CHAPTER III INSOLVENCY RESOLUTION PROCESSCentral

Section 110 of The Insolvency and Bankruptcy Code, 2016.

(1)Secured creditors shall be entitled to participate and vote in the meetings of the creditors.
(2)A secured creditor participating in the meetings of the creditors and voting in relation to the repayment plan shall forfeit his right to enforce the security during the period of the repayment plan in accordance with the terms of the repayment plan.
(3)Where a secured creditor does not forfeit his right to enforce security, he shall submit an affidavit to the resolution professional at the meeting of the creditors stating—
1. (a)that the right to vote exercised by the secured creditor is only in respect of the unsecured part of the debt; and
2. (b)the estimated value of the unsecured part of the debt.
(4)In case a secured creditor participates in the voting on the repayment plan by submitting an affidavit under sub-section (3), the secured and unsecured parts of the debt shall be treated as separate debts.
(5)The concurrence of the secured creditor shall be obtained if he does not participate in the voting on repayment plan but provision of the repayment plan affects his right to enforce security. Explanation.—For the purposes of this section, “period of the repayment plan” means the period from the date of the order passed under section 114 till the date on which the notice is given by the resolution professional under section 117 or report submitted by the resolution professional under section 118, as the case may be.

Summary

Secured creditors, who hold a claim backed by a security interest on the debtor's assets, are entitled to participate and vote in meetings.
A secured creditor who votes on the repayment plan forfeits their right to enforce their security interest during the plan's duration.
A secured creditor can choose not to forfeit their security right by voting only on the unsecured portion of their debt.
To vote on only the unsecured portion, the secured creditor must submit an affidavit detailing the estimated value of the unsecured part.
When this affidavit is submitted, the secured and unsecured portions of the debt are treated as separate debts.
If a non-voting secured creditor's right to enforce security is affected by any plan provision, their concurrence must be obtained.
The period of the repayment plan begins on the date of the tribunal's approval order under Section 114 and ends when a Section 117 completion notice or a Section 118 premature end report is submitted.

Practical examples

1Bank of India has a mortgage on debtor Vijay's shop for a ten lakh rupees loan. At the creditors' meeting, the bank decides to vote on Vijay's repayment plan. By doing so, the bank forfeits its right to foreclose or sell Vijay's shop while the repayment plan is active under the Code.

2HDFC Bank holds a loan of fifteen lakh rupees secured by Suresh's car, which is valued at ten lakh rupees. To preserve its right to repossess the car if needed, the bank submits an affidavit stating it is voting only on the five lakh rupees unsecured portion of the debt. Suresh's loan is split into separate secured and unsecured parts for voting.

FAQ

1. Can a secured creditor vote in creditors' meetings under Section 110 of the Insolvency and Bankruptcy Code, 2016?

Yes, under Section 110 of the Insolvency and Bankruptcy Code, 2016, secured creditors are fully entitled to participate and vote in the meetings of creditors.

2. What happens to a secured creditor's right to enforce their security if they vote on a repayment plan under Section 110 of the Insolvency and Bankruptcy Code, 2016?

Under Section 110 of the Insolvency and Bankruptcy Code, 2016, a secured creditor who votes on the plan forfeits their right to enforce their security interest during the active period of the repayment plan.

3. How can a secured creditor vote without losing their right to enforce security under Section 110 of the Insolvency and Bankruptcy Code, 2016?

Under Section 110 of the Insolvency and Bankruptcy Code, 2016, the creditor must submit an affidavit stating that they are voting only in respect of the unsecured part of the debt, along with its estimated value.

4. When is a secured creditor's concurrence required under Section 110 of the Insolvency and Bankruptcy Code, 2016?

Under Section 110 of the Insolvency and Bankruptcy Code, 2016, if a secured creditor does not participate in voting, but a provision of the repayment plan affects their right to enforce security, their concurrence must be obtained.

5. What is the "period of the repayment plan" under Section 110 of the Insolvency and Bankruptcy Code, 2016?

Under Section 110 of the Insolvency and Bankruptcy Code, 2016, the period runs from the date of the Adjudicating Authority's approval order under Section 114 until either a completion notice under Section 117 or a premature end report under Section 118 is submitted.

Test yourself

Q1.Under Section 110 of the Insolvency and Bankruptcy Code, 2016, what happens if a secured creditor participates and votes in relation to the repayment plan without filing a protective affidavit?

Q2.Under Section 110 of the Insolvency and Bankruptcy Code, 2016, what must a secured creditor submit to vote only in respect of the unsecured part of their debt?

Q3.Under Section 110 of the Insolvency and Bankruptcy Code, 2016, if a secured creditor votes at a creditors' meeting called under Section 107 of the Code and fails to submit the affidavit described in Section 110, what is the consequence?

Q4.Under the Explanation to Section 110 of the Insolvency and Bankruptcy Code, 2016, when does the period of the repayment plan officially begin?

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