Section 3 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.
This article covers clauses (19) to (37) of section 3 as per the IBBI consolidated text of the Code amended up to 12 August 2021, together with the three changes the Insolvency and Bankruptcy Code (Amendment) Act, 2026 makes to section 3. Clauses (1) to (18) are in the first article on section 3.
A secured creditor is a creditor in whose favour security interest is created, and security interest covers mortgage, charge, hypothecation, assignment, encumbrance and any other agreement or arrangement securing payment or performance, but not a performance guarantee. Property is wide and includes property outside India. Transaction and transfer are defined broadly. The 2026 Amendment Act adds registered valuer, service provider and an Explanation to the security-interest clause.
The clauses at a glance
| Clause | Term | What it says (short) |
|---|---|---|
| (19) | insolvency professional | A person enrolled under section 206 with an insolvency professional agency as its member and registered with the Board under section 207 |
| (20) | insolvency professional agency | A person registered with the Board under section 201 |
| (21) | information utility | A person registered with the Board under section 210 |
| (22) | notification | A notification published in the Official Gazette; "notified" and "notify" follow |
| (23) | person | Includes an individual, a Hindu Undivided Family, a company, a trust, a partnership, a limited liability partnership and any other entity established under a statute, and includes a person resident outside India |
| (24)-(25) | person resident in India / outside India | The first has the meaning in clause (v) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999); the second is a person other than that |
| (26) | prescribed | Prescribed by rules made by the Central Government |
| (27) | property | See below |
| (28) | regulations | Regulations made by the Board under this Code |
| (29) | Schedule | The Schedule annexed to the Code |
| (30) | secured creditor | A creditor in favour of whom security interest is created |
| (31) | security interest | See below |
| (32) | specified | Specified by regulations made by the Board |
| (33)-(35) | transaction, transfer, transfer of property | See below |
| (36) | workman | The meaning in clause (s) of section 2 of the Industrial Disputes Act, 1947 (14 of 1947) |
| (37) | words not defined | Take the meaning given in seven named Acts |
Property, person and the resident-outside-India reach
Clause (27) defines property as including "money, goods, actionable claims, land and every description of property situated in India or outside India and every description of interest including present or future or vested or contingent interest arising out of, or incidental to, property". Clause (23) similarly brings a person resident outside India within "person". The result is that an insolvency practitioner or creditor cannot assume that assets abroad fall outside the definition; whether and how they can be reached is a matter for the operative sections. If you are mapping a borrower's assets against these words, a legal consultation is a sensible first step.
Secured creditor and security interest
Clause (30) is short: a secured creditor is "a creditor in favour of whom security interest is created". The work is done by clause (31): security interest means "right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person". The proviso adds that "security interest shall not include a performance guarantee". "Charge" itself is defined in clause (4), covered in the first article.
Example. Rao Textiles Limited gives a bank a mortgage over its factory to secure a term loan, and gives a customer a performance guarantee issued by its bank. The bank is a secured creditor because of the mortgage; the performance guarantee is not a security interest under the proviso.
Transaction, transfer and transfer of property
Clause (33) says a transaction "includes a agreement or arrangement in writing for the transfer of assets, or funds, goods or services, from or to the corporate debtor". The text prints "a agreement"; it is a drafting slip and is quoted as printed. Clause (34) says transfer "includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien". Clause (35) says transfer of property means "transfer of any property and includes a transfer of any interest in the property and creation of any charge upon such property". These terms matter in the avoidance provisions, which look at transactions of the corporate debtor (see our overview of avoidance transactions under sections 43 to 51).
Clause (37): meanings borrowed from other Acts
Words used but not defined in the Code take the meanings assigned in the Indian Contract Act, 1872 (9 of 1872), the Indian Partnership Act, 1932 (9 of 1932), the Securities Contact (Regulation) Act, 1956 (42 of 1956), the Securities Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993), the Limited Liability Partnership Act, 2008 (6 of 2009) and the Companies Act, 2013 (18 of 2013). The text prints "Securities Contact" for the 1956 Act; the slip is flagged here and not corrected. Check the current law for the corresponding provision in each of these Acts. Clause (36) similarly points to the Industrial Disputes Act, 1947.
What the Amendment Act, 2026 changes
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026) changes section 3 in three ways (section 2 of that Act).
| As printed in the consolidated text | After the 2026 Act |
|---|---|
| No clause between (27) and (28) | New clause (27A): "registered valuer" shall have the same meaning as assigned to it under Chapter XVII of the Companies Act, 2013 |
| Clause (31) security interest ends with the proviso on performance guarantee | An Explanation is inserted: "For the removal of doubts, it is hereby clarified that the security interest shall exist only if it creates a right, title or interest or a claim to a property pursuant to an agreement or arrangement, by the act of two or more parties, and shall not include a security interest created merely by operation of any law for the time being in force" |
| No clause between (31) and (32) | New clause (31A): "service provider" means an insolvency professional, insolvency professional agency, information utility, registered valuer and any person falling within the category of persons notified by the Central Government, for rendering services in relation to insolvency and bankruptcy processes under this Code and is registered with the Board |
The Amendment Act, 2026 comes into force on the date or dates the Central Government notifies; the notification is not in the texts consulted, so check whether this change has been notified. The Explanation turns on the words "by the act of two or more parties", so an interest that arises only by operation of law falls outside the clause as amended; the Explanation says nothing more than what is printed. 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 a security or a charge position?
Whether a lender is a secured creditor can change its place in a process. A legal consultation can help a lender or a borrower read the security documents against these definitions before a notice is sent or answered.
Key takeaways
- A secured creditor is one in whose favour security interest is created; a performance guarantee is not a security interest.
- Property reaches assets in India or outside India, and includes present, future, vested and contingent interests.
- Transaction and transfer are defined widely and feed the avoidance sections.
- The 2026 Act adds clauses (27A) and (31A) and an Explanation to clause (31); check whether the change has been notified.
Read next
- Sections 1 and 3: the first eighteen definitions
- Section 5: financial creditor and financial debt
- Section 28A: guarantor assets in the CIRP
- Key definitions: corporate debtor and creditor
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.