Section 175 - Distribution of Property under the Insolvency and Bankruptcy Code, 2016

Section 175 permits a bankruptcy trustee, subject to safeguards, to distribute property directly to creditors in its existing form where a sale would be impractical or disadvantageous. It also governs approval by the committee of creditors and the limited ratification of urgent acts.

Key point: Distribution in kind under Section 175(1) requires the committee of creditors' approval for each transaction. Ratification after an unauthorised act is subject to the urgency and promptness conditions in Section 175(3) and (4).

Meaning and scope of Section 175

The provision forms part of Chapter V of Part III of the Code, dealing with administration and distribution of the estate of a bankrupt. Unlike an ordinary cash dividend following realisation of assets, distribution in kind means transferring property itself, rather than first selling it and distributing the proceeds. The statutory power is directed at property that cannot readily or advantageously be sold because of its peculiar nature or other special circumstances.

Section 175 explained, subsection by subsection

Section 175(1): Distribution of property in its existing form

The bankruptcy trustee may, with approval of the committee of creditors, divide such property among creditors according to its estimated value. The power is discretionary, not an automatic entitlement to receive a particular asset. The relevant condition is difficulty or disadvantage in selling the property, owing to its nature or special circumstances.

Section 175(2): Approval for each transaction and protection of good-faith parties

The trustee must seek committee approval separately for each transaction under subsection (1). A person dealing with the trustee in good faith and for value is not required to investigate whether that approval was actually obtained. This protection does not eliminate the trustee's duty to seek approval.

Section 175(3): Subsequent ratification of an act

If the trustee acts without the committee's approval, the committee may ratify the act for the purpose of enabling the trustee to meet expenses out of the bankrupt's estate. This is a limited statutory ratification mechanism, not general permission to bypass prior approval.

Section 175(4): Conditions for ratification

The committee must not ratify an act under subsection (3) unless satisfied both that the trustee acted in a case of urgency and that ratification was sought without undue delay. These conditions are cumulative.

Practical process for distribution in kind

Identify the asset: Determine whether its peculiar nature or special circumstances make sale impractical or disadvantageous.
Estimate value: Establish a supportable estimated value for the proposed division among creditors.
Obtain approval: Seek committee of creditors' approval for each proposed transaction before acting.
Document distribution: Record the property, valuation, creditors concerned and committee decision, subject to applicable law and procedure.
Address emergencies: Where prior approval was not obtained, consider ratification only within the strict requirements of subsections (3) and (4).

Illustrative example

Suppose a bankrupt's estate includes specialised machinery with an estimated value of Rs. 8 lakh, but circumstances make an advantageous sale difficult. The trustee may propose distributing the machinery in its existing form, with its estimated value taken into account, if the committee of creditors approves that particular transaction. The example is illustrative; it does not displace the Code's other applicable rules concerning creditors' claims, priorities and estate administration.

Related legal provisions

Section 149: Sets out the trustee's functions, including investigating the bankrupt's affairs, realising the estate and distributing it.
Section 152: Deals with the trustee's general powers, including sale of estate property.
Section 174: Concerns interim dividends when the trustee has sufficient funds, including provision for certain outstanding claims and expenses.
Section 176: Governs final dividends and related notice and claims procedures.

Frequently asked questions

Can property be distributed without being sold?

Yes. Section 175(1) permits distribution in its existing form when its nature or special circumstances make sale difficult or disadvantageous, subject to committee approval.

Is one committee approval enough for multiple distributions?

No. Section 175(2) requires approval to be sought for each transaction.

Can an unauthorised transaction be ratified later?

Only within the scope of Section 175(3) and (4), including the committee being satisfied of urgency and a request for ratification without undue delay.

Official statutory sources

Read the Insolvency and Bankruptcy Code, 2016 on India Code (official PDF) and the IBBI-hosted statutory text. For applicable notifications, rules and regulations, consult the Insolvency and Bankruptcy Board of India.

Explore the full legislation: The Insolvency and Bankruptcy Code, 2016.

Updated: 23 October 2026. This article explains the statutory provision for general information; applicability and commencement of particular Part III provisions should be checked for the relevant class of debtor and proceeding.