Introduction

The NCLAT’s judgment dated 01.04.2024 in the case of *Gupta Textiles Vs. Darshan Patel and Ors.* presents a pivotal moment in the interpretation of the Insolvency and Bankruptcy Code (IBC), specifically concerning the treatment of operational creditors under Section 30(2)(b) of the IBC. This judgment underscores the necessity of cash payments to operational creditors in a resolution plan, marking a significant stance on ensuring fairness and equity in the resolution process.

The Judgment at a Glance

The case revolves around the approval of a resolution plan by the NCLT Mumbai Bench, which was subsequently challenged by Gupta Textiles, an operational creditor, before the NCLAT. The heart of the contention lay in the method of payment proposed to operational creditors, contrasting cash payments with the issuance of partly paid redeemable preference shares.

Contextualizing the Dispute

Gupta Textiles, representing operational creditors, contested the NCLT’s approval of a resolution plan that inadequately compensated operational creditors through non-cash means, contrary to the mandates of Section 30(2)(b) of the IBC. The resolution plan in question proposed a meager cash payment of 2.16% to operational creditors, with the remainder being compensated via redeemable preference shares.

NCLAT’s Interpretation and Directive on Cash Payments to Operational Creditors

The NCLAT scrutinized the resolution plan’s adherence to the IBC, particularly Section 30(2)(b) which outlines the payment to operational creditors. The tribunal highlighted:

“The Hon’ble Supreme Court in Jaypee Kensington Boulevard Apartments Welfare Association & Ors. v NBCC & Ors. laid down that Operational Creditors are to be paid in priority over the Financial Creditors only by way of cash payment and not by way of issuing equity.”

This reference underscores the principle that operational creditors, pivotal to the corporate debtor’s business operations, should receive their dues in cash to ensure immediate liquidity and financial stability.

Analysis of Section 30(2)(b) of the IBC

To understand the NCLAT’s judgment, a closer examination of Section 30(2)(b) of the IBC is essential. This section mandates the resolution plan to ensure that the operational creditors receive an amount not less than:

1. The liquidation value due to them.
2. The amount that would have been paid to them, had the distribution been made according to Section 53(1) priorities, whichever is higher.

This legislative intent is to safeguard the interests of operational creditors, ensuring they are not sidelined in the resolution process.

The Importance of Cash Payments to Operational Creditors

The judgment emphasizes the significance of cash payments to operational creditors, aligning with the broader objective of the IBC to balance stakeholders’ interests and maintain business continuity. Cash payments ensure that operational creditors, often smaller businesses or suppliers, receive immediate relief, thus enabling them to sustain their operations and contribute to the economy’s overall health.

Implications of Cash Payments to Operational Creditors and Conclusion

The NCLAT’s decision in *Gupta Textiles Vs. Darshan Patel and Ors.* is a landmark ruling that reinforces the statutory mandate for equitable treatment of operational creditors. By insisting on cash payments, the judgment ensures that the resolution process under the IBC remains fair, transparent, and conducive to achieving the Code’s objectives of insolvency resolution, maximization of value, and promotion of entrepreneurship.

This judgment sets a precedent for future resolution plans, mandating that they adhere strictly to the provisions of the IBC, particularly in ensuring that operational creditors are paid their dues in cash. It is a step forward in strengthening the insolvency resolution framework in India, ensuring that all stakeholders, especially operational creditors, are treated equitably in the corporate insolvency resolution process.

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Introduction

Within the complex realm of business transactions, unsecured creditors frequently encounter a dangerous predicament when a debtor declares insolvency. This predicament becomes even more evident when a large client, who owes a substantial amount of money, declares bankruptcy, causing tiny businesses to be in a condition of uncertainty. Unsecured creditors must have a clear understanding of their rights and the proactive choices they have under the Insolvency & Bankruptcy Code (IBC).

Exploring the Function of Unsecured Creditors

Unsecured creditors, referring to individuals or businesses who lack any collateral to reclaim their debts, play a crucial role in the financial ecosystem. Contrary to a widely held belief that smaller creditors are not adequately protected, Corporate Law guarantees identical rights and safeguards for all creditors without collateral. This protection applies regardless of the magnitude of the debt or the financial status of the debtor enterprise.

Understanding the Creditors’ Spectrum

Secured creditors possess a security interest in the debtor’s property, which entitles them to recover their debts. The purpose of establishing a security interest is to secure the borrower’s compliance, albeit without a guarantee.

Financial and operational creditors can be categorized based on the type of debts they are owing. Financial creditors refer to people who are owed financial debts, while operational creditors encompass individuals or entities who are owed money, such as workers and employees. Financial creditors can be classified as either secured or unsecured, whereas operational creditors are generally unsecured. This puts them at a greater risk in insolvency scenarios, presenting them with distinct issues.

Enhancing the Authority of Creditors through the Insolvency and Bankruptcy Code (IBC)

The Corporate Insolvency Resolution Process (CIRP) is initiated in accordance with Chapter II of Part II of the IBC. It can be initiated by financial creditors, operational creditors, or the corporate debtor that has defaulted. The procedure requires a minimum debt of Rs. 1 lakh, with financial creditors submitting their claims under Section 7 and operational creditors utilising either sections 8 or 9.

Debt recovery by operational creditors is a vital aspect of the overall debt recovery process. Prior to initiating any course of action, it is imperative for them to issue a demand notice to the corporate debtor. The recipient of the debt notice is given a period of ten days to reply, furnishing comprehensive details regarding the current status of the debt. Operational creditors that possess uncontested liabilities are the only ones eligible to initiate a Corporate Insolvency Resolution Process (CIRP).

The payment of liquidation proceeds is governed by the IBC, which sets up a definitive hierarchy for dispersing these funds. This encompasses the payment of charges related to the bankruptcy resolution process, expenses associated with liquidation, and the remuneration of employees. Prioritised ahead of all other claims are the payments owing to labourers for the past two years, followed by creditors with collateral, outstanding debts of creditors without collateral, and any remaining obligations.

Conclusion: Empowering Unsecured Creditors

The implementation of the Insolvency and Bankruptcy Code in 2016, together with later modifications, has brought about a substantial change in how business-related insolvencies and bankruptcies are dealt with. This comprehensive legislation simplifies the process of resolving disputes, replacing lengthy legal conflicts with a more effective technique that can be applied to individuals, partnerships, and corporate debtors. It is vital for unsecured creditors to comprehend their rights and utilise the available remedies under the IBC. Consulting a company lawyer is crucial when dealing with the intricacies of insolvency proceedings. The IBC 2016 guarantees that unsecured creditors are not left vulnerable, enabling them to actively engage in the settlement or liquidation process and protect their interests. Ultimately, the IBC 2016 serves as a prominent symbol of transformation, offering a strong structure for dealing with economic hardship in the corporate realm. Unsecured creditors, typically considered susceptible entities, can now confidently negotiate the insolvency terrain, equipped with an understanding of their entitlements and the options at their disposal to safeguard their financial interests.

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Introduction

The National Company Law Tribunal (NCLT), Kolkata Bench, recently made a crucial decision regarding the payment to Operational Creditors and Dissenting Financial Creditors in a Resolution Plan under Section 30(2)(b). The case is referred to as Shankar Mukherjee and Anr Vs. Ravi Sethia (RP of Suasth Healthcare Foundation and Ors).

The Case and Its Context

The Hon’ble Bench, consisting of Ms. Bidisha Banerjee (Judicial Member) and Shri Arvind Devanathan (Technical Member), examined the provisions of the Insolvency and Bankruptcy Code (I&B Code), 2016, specifically Section 30(2)(b).

The Judgment: Significance of Section 30(2)(b)

The Bench held that:

(i) The Code allows for a scenario where a provision made to an operational creditor or dissenting financial creditor in a Resolution Plan could be less than what they would have received in the event of liquidation as per section 53(1).

(ii) The phrase “not less than” used in Section 30(2)(b) indicates that if the legislature intended to limit the amount payable to them to the liquidation value at most, then the words “not more than liquidation value” would have been used.

