure for enforcement purposes. The applicable procedural rules and directions should be checked before submission.
Section 110(4): Separate treatment of secured and unsecured debt
Where the creditor votes by submitting the affidavit under subsection (3), the secured and unsecured parts are treated as separate debts. This distinction matters for calculating voting rights and applying the repayment plan.
Section 110(5): Consent of a non-voting secured creditor
If a secured creditor does not vote on the repayment plan, but the plan contains a provision affecting its right to enforce security, the creditor's concurrence must be obtained. The plan cannot rely on that creditor's non-participation as consent to impair its enforcement rights.
Practical choices for a secured creditor
| Position | Statutory consequence |
|---|---|
| Participates and votes on the repayment plan as a secured creditor | Section 110(2) restricts enforcement of security during the plan period in accordance with its terms. |
| Retains enforcement rights and votes only on unsecured debt | Submit the affidavit under section 110(3); the two portions are treated as separate debts under subsection (4). |
| Does not vote, but the plan affects security enforcement | The creditor's concurrence is required under section 110(5). |
Illustration: Suppose a creditor is owed Rs. 10 lakh and estimates that its security covers Rs. 7 lakh. If it wishes to preserve enforcement rights and vote only on the remaining Rs. 3 lakh, the creditor must make the required affidavit declaration. These figures are illustrative, not a prescribed valuation formula.
What is the period of the repayment plan?
The Explanation to section 110 defines the period of the repayment plan as beginning on the date of the order under section 114 and ending on the date on which the resolution professional gives notice under section 117 or submits a report under section 118, as applicable. The defined period is important when assessing the temporary restriction on security enforcement under section 110(2).
How Section 110 connects with other IBC provisions
- Section 104: Preparation of the list of creditors.
- Section 105: Preparation and contents of the repayment plan.
- Section 106: Resolution professional's report on the plan.
- Sections 107 and 108: Summoning and conduct of creditors' meetings.
- Section 109: Voting rights and voting shares.
- Section 111: Approval of the repayment plan by creditors.
- Section 114: Order of the Adjudicating Authority on the repayment plan.
- Sections 117 and 118: Completion notice and report on implementation.
Applicability: The relevant Part III insolvency resolution provisions were brought into force from 1 December 2019 for personal guarantors to corporate debtors. They should not be described as generally operational for every individual or partnership firm. Jurisdiction and procedural requirements depend on the case and applicable notifications.
Frequently asked questions
Can a secured creditor vote on a repayment plan?
Yes. Section 110(1) expressly permits participation and voting, subject to section 109 and the consequences prescribed in section 110.
Does voting always mean the security is permanently lost?
No. Section 110(2) addresses forfeiture of the right to enforce security during the defined repayment-plan period in accordance with the plan's terms. It should not be paraphrased as automatic permanent cancellation of the security interest.
Can a secured creditor vote only for its unsecured exposure?
Yes, subject to the affidavit under section 110(3), stating the limited voting basis and estimated unsecured amount. Section 110(4) then treats the portions as separate debts.
Can a plan affect a non-voting creditor's security rights?
If a non-voting secured creditor's right to enforce security is affected, its concurrence is required under section 110(5).
Official legislation and regulatory sources
For the current consolidated statutory text, commencement notifications and procedural updates, consult the following official resources:
- India Code - Insolvency and Bankruptcy Code, 2016
- Official IBC text (India Code PDF)
- Insolvency and Bankruptcy Board of India - Legal framework
- IBBI - Rules
- IBBI - Regulations
This article explains the statutory framework for general information. Always check current notifications, rules, regulations and applicable orders for a particular proceeding.