Promoters and Shareholders Promoters are not Creditors under IBC


The intent behind enactment of Insolvency and Bankruptcy code, 2016 (shortly ‘IBC’) was to

  1. maximize the value of assets of the Corporate Debtor,
  2. promotion of interest of creditors
  3. Increase the availability of credit in the market
  4. To promote entrepreneurship
  5. Balance the interest of stakeholders

As per section 3 (10) of IBC, creditor means a person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree holder;

Corporate Insolvency Resolution Process

Once an application is admitted under section 7 or 9 of the IBC and the Corporate Insolvency Resolution Process (shortly ‘CIRP’) is initiated. Under the CIRP a resolution plan is submitted to revive the business of the corporate debtor.

Resolution plan has to be strictly in accordance with the information memorandum and section 30 of IBC. According to section 30(2) of IBC:-

The resolution professional shall examine each resolution plan received to him to confirm that each resolution plan-

  1. Provides for the payment of insolvency resolution process cost
  2. Provides for the repayment of the debts of operational creditors, which shall not be less than liquidation value they should have received under liquidation.
  3. Provides for the management of affairs of the corporate debtor.

The committee of creditors may approve a resolution plan by vote of not less 66% of voting share of financial creditors, thereafter the approved resolution plan is submitted to the Adjudicating Authority.

Status of Shareholders and Promoters

The promoters of the Corporate Debtor are nowhere the creditors and have rather contributed towards the insolvency of the company. The promoters of the corporate debtor are considered as the related party of the corporate debtor as per section 5(24) of IBC and thus the resolution plan submitted by the resolution applicant shall not satisfy any of the claims of the promoters.

Appellate Authority (NCALT) in various cases like Lalit Mishra vs. Sharon Bio Medicine Ltd. has decided that the powers of the promoters as the members of the board of directors of the corporate debtor are suspended. Even the voting rights of the shareholders and promoter shareholders. Shareholders approval is deemed to be granted for the implementation of the resolution plan.     

The promoters have no right of representation, participation or voting in a meeting of committee of creditors.

Also, under section 29A of the IBC the promoter of the corporate debtor is ineligible to become a resolution applicant so as to prohibit the promoter or shareholders of the corporate debtor to take over the management of the corporate debtor at the cost of creditors.

Validity of resolution plan where no amount is allocated to shareholder or promoters

In the light of aforesaid reasons and provisions of IBC, the shareholders and promoters are not creditors of the corporate debtor. if no amount is allotted to the shareholders or promoters of the corporate debtor.

Except where the shareholders who are not promoters of the corporate debtors shall be treated in different category by providing certain amount in their favour. Consequently, no promoter or promoter shareholder can object against the resolution plan, validating the resolution plan submitted by the eligible Resolution Applicant.


The shareholders and promoters are not the creditors and thereby the resolution plan cannot balance the the maximization of the value of assets of the corporate debtor at par with the ‘Financial Creditors’ or ‘Operational Creditors’ or ‘Secured Creditors’ or ‘Unsecured Creditors’. Thus if no amount is given to the promoters/shareholders and the other equity shareholders who are not promoters have been separately treated, then the resolution plan shall be feasible and bound to be accepted.

Disclaimer –  Please note that the above view is based on personal interpretation and for general awareness. The readers are required to take opinion from the IBC professionals or Insolvency Professionals before relying on the article. For any clarifications, please write to us at


  1. if the promoter shareholder and director has given loan to the corporate debtor in personal capacity and the company goes into liquidation, can he / she claim their right as financial creditor of the company in liquidation.

    1. if company is stiff off and other 50 % share hold creating nuisance value than other 50 % share holder can apply for IBC ?

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