(iii) The Code mandates allocation to dissenting financial creditors and operational creditors. The allocation would be the amount provided in the plan or liquidation value, whichever is higher. The argument that such creditors can be paid NIL value because their liquidation value is NIL would undermine the beneficial amendment made in Section 30(2) of the I&B Code.

(iv) Upon careful examination of Section 30(2)(b) of the I&B Code, 2016, two legal propositions emerge:

• (a) Reference to Section 53(1) of the I&B Code is solely for calculating the amount payable to operational creditors and dissenting financial creditors. Otherwise, Section 53 (1) has no relevance in the resolution of a corporate debtor under the CIR Process.
• (b) Some amount should be allocated for operational creditors as well as dissenting financial creditors, and the amount so provided cannot be NIL.

Conclusion: Interpreting Section 30(2)(b) for Fair Treatment

This judgment provides valuable insights into the interpretation of Section 30(2)(b) of the I&B Code, 2016. It underscores the importance of fair treatment of operational creditors and dissenting financial creditors in the resolution process. The ruling serves as a reminder for all stakeholders in the insolvency process to adhere to the principles and procedures laid down by the Code.

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Introduction

The Insolvency and Bankruptcy Code, 2016 represents a watershed moment in Indian commercial legislation, fundamentally transforming how insolvency and bankruptcy proceedings are conducted across the country. Before this Code came into effect, India’s insolvency framework was fragmented across multiple legislations including the Companies Act 2013, the Sick Industrial Companies (Special Provisions) Act 1985, and the Recovery of Debts due to Banks and Financial Institutions Act 1993. This fragmentation created significant delays in debt recovery, with India ranking poorly on international indices for ease of doing business. The Code consolidates these disparate laws into a unified framework designed to facilitate time-bound resolution of insolvency cases.

One of the most distinctive features of the IBC is its novel classification of creditors into two primary categories: financial creditors and operational creditors. This distinction between financial creditors and operational creditors, which is relatively uncommon in insolvency legislation worldwide, serves as the backbone of the entire insolvency resolution framework under the IBC. The classification determines not only how creditors can initiate insolvency proceedings but also their rights during the resolution process and their priority in the distribution of assets. Understanding this distinction is essential for anyone navigating the Indian insolvency landscape, whether as a creditor seeking to recover dues or as a corporate debtor facing financial distress.

Defining Financial Creditors under the IBC

The Insolvency and Bankruptcy Code provides a precise definition of who qualifies as a financial creditor. Under Section 5(7) of the Code, a financial creditor is defined as “any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred.” This definition, while appearing straightforward, carries significant implications for the nature of the relationship between the creditor and the corporate debtor.

The essence of being a financial creditor lies not merely in lending money but in the specific nature of the transaction. Section 5(8) of the Code defines financial debt as “a debt along with interest, if any, which is disbursed against the consideration for the time value of money.” This crucial element distinguishes financial debt from other forms of debt. The time value of money refers to the economic principle that money available today is worth more than the same amount in the future due to its potential earning capacity. When a financial creditor extends credit, they are essentially providing funds with the expectation of receiving not just the principal amount but also compensation for the time their money remains with the debtor [1].

Financial creditors typically include banks, financial institutions, debenture holders, and entities that have extended loans or credit facilities to corporate debtors. The relationship between a financial creditor and a corporate debtor is purely contractual and financial in nature. Unlike operational creditors who provide goods or services, financial creditors provide capital that enables the corporate debtor to conduct its business operations. This fundamental difference in the nature of the relationship has been recognized by courts and forms the basis for the differential treatment accorded to these two classes of creditors under the Code.

The inclusion of assignees and transferees within the definition of financial creditor recognizes the reality of modern financial markets where debts are frequently traded. Banks and financial institutions often sell or assign their debt portfolios to asset reconstruction companies or other entities. The Code ensures that such assignees retain the same rights as the original financial creditor, thereby maintaining continuity in the resolution process.

Understanding Operational Creditors

Operational creditors represent the second major category of creditors under the Insolvency and Bankruptcy Code. Section 5(20) of the Code defines an operational creditor as “a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.” The definition of operational debt, provided in Section 5(21), encompasses “a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority.”

This definition reveals that operational creditors fall into distinct subcategories. The first category comprises suppliers of goods and providers of services who have extended credit to the corporate debtor in the course of ordinary business operations. These could include raw material suppliers, service contractors, consultants, and various other vendors who have delivered goods or rendered services but remain unpaid [2].

The second category encompasses employees who have provided their labor and services to the corporate debtor. Unpaid salaries, wages, and other employment-related dues fall within the ambit of operational debt, making employees operational creditors with specific rights under the Code. The third category includes government entities, both central and state governments, as well as local authorities, to whom statutory dues such as taxes, levies, and fees are owed. These statutory obligations, though not arising from a commercial transaction in goods or services, are classified as operational debts under the Code [3].

The nature of operational debt differs fundamentally from financial debt. While financial debt involves the extension of capital with an expectation of returns based on the time value of money, operational debt arises from the provision of goods, services, or labor in the ordinary course of business. Operational creditors do not typically assess the long-term viability of the corporate debtor’s business model or engage in restructuring exercises. Their primary concern is the recovery of dues for goods supplied or services rendered.

Initiating Insolvency Proceedings: Divergent Pathways

The Insolvency and Bankruptcy Code (IBC) establishes distinct procedures for financial and operational creditors to initiate corporate insolvency resolution proceedings. These procedural differences reflect the different nature of their relationships with corporate debtors and the varying levels of information and documentation typically available to each class of creditor.

Financial creditors can initiate proceedings under Section 7 of the Code. When a default occurs, a financial creditor may file an application before the National Company Law Tribunal seeking initiation of the Corporate Insolvency Resolution Process. The application must be filed in the prescribed format and accompanied by documents establishing the existence of financial debt and the occurrence of default. Critically, Section 7 requires the financial creditor to propose an interim resolution professional who will manage the insolvency resolution process if the application is admitted. The Adjudicating Authority must decide on the application within fourteen days of its receipt.

One of the notable features of Section 7 is the relatively straightforward admission process. The financial creditor must demonstrate the existence of debt and default. Unlike operational creditors, financial creditors are not required to serve a demand notice before approaching the Tribunal. This is because financial debts are typically well-documented through loan agreements, disbursement records, and repayment schedules. The corporate debtor is fully aware of the loan structure and any defaults that have occurred. The Supreme Court has recognized that the use of the word “may” in Section 7(5)(a) grants the Adjudicating Authority some discretion in admitting applications from financial creditors, allowing consideration of the overall financial health and viability of the corporate debtor [4].

Operational creditors follow a different pathway under Section 9 of the Code. Before filing an application with the Tribunal, an operational creditor must first deliver a demand notice to the corporate debtor demanding payment of the unpaid operational debt. This notice must be in the prescribed form and clearly state the amount due. The corporate debtor then has ten days from receipt of the notice to either make payment or bring to the operational creditor’s notice the existence of any dispute regarding the debt or the pendency of any suit or arbitration proceedings related to such dispute.

If the operational creditor receives neither payment nor notice of dispute within this ten-day period, they may file an application before the Adjudicating Authority. The application must be accompanied by copies of the demand notice, invoice, and a certificate from financial institutions confirming non-payment by the corporate debtor. The operational creditor may, but is not required to, propose an interim resolution professional. The Adjudicating Authority must admit the application within fourteen days if it is satisfied about the existence of default and the absence of a pre-existing dispute [5].

The requirement of a demand notice and the defense of pre-existing dispute create additional hurdles for operational creditors compared to financial creditors. This difference stems from the recognition that operational debts are more prone to genuine disputes about the quality of goods supplied or services rendered. A corporate debtor might legitimately dispute an operational creditor’s claim on grounds that goods were substandard or services were inadequately performed. In contrast, financial debts involve clearly documented monetary obligations with less room for such disputes.

The Committee of Creditors: Power and Exclusion

The composition and powers of the Committee of Creditors represent perhaps the most significant manifestation of the differential treatment between financial and operational creditors under the IBC. Section 21 of the Code provides for the constitution of a Committee of Creditors once an insolvency resolution process is initiated. However, Section 21(2) explicitly states that the Committee of Creditors shall comprise all financial creditors of the corporate debtor. Operational creditors, regardless of the quantum of their claims, are excluded from membership in this crucial decision-making body.

