Sections 174 and 175 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 174 lets the bankruptcy trustee declare and distribute an interim dividend whenever he has sufficient funds, after giving notice and making provision for four kinds of claims and expenses. Section 175 lets him, with the committee of creditors' approval, divide property in its existing form among creditors where it cannot readily or advantageously be sold.
The article follows the IBBI consolidated text of the Code amended up to 12 August 2021 (the "consolidated text").
Whenever the trustee has sufficient funds in hand he may declare and distribute an interim dividend among creditors in respect of the bankruptcy debts they have proved, after giving notice of the dividend and how it will be distributed, and after providing for distant creditors, undetermined claims, disputed proofs and claims, and administration expenses. Property that cannot be readily or advantageously sold may be divided in its existing form, but only with the committee of creditors' approval, sought for each transaction.
Section 174: interim dividend
Sub-section (1): the power. "Whenever the bankruptcy trustee has sufficient funds in his hand, he may declare and distribute interim dividend among the creditors in respect of the bankruptcy debts which they have respectively proved." Three phrases frame it. The test is "sufficient funds in his hand", which the text does not quantify. The power is discretionary ("may"). And only creditors who have proved their debts are in the distribution; proof is in sections 171 and 172: see Sections 171 and 172. If you are a creditor waiting for a dividend, a recovery suit is a separate route and our team can help you check how an interim dividend fits with your wider recovery plan.
Sub-section (2): notice. "Where the bankruptcy trustee has declared any interim dividend, he shall give notice of such dividend and the manner in which it is proposed to be distributed." The notice covers two things: the dividend and the proposed manner of distribution. The text sets no time and no form for the notice, and does not say to whom it goes beyond the creditors in whose favour it is declared.
Sub-section (3): provisions the trustee must make. In calculating and distributing the interim dividend, the trustee "shall make provision for –"
| Clause | Provision for |
|---|---|
| (a) | Any bankruptcy debts which appear to him to be due to persons who, by reason of the distance of their place of residence, may not have had sufficient time to tender and establish their debts |
| (b) | Any bankruptcy debts which are subject of claims which have not yet been determined |
| (c) | Disputed proofs and claims |
| (d) | Expenses necessary for the administration of the estate of the bankrupt |
Printing note. In the consolidated text clause (a) ends with "; and" although three clauses follow, and clause (b) also ends with a semicolon. The list is one list of four provisions, and the text is quoted as printed.
These are reserves. The trustee does not hand out everything that is in hand; he holds back enough for the four items. The text does not say how much to reserve or how the reserve is released.
Section 175: distribution of property in its existing form
Sub-section (1). "The bankruptcy trustee may, with the approval of the committee of creditors, divide in its existing form amongst the creditors, according to its estimated value, any property in its existing form which from its peculiar nature or other special circumstances cannot be readily or advantageously sold."
Elements:
- The approval of the committee of creditors comes first ("with the approval").
- The property is divided "in its existing form" "according to its estimated value", so creditors receive the asset itself, not sale proceeds.
- The property must be of a kind that "from its peculiar nature or other special circumstances cannot be readily or advantageously sold".
Sub-section (2): each transaction, and third parties. "An approval under sub-section (1) shall be sought by the bankruptcy trustee for each transaction, and a person dealing with the bankruptcy trustee in good faith and for value shall not be required to enquire whether any approval required under sub-section (1) has been given." So there is no blanket approval, and a person who deals with the trustee in good faith and for value does not have to check the approval.
Sub-section (3): ratification. "Where the bankruptcy trustee has done anything without the approval of the committee of creditors, the committee may, for the purpose of enabling him to meet his expenses out of the estate of the bankrupt, ratify the act of the bankruptcy trustee."
