Section 40 of IBC: Admission or Rejection of Claims by the Liquidator
Section 40 of the Insolvency and Bankruptcy Code, 2016 explains how a liquidator decides whether to admit or reject a creditor's claim after verification, the requirement to record reasons for rejection, and the duty to communicate the decision.
Section 40: Statutory provision
Section 40(1). The liquidator may, after verification of claims under section 39, either admit or reject the claim, in whole or in part, as the case may be:
Provided that where the liquidator rejects a claim, he shall record in writing the reasons for such rejection.
Section 40(2). The liquidator shall communicate his decision of admission or rejection of claims to the creditor and corporate debtor within seven days of such admission or rejection of claims.
Meaning and scope of Section 40
Section 40(1): Admission, partial admission or rejection
Once the liquidator has verified a claim under Section 39, the liquidator may admit the entire amount, admit only the supported portion, or reject the claim. Where a claim is rejected, including rejection of part of a claim, the liquidator must record written reasons. The decision should be based on the claim and supporting evidence assessed under the Code and applicable regulations.
Section 40(2): Communication within seven days
The liquidator must communicate the admission or rejection decision to both the creditor and the corporate debtor within seven days from the date of the decision. This is a period for communicating the decision, not a general seven-day deadline for verifying every claim.
Important legal terms
- Liquidator: The insolvency professional appointed to conduct liquidation under Section 34.
- Claim: Under Section 3(6), a right to payment, whether or not reduced to judgment, fixed, disputed, secured or unsecured, and certain rights to a remedy for breach of contract giving rise to a right to payment.
- Creditor: Under Section 3(10), a person to whom a debt is owed, including financial, operational, secured and unsecured creditors and decree-holders.
- Corporate debtor: Under Section 3(8), a corporate person that owes a debt to any person.
- Adjudicating Authority: For corporate persons, ordinarily the National Company Law Tribunal (NCLT) under Section 5(1).
How admission or rejection of claims works
- Submission: Creditors submit their claims under Section 38 and the applicable IBBI Liquidation Process Regulations.
- Verification: Under Section 39, the liquidator checks the claim and may seek additional documents or evidence.
- Decision: Under Section 40(1), the liquidator admits or rejects the claim in whole or in part, recording written reasons for rejection.
- Notice: Under Section 40(2), the decision is communicated to the creditor and corporate debtor within seven days.
- Appeal: A creditor dissatisfied with the liquidator's decision may appeal to the Adjudicating Authority under Section 42 within fourteen days of receiving the decision.
Related provisions and regulatory requirements
Section 41 concerns determination of the value of claims admitted under Section 40. Section 42 provides an appeal against the liquidator's decision to accept or reject a claim. These provisions operate alongside the IBBI (Liquidation Process) Regulations, 2016, including rules on proof, verification, lists of stakeholders and reporting. The applicable regulatory text should be checked for amendments and case-specific directions.
For the current regulatory framework, see the official IBBI updated liquidation regulations, including the consolidated version listed as amended up to 2 June 2026, and the official IBBI circulars.
Frequently asked questions
Can a liquidator admit only part of a creditor's claim?
Yes. Section 40(1) permits admission or rejection of a claim in whole or in part.
Must the liquidator give reasons for rejecting a claim?
Yes. Written reasons must be recorded for rejection under the proviso to Section 40(1).
How soon must the liquidator inform the parties?
Within seven days of admission or rejection, the decision must be communicated to both the creditor and the corporate debtor.
What remedy is available against a rejection?
Section 42 allows a creditor to appeal to the Adjudicating Authority within fourteen days of receipt of the decision.
This article explains the statutory framework for general information. Readers should consult the current Code, regulations, notifications and applicable judicial decisions for a specific liquidation.