The Committee of Creditors exercises extensive powers during the insolvency resolution process. It has the authority to approve or reject resolution plans submitted by prospective resolution applicants. The committee assesses the viability and feasibility of proposed plans and determines whether they adequately address the interests of creditors. A resolution plan must be approved by not less than sixty-six percent of the voting share of financial creditors to be accepted. Once approved by the Committee and subsequently by the Adjudicating Authority, the resolution plan becomes binding on the corporate debtor and all its stakeholders.

Operational creditors, while excluded from the Committee, are granted limited participatory rights. An operational creditor or operational creditors representing at least ten percent of the aggregate operational debt may attend meetings of the Committee of Creditors and make representations. However, they have no voting rights. This means operational creditors cannot influence the decision to approve or reject a resolution plan, even when such plan directly affects their ability to recover their dues [6].

This exclusion has been the subject of considerable debate and legal challenge. Critics argue that denying operational creditors voting rights violates principles of equality and natural justice. Proponents of the exclusion point to the rationale provided by the Bankruptcy Law Reforms Committee, which observed that members of the Committee of Creditors must have both the capability to assess viability and the willingness to modify terms of existing liabilities in negotiations. The Committee concluded that operational creditors typically lack the ability to assess business viability and are primarily concerned with recovering the amounts owed to them rather than with the long-term prospects of the corporate debtor.

Constitutional Validity: The Swiss Ribbons Judgment

The constitutional validity of the differential treatment between financial and operational creditors was comprehensively examined by the Supreme Court in Swiss Ribbons Pvt. Ltd. v. Union of India, decided on January 25, 2019. Multiple writ petitions challenged various provisions of the IBC, including the exclusion of operational creditors from the Committee of Creditors, arguing that such discrimination violated Article 14 of the Constitution, which guarantees equality before law [7].

The Supreme Court rejected these constitutional challenges and upheld the validity of the Code’s provisions. The Court examined the rationale behind the distinction between financial and operational creditors as articulated in the report of the IBC Law Reforms Committee. The Committee had explained that financial creditors are those whose relationship with the entity is a pure financial contract, such as a loan or debt security. Financial creditors typically have the expertise and information necessary to assess the viability of the corporate debtor’s business. They are engaged in evaluating financial risks and are capable of making informed decisions about restructuring and reorganization.

In contrast, the Committee observed that operational creditors generally provide goods or services in the ordinary course of business. Their relationship with the corporate debtor is transactional rather than financial. Operational debts tend to be recurring in nature, and the possibility of genuine disputes is much higher compared to financial debts. A supplier might dispute the quantum or quality of goods, or a service provider might contest the adequacy of services rendered. Such disputes are matters to be proven in arbitration or courts of law. Financial debts made to banks and financial institutions, on the other hand, are well-documented and defaults are easily verifiable.

The Court found that the distinction between financial and operational creditors was based on an intelligible differentia and had a rational connection to the objectives of the IBC. It emphasized that the Code’s main goal is to ensure the expeditious resolution of corporate insolvency while maximizing the value of the debtor’s assets. Limiting the Committee of Creditors to financial creditors supports this goal by ensuring that restructuring decisions are made by those with the expertise and ability to assess financial viability and engage in meaningful negotiations. The Court concluded that this distinction is neither arbitrary nor discriminatory and does not violate Article 14 of the Constitution.

The Essar Steel Precedent: Defining Distribution Rights

The Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta, decided by the Supreme Court on November 15, 2019, represents another landmark judgment that clarified the rights of operational creditors and the extent of the Committee of Creditors’ powers. Essar Steel owed approximately forty-nine thousand crore rupees to its creditors and was one of the twelve accounts mandated by the Reserve Bank of India for resolution under the Code. The case involved appeals against orders of the National Company Law Appellate Tribunal that had modified the distribution pattern approved by the Committee of Creditors [8].

The resolution plan approved by the Committee of Creditors provided for differential treatment of various classes of creditors. Secured financial creditors were to recover a significantly higher percentage of their claims compared to operational creditors. The National Company Law Appellate Tribunal had taken the view that operational creditors stood on equal footing with financial creditors and modified the distribution to ensure parity. The Supreme Court reversed this approach, holding that equality cannot mean treating unequals equally.

The Supreme Court reaffirmed the primacy of the commercial wisdom of the Committee of Creditors. The Court held that the Committee has the authority to decide on all commercial aspects of a resolution plan, including the manner of distribution among different classes of creditors. While the Committee must consider the interests of all stakeholders, it is not required to treat all creditors identically. The principle of equality applies to similarly situated creditors, not to creditors belonging to different classes with fundamentally different relationships to the corporate debtor.

The Court emphasized that financial creditors are capital providers who enable the corporate debtor to conduct business. Operational creditors, while important stakeholders, are in essence beneficiaries of the capital provided by financial creditors. The differential treatment reflects the different risks undertaken and the different relationships maintained with the corporate debtor. The Supreme Court clarified that while the Committee of Creditors has wide discretion in determining distribution, it must ensure that the resolution plan meets the requirements specified in Section 30(2) of the Code, including that operational creditors receive at least the amount they would have received in liquidation.

The Essar Steel judgment addressed concerns about potential conflicts of interest by imposing certain checks on the Committee of Creditors. The Court held that while the Committee enjoys commercial wisdom and its decisions deserve deference, such wisdom must be exercised keeping in mind the interests of all stakeholders. The Adjudicating Authority retains jurisdiction to ensure that the resolution plan complies with the statutory requirements and does not unfairly prejudice the interests of any class of creditors [9].

Priority in Liquidation: Section 53 Waterfall

When a corporate debtor’s assets are liquidated, the Insolvency and Bankruptcy Code establishes a specific priority or waterfall for the distribution of proceeds. Section 53 of the Code provides this distribution mechanism, which places different classes of creditors at different levels of priority. Understanding this waterfall is crucial for all creditors as it determines the likelihood and extent of recovery in the event that the insolvency resolution process fails and liquidation becomes necessary.

The waterfall begins with insolvency resolution process costs and liquidation costs, which receive first priority. These include the fees of the resolution professional and costs incurred in conducting the insolvency process. Following these process costs, workmen’s dues for the twenty-four months preceding the liquidation commencement date receive priority, along with debts owed to secured creditors to the extent of the value of security held by them.

Wages and unpaid dues owed to employees other than workmen for the twelve months preceding the liquidation commencement date come next. Financial debts owed to unsecured creditors fall into the subsequent category. Crown debts, being amounts due to the government, follow these unsecured financial debts. Operational creditors find their place in the waterfall after these categories, sharing priority with certain other specified debts.

This prioritization means that in liquidation scenarios, operational creditors typically recover significantly less than secured financial creditors and often less than unsecured financial creditors as well. The rationale for this ordering reflects policy choices about which obligations society considers most important to honor when a business fails. Employee dues receive high priority to protect workers who depend on their wages for livelihood. Secured creditors’ priority reflects the contractual bargain struck when security was granted. Operational creditors, while entitled to payment, rank lower in this hierarchy.

Regulatory Framework and Procedural Safeguards

The Insolvency and Bankruptcy Board of India, established under Section 196 of the Code, serves as the principal regulatory authority overseeing the insolvency resolution process. The Board regulates insolvency professionals, insolvency professional agencies, and information utilities. It issues regulations that provide detailed procedures for various aspects of the insolvency resolution process, ensuring uniformity and transparency in proceedings across different cases and tribunals.

The Board has issued the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which provide comprehensive procedures for conducting the Corporate Insolvency Resolution Process. These regulations specify the forms to be used for various applications, the manner of filing claims, the procedures for meetings of the Committee of Creditors, and the requirements for resolution plans. Both financial and operational creditors must comply with these regulations when participating in IBC proceedings.

