Rights of Secured Creditors under Indian Insolvency Law

Abstract

Credit is the lifeblood of an economy. Additionally, secured credit holds further importance as it enables a borrower to seek credit even in a weak cashflow situation. This is because, in a secured credit transaction, lenders have recourse to the assets of the borrower, as opposed to merely relying on the borrower’s ability to service debt. Considering the underlying advantage in the form of rights over the borrower’s assets which significantly affects the creditor’s credit decision it is important to look at how these rights change when the borrower undergoes corporate restructuring? In this paper, the authors provide an analysis of such creditors in insolvency and liquidation proceedings of companies under India’s relatively nascent Insolvency and Bankruptcy Code, 2016. In this background, the authors trace the rights of secured creditors across different stages of the proceedings under the law, and reviews evolving case law pertinent issues such as validity of differential pay-outs to secured and unsecured creditors, treatment of competing security interests and inter-creditor agreements in insolvency and liquidation proceedings under the IBC.