Sub-section (4): limit on ratification. "The committee of the creditors shall not ratify the act of the bankruptcy trustee under sub-section (3) unless it is satisfied that the bankruptcy trustee acted in a case of urgency and has sought its ratification without undue delay."
| Condition for ratification | Source |
|---|---|
| The committee may ratify an act done without approval, to enable the trustee to meet expenses out of the estate | s.175(3) |
| The committee must be satisfied that the trustee acted in a case of urgency | s.175(4) |
| The trustee must have sought ratification without undue delay | s.175(4) |
The committee of creditors for Part III is constituted under section 134 (section 79(11)). Section 175 sits beside section 153, which lists other acts of the trustee that need the committee's approval; the live post on committee approval under section 153 and the distribution of property under section 175 covers both.
A worked example
Rahul Saxena is bankrupt. His trustee has collected Rs. 20 lakh. The list of proved debts shows total proved bankruptcy debts of Rs. 60 lakh, but creditors in a distant town have not yet had enough time to prove, one claim is unresolved, and a proof is disputed. The estate also has about Rs. 1 lakh of administration expenses ahead.
Under section 174(1) the trustee may declare an interim dividend. Under sub-section (3) he must make provision for the distant creditors' debts, the undetermined claim, the disputed proof and the administration expenses, and under sub-section (2) he must give notice of the dividend and how it will be distributed. Section 178(1) sets an order of priority "in the distribution of the final dividend", and section 174 itself says nothing on priority for an interim dividend; see the live post on the priority of payment of debts under section 178.
Separately, the estate holds a collection of rare manuscripts that cannot readily be sold. With the committee's approval, sought for that transaction, the trustee may divide them among creditors in their existing form according to estimated value (section 175(1) and (2)). The names and numbers are invented.
Where these sections stand in the sequence
Interim dividends come before the final dividend. The final dividend and the claims of creditors who prove late are in sections 176 and 177: see Sections 176 and 177. The bankrupt's own duties in the meantime are in section 150: Section 150.
Law around these sections
The Amendment Act, 2026 (No. 6 of 2026) has no clause that amends sections 174 or 175. It comes into force on the date or dates the Central Government notifies; the notification is not in the texts consulted, so check whether any change to a related provision has been notified.
For personal guarantors to corporate debtors, the Insolvency and Bankruptcy Board of India (Bankruptcy Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 (the copy consulted is amended up to 02-06-2026) apply alongside Part III; no rules or regulations for other individuals or for partnership firms are in the texts consulted.
Amendments and notifications made after 12 August 2021, other than the Amendment Act, 2026, are not in the texts consulted and should be checked.
Need help with dividends or a distribution in a bankruptcy?
Creditors who have proved their debts and trustees who are planning a distribution both work to deadlines and reserves that the text leaves partly open. Our team can help you review your position, including alongside a recovery suit where one is under way.
Key takeaways
- The trustee may declare an interim dividend whenever he has sufficient funds in hand, among creditors who have proved their debts.
- He must give notice of the dividend and the proposed manner of distribution.
- He must make provision for distant creditors, undetermined claims, disputed proofs and claims, and administration expenses.
- Property that cannot be readily or advantageously sold may be divided in its existing form with the committee's approval, sought for each transaction.
- The committee may ratify an unapproved act only if the trustee acted in urgency and sought ratification without undue delay.
Read next
- Sections 176 and 177: final dividend and claims of creditors who prove late
- Section 173 of the Insolvency and Bankruptcy Code, 2016: mutual credit and set-off in bankruptcy
- Committee approval under section 153 and distribution of property under section 175
- Priority of payment of debts under section 178
Disclaimer: Based on the IBBI consolidated text of the Insolvency and Bankruptcy Code, 2016 amended up to 12 August 2021 and on the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026), which comes into force on the date or dates notified by the Central Government, as consulted on 2 October 2026. It explains the words of the statute only; commencement notifications, other amendments made after 12 August 2021, notified thresholds, the rules and IBBI regulations, and the way tribunals and courts apply these sections should be checked. This article is general information, not legal advice; check the official text before acting.