Information utilities, as envisaged under the Code, play a crucial role in reducing information asymmetry and facilitating quicker resolution of insolvency cases. These entities collect, collate, authenticate, and disseminate financial information about debts and defaults. When creditors report financial information to information utilities, it creates a credible record that can expedite the admission of insolvency applications and reduce disputes about the existence or quantum of debt. While the full potential of information utilities has yet to be realized, their development represents an important aspect of the Code’s infrastructure.

Challenges and Criticisms

Despite the Code’s achievements in improving India’s insolvency resolution framework, the treatment of operational creditors remains a subject of ongoing debate and criticism. Operational creditors argue that they face systematic disadvantages that undermine their ability to recover legitimate dues. The exclusion from the Committee of Creditors means they have no say in determining their own fate during the resolution process. Resolution plans often provide minimal recovery to operational creditors, sometimes as low as five to ten percent of admitted claims, while financial creditors recover substantially higher percentages.

The defense of pre-existing dispute available to corporate debtors when operational creditors file applications under Section 9 creates an additional hurdle. Even frivolous disputes raised by corporate debtors can delay or prevent the admission of applications by operational creditors. This stands in contrast to the relatively smoother path available to financial creditors under Section 7. Critics argue that this differential treatment incentivizes corporate debtors to preferentially repay financial creditors while neglecting operational debts, knowing that operational creditors face greater obstacles in enforcing their claims.

Small and medium operational creditors, including suppliers and service providers, often lack the resources to pursue prolonged legal battles. When their claims are admitted but the resolution plan provides minimal recovery, they have limited recourse. The concentration of power in the Committee of Creditors, which comprises only financial creditors, can lead to plans that favor financial creditors at the expense of operational creditors. While the Adjudicating Authority theoretically reviews plans for fairness, the deference accorded to the commercial wisdom of the Committee of Creditors limits the scope of such review.

Conclusion

The Insolvency and Bankruptcy Code, 2016 has fundamentally transformed India’s approach to insolvency and bankruptcy, replacing a fragmented and inefficient system with a consolidated, time-bound framework. The distinction between financial and operational creditors lies at the heart of this framework, shaping how insolvency proceedings are initiated, conducted, and concluded. While this classification has been upheld as constitutionally valid and serves important policy objectives, it creates significant practical consequences for the different classes of creditors.

Financial creditors enjoy several advantages under the Code, including simpler procedures for initiating insolvency proceedings, exclusive membership in the Committee of Creditors, and higher priority in asset distribution. These advantages reflect the recognition that financial creditors provide the capital that enables businesses to function and possess the expertise to assess viability and engage in meaningful restructuring. Operational creditors, while accorded certain rights and protections, face procedural hurdles and have limited influence over the resolution process.

The tension between the rights of financial and operational creditors under the IBC continues to evolve through judicial pronouncements and legislative amendments. The Supreme Court’s decisions in Swiss Ribbons and Essar Steel have provided important clarifications while also imposing certain checks to ensure that the interests of operational creditors are not entirely disregarded. As the Code matures and more cases are resolved, the balance between efficiency in resolution and fairness to all stakeholders will continue to be refined.

Understanding the nuances of being a financial or operational creditor under the IBC is essential for anyone involved in commercial transactions in India. Creditors must be aware of their rights, the procedures they must follow, and the practical limitations they may face. Corporate debtors must recognize their obligations to different classes of creditors and the consequences of default. As India continues to develop its insolvency ecosystem, the experiences of creditors and debtors alike will shape the ongoing evolution of this critical area of commercial law.

References

[1] Insolvency and Bankruptcy Code, 2016, https://www.indiacode.nic.in/bitstream/123456789/15479/1/the_insolvency_and_bankruptcy_code,_2016.pdf 

[2] Taxmann, “Operational Creditors Under Insolvency and Bankruptcy Code, 2016,” https://www.taxmann.com/post/blog/operational-creditors-under-insolvency-and-bankruptcy-code-2016/ 

[3] Insolvency and Bankruptcy Board of India, “Understanding the Insolvency and Bankruptcy Code, 2016,” https://www.ibbi.gov.in/uploads/publication/190609_UnderstandingtheIBC_Final.pdf 

[4] IBC Laws, “Section 7 of IBC – Initiation of Corporate Insolvency Resolution Process by Financial Creditor,” https://ibclaw.in/section-7-initiation-of-corporate-insolvency-resolution-process-by-financial-creditor-chapter-ii-corporate-insolvency-resolution-processcirp-part-ii-insolvency-resolution-and-liquidation-for-corpor/ 

[5] Enterslice, “Difference Between Financial Creditor and Operational Creditor Under IBC,” https://enterslice.com/learning/difference-between-financial-creditor-and-operational-creditor-under-ibc-2016/ 

[6] IBC Laws, “Distinction in Treatment of Financial Creditors vs. Operational Creditors under IBC,” https://ibclaw.in/distinction-in-treatment-of-financial-creditors-vs-operational-creditors-by-vidushi-puri/ 

[7] Swiss Ribbons Pvt. Ltd. v. Union of India, Writ Petition (Civil) No. 99 of 2018, https://indiankanoon.org/doc/17372683/ 

[8] Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta, Civil Appeal No. 8766-67 of 2019, https://indiankanoon.org/doc/7427609/ 

[9] India Corporate Law, “Essar Steel India Limited: Supreme Court Reinforces Primacy of Creditors Committee,” https://corporate.cyrilamarchandblogs.com/2019/11/essar-steel-india-limited-supreme-court-reinforces-primacy-of-creditors-committee-insolvency-resolution/ 

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Introduction

The Insolvency and Bankruptcy Code, 2016 represents a landmark consolidation of India’s insolvency laws, establishing a unified framework for time-bound resolution of insolvency and bankruptcy proceedings. This comprehensive legislation, introduced to address the prevailing challenges in debt recovery and corporate resolution, operates through two primary adjudicating authorities: the National Company Law Tribunal (NCLT) for corporate matters and the Debt Recovery Tribunal (DRT) for individual cases [1]. At the heart of this legislative framework lies Section 8 of the Code, which mandates the issuance of a demand notice by operational creditors as a prerequisite to initiating Corporate Insolvency Resolution Process (CIRP). This provision serves as a crucial safeguard mechanism, providing corporate debtors with a final opportunity to settle outstanding debts before facing the commencement of formal insolvency proceedings.

Legislative Framework and Statutory Provisions

Section 8 of the Insolvency and Bankruptcy Code, 2016

Section 8 of the Code establishes the procedural framework for insolvency resolution by operational creditors. The provision reads as follows:

“(1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed.

(2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor— (a) existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute; (b) the repayment of unpaid operational debt— (i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or (ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor.”

The explanation to this section defines a “demand notice” as “a notice served by an operational creditor to the corporate debtor demanding payment of the operational debt in respect of which the default has occurred” [2].

Definitions Under Section 5 of the Code

The Code provides specific definitions that are crucial for understanding the scope and application of demand notices:

• Operational Creditor: Section 5(20) defines an “operational creditor” as “a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred” [3].
• Operational Debt: Section 5(21) defines “operational debt” as “a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority” [3].

These definitions establish the fundamental distinction between financial and operational creditors, with operational creditors being those whose claims arise from operational transactions rather than purely financial arrangements.

Regulatory Authority and Oversight

The Insolvency and Bankruptcy Board of India (IBBI), established on October 1, 2016, serves as the primary regulatory authority overseeing the implementation of the Code [4]. The IBBI regulates insolvency professionals, insolvency professional agencies, and information utilities while establishing standards and guidelines for insolvency proceedings. This regulatory framework ensures consistency and transparency in the demand notice process and subsequent insolvency proceedings.

Form and Manner of Service

Prescribed Format Under Form 3

The demand notice must be served in accordance with Form 3 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. This prescribed format requires specific information including the total amount of debt, transaction details, the date from which the debt began accruing, the amount claimed by the creditor, and any securities held. The notice must explicitly demand unconditional repayment of the unpaid operational debt within ten days, failing which the creditor may initiate corporate insolvency resolution proceedings.

Methods of Service

Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 prescribes the methods for delivering demand notices:

1. At the registered office by hand, registered post, or speed post with acknowledgment due
2. By electronic mail service to a whole-time director, designated partner, or key managerial personnel of the corporate debtor

The rules emphasize that effective delivery is paramount, and the notice must reach the intended recipient to constitute valid service under the Code.

