Supreme Court: Preference Shareholders Not Financial Creditors under Insolvency Code

The Supreme Court has held that preference shareholders do not qualify as financial creditors under the Insolvency and Bankruptcy Code, 2016 (IBC), and are therefore not entitled to initiate corporate insolvency resolution proceedings.

The Bench reiterated that preference shareholders continue to be members of a company and cannot assert the rights of creditors, even upon the expiry of the redemption period.

Clarifying the legal distinction, the Court observed that while preference shares exhibit certain debt-like features, they constitute equity participation rather than financial debt.

Consequently, such shareholders are deemed contributors to the company’s capital without the remedial avenues available to financial creditors. The appeal was accordingly dismissed without costs.

[EPC Constructions v Matix Fertilisers]