Section 5 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.
Clauses (24) to (28) of section 5 matter in almost every committee-of-creditors question: who is a related party, who can offer a resolution plan, what a plan may contain and how voting share is worked out. This article reads them as per the IBBI consolidated text of the Code amended up to 12 August 2021 and then sets out what the Insolvency and Bankruptcy Code (Amendment) Act, 2026 changes.
A related party of a corporate debtor is a long list that includes directors, partners, key managerial personnel, relatives, companies in which they hold more than two per cent., and any person who controls more than twenty per cent. of voting rights. A resolution applicant is a person who submits a resolution plan. A voting share is a single financial creditor's proportion of financial debt in the committee of creditors. The 2026 Act touches clauses (26) and (28).
Clause (24): related party of a corporate debtor
"Related party", in relation to a corporate debtor, means:
| Limb | Who |
|---|---|
| (a) | a director or partner of the corporate debtor or a relative of a director or partner |
| (b) | a key managerial personnel of the corporate debtor or a relative of a key managerial personnel |
| (c) | a limited liability partnership or a partnership firm in which a director, partner or manager of the corporate debtor or his relative is a partner |
| (d) | a private company in which a director, partner or manager of the corporate debtor is a director and holds along with his relatives more than two per cent. of its share capital |
| (e) | a public company in which a director, partner or manager is a director and holds along with relatives more than two per cent. of its paid-up share capital |
| (f) | anybody corporate whose board of directors, managing director or manager, in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor |
| (g) | any limited liability partnership or partnership firm whose partners or employees act in the ordinary course of business on such advice, directions or instructions |
| (h) | any person on whose advice, directions or instructions a director, partner or manager of the corporate debtor is accustomed to act |
| (i) | a body corporate which is a holding, subsidiary or associate company of the corporate debtor, or a subsidiary of a holding company to which the corporate debtor is a subsidiary |
| (j) | any person who controls more than twenty per cent. of voting rights in the corporate debtor on account of ownership or a voting agreement |
| (k) | any person in whom the corporate debtor controls more than twenty per cent. of voting rights on account of ownership or a voting agreement |
| (l) | any person who can control the composition of the board of directors or corresponding governing body |
| (m) | any person associated with the corporate debtor on account of participation in policy making, more than two directors in common, interchange of managerial personnel, or provision of essential technical information to or from the corporate debtor |
The tests mix status (director, relative), holding (two per cent., twenty per cent.) and conduct (acting on advice, directions or instructions). A person may be caught under more than one limb. The consequence is in section 21: a financial creditor that is a related party of the corporate debtor shall not have any right of representation, participation or voting in the committee of creditors, subject to the provisos there. See our section 21 article. A lender or investor who needs the shareholdings and arrangements mapped against these limbs can ask for financial and legal due diligence.
Example. Nair Metals Private Limited has a director, Ms Nair, who also holds three per cent. of the paid-up share capital, with her relatives, in Nair Steel Limited, an unlisted public company. Under limb (e) Nair Steel Limited is a related party of Nair Metals, if the shareholding test is met.
Clause (24A): related party of an individual
For an individual, clause (24A) lists relatives of the individual or of the spouse; partners and LLPs or firms in which the individual is a partner; trustees of a trust in which the individual is a beneficiary or whose trust terms confer a power benefitting the individual; private and public companies in which the individual is a director and holds with relatives more than two per cent.; bodies corporate and firms that act on the individual's advice, directions or instructions; a person on whose advice the individual is accustomed to act; and a company where the individual, or the individual with its related party, owns more than fifty per cent. of the share capital or controls the appointment of the board. An Explanation lists "relative" from the members of a Hindu Undivided Family and husband, wife, father, mother, son, daughter and so on, and includes the spouses of a son, daughter, sister or brother.
Clauses (25) to (27)
- Resolution applicant (25): a person who, individually or jointly with any other person, submits a resolution plan to the resolution professional pursuant to the invitation under clause (h) of sub-section (2) of section 25 or pursuant to section 54K, as the case may be.
- Resolution plan (26): a plan proposed by a resolution applicant for insolvency resolution of the corporate debtor as a going concern in accordance with Part II. The Explanation says a resolution plan may include provisions for the restructuring of the corporate debtor, including by way of merger, amalgamation and demerger.
- Resolution professional (27): an insolvency professional appointed to conduct the corporate insolvency resolution process or the pre-packaged insolvency resolution process, as the case may be, and includes an interim resolution professional.
Our post on resolution plans takes the contents further; the plan's required content is in section 30.
Clause (28): voting share
"Voting share" means the share of the voting rights of a single financial creditor in the committee of creditors which is based on the proportion of the financial debt owed to such financial creditor in relation to the financial debt owed by the corporate debtor. Section 24(4) lets a representative of operational creditors attend meetings without any right to vote.
What the Amendment Act, 2026 changes
Section 3 of the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026) changes clauses (26) and (28).
| As printed in the consolidated text | After the 2026 Act |
|---|---|
| Clause (26) Explanation: a resolution plan may include provisions for restructuring "including by way of merger, amalgamation and demerger" | The words become "merger, amalgamation, demerger and sale of one or more assets of the corporate debtor through one or more plans proposed by one or more resolution applicants subject to such conditions as may be specified" |
| Clause (28) ends "owed by the corporate debtor" | After those words the Act adds "to the members of the committee of creditors who are eligible to vote" |
With the new words, the proportion in clause (28) is measured against the financial debt owed to the members of the committee who are eligible to vote. 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. Our post on asset-wise plans is a companion read. 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 related party or eligibility check?
Related-party status can change who votes, who may bid and what a lender can do. A financial and legal due diligence review maps shareholdings, directorships and arrangements against the tests above before a plan is prepared or a vote is taken.
Key takeaways
- A related party is defined by status, shareholding (two per cent., twenty per cent.) and conduct (acting on advice, directions or instructions).
- Clause (24A) gives a separate list for an individual, with a fifty per cent. company test.
- A resolution plan may include restructuring by merger, amalgamation and demerger; the 2026 Act adds sale of assets through plans.
- Voting share is the proportion of financial debt owed to one financial creditor; the 2026 Act narrows the denominator to voting members.
- Check whether the Amendment Act, 2026 changes have been notified.
Read next
- Section 5: financial creditor, financial debt and dispute
- Section 21: committee of creditors, voting share and related parties
- Section 30: submission of the resolution plan
- Resolution plan: contents, approval and implementation
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.