Landmark Judicial Pronouncements

Macquarie Bank Limited vs. Shilpi Cable Technologies Ltd. (2017)

The Supreme Court’s landmark judgment in Macquarie Bank Limited vs. Shilpi Cable Technologies Ltd. [5] addressed two critical issues that had been impeding operational creditors’ rights under the Code:

First Issue: Whether Section 9(3)(c) of the Code, which requires “a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor,” is mandatory.

The Supreme Court held that this provision is not a condition precedent to triggering the insolvency process. The Court observed that the expression “confirming” makes it clear that this is only a piece of evidence, albeit very important evidence, which only “confirms” that there is no payment of an unpaid operational debt. This ruling particularly benefited foreign operational creditors who could not maintain accounts with recognized financial institutions in India.

Second Issue: Whether a demand notice under Section 8 of IBC, 2016 can be issued by a lawyer or authorized representative on behalf of the operational creditor.

The Court ruled affirmatively, noting that Section 8 speaks of an operational creditor “delivering” rather than “issuing” a demand notice. The Court emphasized that delivery postulates that such notice could be made by an authorized agent. This interpretation was supported by Forms 3 and 5, which require the signature of a person “authorized to act” on behalf of the operational creditor.

The Supreme Court’s reasoning drew upon Section 30 of the Advocates Act, 1961, and established that a conjoint reading of Sections 8 and 9 of the Code, together with the Adjudicatory Authority Rules and Forms, permits lawyers to send notices on behalf of operational creditors.

Alloysmin Industries vs. Raman Casting Pvt. Ltd. (NCLAT)

The National Company Law Appellate Tribunal (NCLAT) in Alloysmin Industries vs. Raman Casting Pvt. Ltd. addressed the critical issue of valid service of demand notices [6]. The tribunal held that “if the demand notice under Section 8(1) is served on Corporate Debtor either on its Registered Office or its Corporate Office, it should be treated to be valid service of notice under Section 8 and application under Section 9 on failure of payment, if filed after 10 days, is maintainable.”

This judgment clarified that service at either the registered office or corporate office constitutes valid delivery, providing flexibility to operational creditors while ensuring that corporate debtors receive proper notice of the demand.

Sandesh Ltd vs. Realm Media Solutions Pvt. Ltd. (NCLAT)

In addressing situations where corporate debtors deliberately avoid service of demand notices, the NCLAT in Sandesh Ltd vs. Realm Media Solutions Pvt. Ltd. established important precedent [7]. The tribunal held that when an operational creditor can prove that the corporate debtor is deliberately avoiding service of the notice, the Adjudicating Authority may allow publication of the notice in newspapers. If the corporate debtor fails to appear even after such publication, the demand notice may be deemed to have been served.

This ruling prevents corporate debtors from frustrating the insolvency process through deliberate avoidance of service and ensures that genuine operational creditors can proceed with their claims despite such tactics.

Procedural Requirements and Compliance

Ten-Day Response Period

The Code mandates that corporate debtors must respond within ten days of receiving the demand notice. During this period, the corporate debtor may:

1. Raise the existence of a pre-existing dispute and provide records of pending litigation or arbitration proceedings
2. Demonstrate repayment through electronic transfer records or evidence of cheque encashment

The ten-day period is absolute and cannot be extended. Failure to respond within this timeframe enables the operational creditor to proceed with filing an application under Section 9 of the Code.

Threshold Requirements

For initiating insolvency proceedings, the outstanding operational debt must exceed the minimum threshold amount, currently set at Rs. 1 lakh. This threshold ensures that only substantial claims trigger the insolvency process, preventing frivolous applications that could overwhelm the adjudicating authorities.

Documentation Requirements

The demand notice must be accompanied by supporting documentation including:

1. Copy of invoices or agreements between the operational creditor and corporate debtor
2. Evidence of goods or services delivery
3. Correspondence regarding the outstanding debt
4. Any securities or guarantees held in relation to the debt

These documentation requirements ensure that demand notices are supported by substantive evidence and prevent abuse of the insolvency process.

Regulatory Oversight and Information Utilities

The Code establishes Information Utilities as repositories of financial information that can verify claims and debts. Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 requires that a copy of the demand notice be filed with an information utility, if available. This requirement enhances transparency and creates a centralized record of demands made under the Code [8].

Consequences of Non-Compliance

Invalid Service

Courts have consistently held that mechanical or ineffective service of demand notices renders subsequent insolvency applications liable to dismissal. In Krystal Integrated Services Pvt. Ltd. vs. Indiaontime Express Private Limited, the NCLAT emphasized that demand notices must be served in an effective manner to ensure that the corporate debtor is genuinely aware of the notice.

Procedural Defects

Applications filed without proper service of demand notices face rejection at the admission stage. The adjudicating authorities strictly enforce compliance with Section 8 requirements, as demonstrated in Era Infra Engineering Ltd. vs. Prideco Commercial Projects Pvt. Ltd., where the NCLAT set aside an order admitting an insolvency petition due to non-compliance with demand notice requirements.

Rights and Remedies of Operational Creditors

Limited Participation in Committee of Creditors

While operational creditors who are not financial creditors do not possess voting rights in the Committee of Creditors (CoC), they retain certain participatory rights in the insolvency resolution process. They may attend CoC meetings as observers and provide input on resolution plans, though they cannot vote on such plans.

Appeal Rights

Operational creditors dissatisfied with resolution plans approved by the CoC may appeal to the NCLAT within thirty days under Section 61(3) of the Code. The grounds for appeal include:

1. Contravention of applicable laws
2. Material irregularities in the resolution professional’s conduct
3. Inadequate provision for operational creditor debts
4. Non-compliance with IBBI-specified criteria

These appeal rights ensure that operational creditors have recourse against unfair treatment in the resolution process.

Contemporary Challenges and Judicial Responses

Authentication and Authority Issues

Recent NCLAT decisions have emphasized the importance of proper authorization when demand notices are issued by representatives of operational creditors. The tribunal has held that advocates, company secretaries, or chartered accountants can issue demand notices only if they possess proper board authorization and clearly state their relationship with the operational creditor.

Cross-Border Implications

The Supreme Court’s decision in Macquarie Bank has particular significance for cross-border insolvency matters, as it removed barriers that previously prevented foreign operational creditors from effectively utilizing the Indian insolvency framework. This development aligns with international best practices and enhances India’s attractiveness as an investment destination.

Best Practices for Operational Creditors

Documentation and Record-Keeping

Operational creditors should maintain comprehensive records of all transactions, communications, and delivery of goods or services. Proper documentation strengthens the foundation for demand notices and subsequent insolvency applications.

Legal Representation

Given the technical requirements and potential complexities, operational creditors should consider engaging qualified legal counsel for drafting and serving demand notices. The Supreme Court’s recognition of lawyers’ authority to issue such notices on behalf of creditors provides legal certainty for this practice.

Timing Considerations

Strategic timing of demand notice service can impact the effectiveness of subsequent insolvency proceedings. Creditors should consider the corporate debtor’s financial position, ongoing negotiations, and market conditions when deciding whether to issue demand notices.

Conclusion

The demand notice mechanism under Section 8 of the Insolvency and Bankruptcy Code, 2016 represents a carefully balanced approach to corporate insolvency resolution. It provides operational creditors with an effective tool for debt recovery while affording corporate debtors a final opportunity to resolve disputes or arrange payment before facing formal insolvency proceedings.

The judicial interpretation of Section 8, particularly through landmark cases such as Macquarie Bank and Alloysmin Industries, has strengthened the position of operational creditors and removed procedural barriers that previously impeded effective debt resolution. These developments have enhanced the Code’s effectiveness in achieving its dual objectives of maximizing asset values and balancing stakeholder interests.

The IBBI’s regulatory oversight ensures consistent application of demand notice requirements across all proceedings, while the prescribed forms and procedures provide clarity and predictability for all parties involved. As the Indian insolvency regime continues to evolve, the demand notice under Section 8 of  IBC,2016 will remain a cornerstone of the operational creditor’s toolkit for effective debt recovery and corporate restructuring.

