Under the Insolvency and Bankruptcy Code 2016 (IBC), a Corporate Insolvency Resolution Process (CIRP) may be initiated by operational creditors under Section 9.
Who are Operational Creditors under IBC?
As per Section 5(20) and (21), Operational Creditors under IBC refer to those to whom any debt is owed by a Corporate Debtor, such debt being recognised as an "operational debt', i.e. one that has been incurred with respect to provision of goods and services, including employment or with respect to payment of dues under any law to the government. While financial debts are owed with respect to money, operational debts are owed with respect to provision of goods and services.
What is the Procedure for Initiation of CIRP under IBC by an Operational Creditor?
The procedure for initiating CIRP under IBC against a Corporate Debtor by an Operational Creditor is specified under Section 9.
- Demand Notice: However, the first step which
is required to be fulfilled by an Operational Creditor in this
regard is laid down under Section 8 of the IBC, which involves
sending a demand notice to the Corporate Debtor for the debt owed
to the Operational Creditor. The concerned Corporate Debtor is
required to reply to this demand notice within a stipulated time
period of 10 days from receipt of such notice by either apprising
the Operational Creditor of payment of such debt or raising any
dispute vis-à-vis such debt. It may be noted that unlike an
Operational Creditor, a Financial Creditor is not statutorily
required to issue any demand notice to the Corporate Debtor and may
straightaway approach the NCLT under the IBC. Whereas, it is
mandatory for an Operational Creditor to provide a period of 10
days to the Corporate Debtor vide a demand notice for enabling
settlement of the operational debt prior to initiation of CIRP by
- Application before NCLT: In case the Corporate
Debtor fails to comply with the above, the Operational Creditor may
file an application for Corporate Resolution Insolvency Process
under Section 9(1) of the IBC, before the Adjudicating Authority
i.e. the National Company Law Tribunal of the relevant
- Submission of Requisite Documents: Some of the documents required to be submitted by the Operational Creditor under Section 9(3) of the IBC include, inter alia:
a) a copy of the demand notice sent
by the operational creditor to the corporate debtor
b) an affidavit signed by the operational creditor, stating that no notice of dispute has been given by the corporate debtor.
c) a copy of the certificate from financial institutions confirming that there is no payment of the operational debt, if available
d) copy of any record with information utility confirming non-payment of operational debt, if available.
e) any other proof of non-payment or such other information, as may be prescribed.
What are the basic requirements for filing an application under Section 9 of IBC?
For an application under Section 9 of the IBC for initiation of CIRP to be accepted by the NCLT, all requisite documents must be attached, the debt must be unpaid, proof of delivery of demand notice under Section 8 to the Corporate Debtor must be attached and the Corporate Debtor should not have raised any dispute vis-à-vis the Operation Debt owed to the Operation Creditor. The Operational Creditor can also propose appointment of an Interim Resolution Professional (IRP) in case Corporate Insolvency Resolution Process against the Corporate Debtor is initiated, in which case it must be specifically stated that there are no disciplinary proceeding pending against the said IRP.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.