The significance of proper compliance with demand notice requirements cannot be overstated, as non-compliance often results in dismissal of insolvency applications at the admission stage itself. Operational creditors must therefore ensure meticulous adherence to the prescribed procedures, documentation requirements, and service methods to maximize their prospects of successful debt recovery through the insolvency process.

References

[1] Insolvency and Bankruptcy Code, 2016, available at: https://www.indiacode.nic.in/handle/123456789/2154 

[2] Section 8, Insolvency and Bankruptcy Code, 2016, available at: https://ibclaw.in/section-8-insolvency-resolution-by-operational-creditor-chapter-ii-corporate-insolvency-resolution-processcirp-part-ii-insolvency-resolution-and-liquidation-for-corporate-persons-the-insolvency-and/ 

[3] Section 5, Insolvency and Bankruptcy Code, 2016, available at: https://ibclaw.in/section-5-definitions-under-part-ii-part-ii-insolvency-resolution-and-liquidation-for-corporate-persons-the-insolvency-and-bankruptcy-code-2016-ibc-sections/ 

[4] Insolvency and Bankruptcy Board of India, available at: https://ibbi.gov.in//en 

[5] Macquarie Bank Limited vs. Shilpi Cable Technologies Ltd., (2018) 2 SCC 674, 

[6] Alloysmin Industries vs. Raman Casting Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 684 of 2018, 

[7] Sandesh Ltd vs. Realm Media Solutions Pvt. Ltd., Company Appeal (AT)(Ins) No. 222 of 2018

[8] Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, available at: https://ca2013.com/returns/form-5-insolvency-bankruptcy-code/ 

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Introduction

The Insolvency and Bankruptcy Code, 2016 [1] represents a watershed moment in India’s corporate restructuring and insolvency landscape. This landmark legislation consolidated and revolutionized the laws relating to reorganization and insolvency of corporate persons, partnership firms, and individuals. One of the most significant innovations of the Code lies in its clear delineation between two distinct categories of creditors – financial creditors and operational creditors – a classification that fundamentally shapes the entire insolvency resolution framework.

The Code defines a creditor broadly under Section 3(10) as “any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree holder” [2]. This definition encompasses various categories of creditors, but the distinction between financial and operational creditors has emerged as particularly crucial for determining rights, procedures, and priorities in corporate insolvency resolution processes.

Unlike the Companies Act, 2013, which merely introduced the term ‘creditor’ without any meaningful classification, the Insolvency and Bankruptcy Code has introduced nuanced definitions that carry significant legal and practical implications. The maintainability of applications for initiating corporate insolvency resolution processes now depends fundamentally on the applicant’s ability to establish their status as either a financial creditor or an operational creditor under the Code.

Legal Framework and Statutory Definitions

Financial Creditors: Definition and Scope

The Code defines a financial creditor under Section 5(7) as “a person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred” [3]. The essence of being a financial creditor lies in the nature of the underlying debt, which must qualify as a ‘financial debt’ under the Code.

Section 5(8) of the Code elaborately defines financial debt as “a debt along with interest, if any, which is disbursed against the consideration for the time value of money” [3]. This definition encompasses various forms of financial arrangements including money borrowed or raised through bonds, debentures, loans, deposits, advances, or any other form of indebtedness. The key distinguishing factor is that the money must be disbursed against consideration for the time value of money, which may include interest, discount, premium on redemption, or any other charge or fee.

The definition further includes obligations under financial derivatives, guarantees or suretyship for financial debt, repurchase agreements, forward sale agreements, and any other transaction creating monetary obligations. This broad definition ensures that modern financial instruments and arrangements are captured within the ambit of financial debt.

Operational Creditors: Definition and Characteristics

An operational creditor is defined under Section 5(20) of the Code as “any person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred” [4]. The classification depends on whether the debt qualifies as an ‘operational debt’ under Section 5(21) of the Code.

Operational debt encompasses four specific categories: claims relating to the provision of goods or services including employment, or a debt in respect of repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government, or any local authority. This definition captures trade creditors, service providers, employees, and governmental authorities who have transactional relationships with the corporate debtor arising from its business operations.

The Bankruptcy Law Reforms Committee, in paragraph 5.2.1 of its final report, clarified the distinction by noting that “Financial creditors are those whose relationship with the entity is a pure financial contract, such as a loan or debt security. Operational creditors are those whose liability from the entity comes from a transaction on operations” [5].

Procedural Differences in Insolvency Initiation

Financial Creditor Initiated Processes

Under Section 7 of the Code, financial creditors enjoy a relatively streamlined process for initiating corporate insolvency resolution proceedings. Upon occurrence of a default, a financial creditor may either by itself or jointly with other financial creditors file an application before the National Company Law Tribunal (NCLT). The application must be accompanied by evidence of debt and default, along with the name of a resolution professional proposed to act as interim resolution professional.

The threshold requirement for financial creditors is the existence of a financial debt of at least one lakh rupees, and the adjudicating authority must either admit or reject the application within fourteen days of its filing. Importantly, financial creditors need not provide prior notice to the corporate debtor, and the debtor cannot dispute the debt at the admission stage.

Operational Creditor Initiated Processes

The process for operational creditors under Section 9 is more elaborate and includes additional procedural safeguards. Before filing an application, an operational creditor must deliver a demand notice to the corporate debtor demanding payment of the amount involved in the default. This notice must be accompanied by a copy of an invoice or other evidence of the operational debt.

The operational creditor can file an application only after the expiry of ten days from the date of delivery of the notice, and only if the corporate debtor fails to make payment or disputes the debt. If the corporate debtor disputes the debt by providing notice of dispute along with credible evidence, the operational creditor cannot proceed with the application unless it obtains a decree, order, or award from a competent court, tribunal, or arbitrator.

This additional layer of protection for corporate debtors in operational creditor cases reflects the legislature’s recognition that operational debts may be more susceptible to genuine disputes and require greater scrutiny before triggering the insolvency process.

Rights and Representation in Committee of Creditors

One of the most significant distinctions between financial and operational creditors lies in their participation rights in the Committee of Creditors (CoC), which serves as the primary decision-making body during the corporate insolvency resolution process.

Financial Creditors’ Dominant Role

Under Section 21(2) of the Code, the Committee of Creditors consists solely of financial creditors. All financial creditors of the corporate debtor are entitled to be members of the CoC, and their voting rights are proportionate to their financial debt. The approval of the committee requires a vote of not less than seventy-five percent of the voting shares, with each financial creditor’s voting share determined by the proportion of their financial debt to the total financial debt.

This structure gives financial creditors complete control over critical decisions including approval of resolution plans, appointment of resolution professionals, and other matters relating to the conduct of the corporate insolvency resolution process. The rationale behind this approach is that financial creditors typically have larger exposures and have provided funding that enabled the corporate debtor to establish and operate its business.

Limited Rights of Operational Creditors

Operational creditors have significantly limited participation rights in the insolvency resolution process. Under the original framework, operational creditors had no voting rights in the Committee of Creditors and could only attend meetings as observers. However, subsequent amendments have provided some relief to operational creditors.

Currently, operational creditors can be represented in the CoC if they collectively hold at least ten percent of the total debt or if they individually hold at least ten percent of the total operational debt. Even when represented, operational creditors cannot vote on substantial matters and their role remains largely advisory.

The operational creditors can authorize an insolvency professional to represent them in CoC meetings, but this representation does not translate to voting power on crucial decisions affecting the resolution process. This limited participation reflects the legislative intent to prioritize the interests of financial creditors who are perceived as having a greater stake in the revival of the corporate debtor.

Judicial Interpretations and Key Cases

The Col. Vinod Awasthy Case: Defining Operational Debt Boundaries

The National Company Law Tribunal, Principal Bench, New Delhi, in Col. Vinod Awasthy v. AMR Infrastructure Limited [6], provided important clarity on the scope of operational debt. The case involved a flat purchaser seeking to initiate insolvency proceedings against a real estate developer claiming status as an operational creditor.

The Tribunal held that the framers of the Code had not intended to include within the expression of operational debt any debt other than those specifically enumerated in Section 5(21). The Tribunal observed that operational debt is confined to four categories: goods, services, employment, and government dues. The debt owed to a flat purchaser, being associated with the possession of immovable property, did not fall within any of these categories.

The Tribunal emphasized that the petitioner had neither supplied goods nor rendered services to acquire the status of an operational creditor. This decision established important precedent regarding the limited scope of operational debt and clarified that not all commercial relationships automatically qualify parties as operational creditors under the Code.

Supreme Court’s Constitutional Validation in Swiss Ribbons

The distinction between financial and operational creditors faced constitutional challenge in Swiss Ribbons Pvt. Ltd. v. Union of India [7], where the Supreme Court was called upon to examine whether the differential treatment accorded to these creditor categories violated constitutional principles of equality and non-discrimination.

The Supreme Court comprehensively upheld the constitutional validity of the Code’s provisions relating to financial and operational creditors. The Court observed that financial creditors generally lend finance on term loans or for working capital that enables the corporate debtor to set up or operate its business, while contracts with operational creditors relate to supply of goods and services in business operations.

The Court noted that financial contracts generally involve larger sums of money, whereas operational contracts typically involve smaller amounts. More importantly, the Court recognized that the differentiation was based on the fundamental difference in the nature of relationships – financial creditors have pure financial contracts while operational creditors have operational relationships arising from business transactions.

The Supreme Court’s decision in Swiss Ribbons not only validated the legislative classification but also provided important guidance on interpreting the distinction between financial and operational debts based on the intent of the parties and the nature of the underlying transaction.

Distribution Priorities and Recovery Rights

The Code establishes a clear hierarchy for distribution of assets during liquidation proceedings, with significant implications for both categories of creditors. Under Section 53 of the Code, the distribution waterfall places secured creditors at the top, followed by insolvency resolution process costs, workmen’s dues, and other specified categories.

Financial creditors rank higher than operational creditors in the distribution hierarchy. Unsecured financial debts are placed at clause (d) of Section 53(1), while operational debts fall under clause (f). This means that in liquidation scenarios, financial creditors recover their dues before operational creditors, even when both are unsecured.

This prioritization reflects the legislative understanding that financial creditors provide the capital foundation for business operations and should therefore receive preferential treatment in recovery proceedings. The Supreme Court has consistently upheld this priority structure, recognizing it as a rational classification based on the different roles played by financial and operational creditors in corporate financing.

Recent Developments and Amendments

The Code has undergone several amendments since its enactment, many of which have impacted the treatment of financial and operational creditors. One significant development was the treatment of homebuyers in real estate projects, who were initially caught in definitional ambiguity.

Following the Jaypee Infratech case and other similar situations, the legislature amended the Code to specifically include allottees under real estate projects within the definition of financial creditors. The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, inserted Explanation 1 to Section 5(8) clarifying that amounts raised from allottees under a real estate project constitute financial debt.

This amendment settled the controversy surrounding homebuyers’ status and provided them with the enhanced rights and protections available to financial creditors, including participation in the Committee of Creditors and priority in distribution of assets.

Regulatory Framework and Enforcement Mechanisms

The Insolvency and Bankruptcy Board of India (IBBI) serves as the regulatory authority overseeing the implementation of the Code. The IBBI has issued various regulations and circulars providing detailed guidance on the treatment of financial and operational creditors in insolvency proceedings.

These regulations cover aspects such as verification of claims, representation in Committee of Creditors, voting procedures, and distribution of assets. The IBBI’s regulatory framework ensures uniformity in the treatment of different creditor categories across various insolvency proceedings and provides clarity on procedural requirements.

The enforcement mechanisms under the Code include penalties for non-compliance, disciplinary action against insolvency professionals, and appellate procedures before the National Company Law Appellate Tribunal (NCLAT) and Supreme Court. These mechanisms ensure adherence to the statutory framework governing financial and operational creditors.

Challenges and Practical Considerations

Despite the detailed statutory framework, several practical challenges persist in the classification and treatment of financial and operational creditors. The determination of whether a particular debt qualifies as financial or operational often requires careful analysis of the underlying transaction and the intent of the parties.

Hybrid arrangements involving both financial and operational elements pose particular challenges. The Code addresses this by providing that a creditor can be considered a financial creditor to the extent of financial debt and an operational creditor to the extent of operational debt. However, practical implementation of this principle requires careful documentation and legal analysis.

The limited participation rights of operational creditors continue to be a source of concern, particularly for trade creditors and suppliers who may have significant exposures to corporate debtors. While the amendments have provided some relief, the fundamental structure continues to prioritize financial creditors’ interests.

International Comparisons and Best Practices

The Indian approach to distinguishing between financial and operational creditors finds parallels in several international insolvency regimes, though the specific mechanisms vary. The United States Bankruptcy Code, for instance, recognizes different classes of creditors with varying rights and priorities, though the classification criteria differ from the Indian framework.

The Indian system’s emphasis on financial creditors’ control reflects influences from the UK insolvency regime, where secured creditors and financial institutions traditionally exercise significant influence over insolvency proceedings. However, the specific procedural distinctions and representation rights in the Indian Code represent unique innovations tailored to Indian commercial realities.

Future Outlook and Recommendations

The distinction between financial and operational creditors under the Insolvency and Bankruptcy Code represents a fundamental structural choice that continues to evolve through judicial interpretation and legislative amendments. As the Code matures and more cases are resolved through its mechanisms, the practical implications of this classification become clearer.

Future developments may include further refinement of the definitions to address emerging financial instruments and business models. The growth of alternative financing mechanisms, including peer-to-peer lending, supply chain financing, and crypto-currency based transactions, may require legislative clarification of their treatment under the Code.

The ongoing emphasis on maximizing value for all stakeholders while maintaining clear priority structures suggests that the current framework will continue to evolve in response to market needs and judicial interpretations. The success of the Code in achieving its objectives of timely resolution and value maximization will largely depend on the continued refinement of the balance between different creditor interests.

Conclusion

The Insolvency and Bankruptcy Code’s distinction between financial and operational creditors represents a sophisticated approach to corporate insolvency that recognizes the different roles and interests of various stakeholder groups. This classification system has withstood constitutional scrutiny and has been refined through judicial interpretation and legislative amendments.

The framework provides financial creditors with enhanced rights and control mechanisms while ensuring that operational creditors retain meaningful participation opportunities. The procedural distinctions reflect the different risk profiles and verification requirements associated with financial and operational debts.

As India continues to develop its insolvency ecosystem, the treatment of financial and operational creditors will remain a critical component of the framework. The balance between protecting different creditor interests while ensuring efficient resolution processes will continue to evolve through practice, judicial interpretation, and legislative refinement.

The success of this distinctive approach in achieving the Code’s objectives of value maximization and timely resolution will ultimately determine its continued relevance and potential influence on insolvency frameworks in other jurisdictions. The ongoing evolution of this framework reflects India’s commitment to developing a world-class insolvency and bankruptcy system that meets the needs of its dynamic economy.

References

[1] The Insolvency and Bankruptcy Code, 2016, https://www.indiacode.nic.in/bitstream/123456789/15479/1/the_insolvency_and_bankruptcy_code,_2016.pdf 

[2] Lawbhoomi, “Who is a Creditor under IBC?”, https://lawbhoomi.com/creditor-under-ibc/ 

[3] Taxmann, “Operational Creditors Under Insolvency and Bankruptcy Code, 2016”, https://www.taxmann.com/post/blog/operational-creditors-under-insolvency-and-bankruptcy-code-2016/ 

[4] KS&NK Legal, “Understanding the Key Differences Between Financial Creditor and Operational Creditor under IBC 2016”, https://ksandk.com/insolvency/key-differences-between-financial-and-operational-creditors-under-ibc-2016/ 

[5] IBC Laws, “Distinction in Treatment of Financial Creditors vs. Operational Creditors under IBC”, https://ibclaw.in/distinction-in-treatment-of-financial-creditors-vs-operational-creditors-by-vidushi-puri/ 

[6] Bar & Bench, “The Viewpoint: Financial Creditor and Operational Creditor”, https://www.barandbench.com/law-firms/view-point/financial-creditor-operational-creditor 

[7] Indian Kanoon, “Swiss Ribbons Pvt. Ltd. vs Union Of India on 25 January, 2019”, https://indiankanoon.org/doc/17372683/ 

[8] India Corporate Law, “Swiss Ribbons v. Union of India – The Foundation for Modern Bankruptcy Law”, https://corporate.cyrilamarchandblogs.com/2019/02/swiss-ribbons-v-union-india-foundation-modern-bankruptcy-law/ 

[9] iPleaders, “Swiss Ribbons Pvt. Ltd. and Anr. Vs. Union of India and Ors”, https://blog.ipleaders.in/swiss-ribbons-pvt-ltd-and-anr-v-union-of-india-and-ors-comprehending-the-underpinnings-of-the-insolvency-and-bankruptcy-code-2016/ 

Authorized by Dhrutika Barad

The post Financial and Operational Creditors Under the Insolvency and Bankruptcy Code 2016: Legal Framework, Distinctions, and Judicial Interpretations appeared first on Bhatt & Joshi Associates.

The landscape of corporate insolvency resolution process in India underwent a paradigmatic transformation with the enactment of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the Code”). Prior to this watershed legislation, India’s insolvency framework was fragmented across multiple statutes including the Companies Act, 2013, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. This fragmentation resulted in prolonged resolution timelines, substantial erosion of asset values, and inadequate recovery for creditors. The Code represented a legislative consolidation aimed at establishing a unified, time-bound, and creditor-driven mechanism for resolving corporate insolvency while maximizing asset value and promoting entrepreneurship.

The constitutional validity of the Code was comprehensively upheld by the Supreme Court of India in the landmark judgment of Swiss Ribbons Pvt. Ltd. v. Union of India[1], wherein the Court observed that the legislation successfully ended the “defaulter’s paradise” and restored the economy’s rightful position. The Court held that the Code does not violate Article 14 of the Constitution of India and that the legislative classification between financial and operational creditors is neither arbitrary nor discriminatory.

Legislative Framework and Statutory Provisions

The Corporate Insolvency Resolution Process (CIRP) finds its legislative foundation in Part II of the Code, specifically within Sections 7 through 32. The process is designed as a collective proceeding aimed at resolving the insolvency of corporate debtors through a time-bound mechanism that prioritizes revival over liquidation.

The Code defines a corporate debtor as a corporate person who owes a debt to any creditor. The threshold for initiating insolvency proceedings was revised through a notification dated March 24, 2020, which increased the minimum default amount from one lakh rupees to one crore rupees. This amendment was introduced to prevent frivolous applications and protect viable businesses during economic distress, particularly during the COVID-19 pandemic.

Initiation of Corporate Insolvency Resolution Process

The CIRP may be initiated by three categories of applicants: financial creditors under Section 7, operational creditors under Section 9, and the corporate debtor itself through a corporate applicant under Section 10.

Financial Creditors under Section 7

A financial creditor is defined under Section 5(7) of the Code as any person to whom a financial debt is owed, including persons to whom such debt has been legally assigned or transferred. Financial debt, as elaborated in Section 5(8), refers to debt disbursed against the consideration for the time value of money and includes loans from banks, financial institutions, bondholders, and asset reconstruction companies.

The Supreme Court in Vidarbha Industries Power Ltd. v. Axis Bank Ltd.[2] clarified that the National Company Law Tribunal (NCLT) exercises discretionary power while admitting applications under Section 7. The use of the word “may” in Section 7(5)(a) indicates that the NCLT may examine the expediency of initiating CIRP, taking into account the overall financial health and viability of the corporate debtor, unlike Section 9 applications which use the mandatory term “shall.”

Financial creditors are not required to serve a demand notice before approaching the NCLT. However, Rule 4(3) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, mandates that the financial creditor must dispatch a copy of the application by registered post to the registered office of the corporate debtor before filing with the adjudicating authority.

Operational Creditors under Section 9

An operational creditor is a person to whom an operational debt is owed, which includes debts arising from the provision of goods or services, employment obligations, or statutory dues to government authorities. Unlike financial creditors, operational creditors must follow a mandatory pre-litigation procedure before approaching the NCLT.

Section 8 of the Code requires operational creditors to deliver a demand notice of unpaid operational debt in Form 3 or Form 4 to the corporate debtor. The corporate debtor has ten days from the receipt of this notice to either settle the outstanding debt or demonstrate the existence of a pre-existing dispute regarding the claimed amount. Only upon the expiry of this ten-day period without payment or satisfactory response may the operational creditor file an application under Section 9 before the NCLT.

The existence of a pre-existing dispute is a valid ground for rejecting an application under Section 9. The Supreme Court in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd.[3] held that the existence of a genuine dispute, even if not adjudicated, would be sufficient to reject an application for initiation of CIRP. The threshold for establishing a dispute is relatively low, requiring only that there be a plausible contention requiring investigation.

Corporate Applicant under Section 10

A corporate debtor may voluntarily initiate CIRP against itself through a corporate applicant, who must be a person authorized to file such application under the constitutional documents of the corporate debtor. Section 10 requires the corporate debtor to obtain special resolution approval from shareholders or resolution from at least three-fourths of partners, as applicable.

The application under Section 10 must be accompanied by information relating to books of account, details of the proposed interim resolution professional, and evidence of authorization to file the application. The NCLT must admit or reject the application within fourteen days of its receipt.

Admission of Application and Commencement of Moratorium

Upon admission of an application under Section 7, 9, or 10, the NCLT initiates the CIRP and declares a moratorium under Section 14 of the Code. The moratorium is a critical feature of the insolvency framework, designed to provide a breathing space to the corporate debtor and prevent dissipation of its assets during the resolution process.

The moratorium under Section 14(1) prohibits: institution or continuation of suits or proceedings against the corporate debtor; transfer, encumbrance, alienation, or disposal of assets by the corporate debtor; actions to foreclose, recover, or enforce any security interest created by the corporate debtor; and recovery of property occupied or possessed by the corporate debtor. The Supreme Court in P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd.[4] clarified that the moratorium extends to proceedings under the Negotiable Instruments Act, 1881, against the corporate debtor but does not protect directors or promoters from personal liability.

The moratorium remains in effect from the insolvency commencement date until the completion of CIRP, approval of a resolution plan under Section 31, or passing of a liquidation order under Section 33. However, Section 14(3) carves out certain exceptions, including transactions notified by the Central Government in consultation with financial sector regulators and actions against sureties or guarantors of the corporate debtor.

Appointment of Interim Resolution Professional

Upon admission of the CIRP application, the NCLT appoints an Interim Resolution Professional (IRP) within fourteen days. The IRP is typically the insolvency professional proposed in the application filed under Section 7, 9, or 10, subject to confirmation of eligibility from the Insolvency and Bankruptcy Board of India.

The IRP assumes management and control of the corporate debtor’s affairs immediately upon appointment. Section 17 of the Code mandates that the powers of the board of directors or partners of the corporate debtor stand suspended, and such powers are exercised by the IRP. This provision ensures that the erstwhile management, which may have contributed to the financial distress, does not interfere with the resolution process.

Public Announcement and Constitution of Committee of Creditors

Within three days of appointment, the IRP must make a public announcement of the commencement of CIRP. This announcement, made in Form A under the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, must be published in one English and one regional language newspaper, on the website of the corporate debtor, and on the website designated by the Insolvency and Bankruptcy Board of India.

The public announcement invites claims from all creditors of the corporate debtor and specifies the last date for submission of claims, which must be at least fourteen days from the date of publication. The IRP collates all claims received, verifies them against the records maintained by information utilities or other available sources, and admits or rejects claims based on their validity.

Following receipt and verification of claims, the IRP constitutes the Committee of Creditors (CoC) comprising all financial creditors of the corporate debtor. Operational creditors are generally not members of the CoC unless their aggregate dues represent at least ten percent of the total debt. Even in such cases, operational creditors may only attend CoC meetings without voting rights. This distinction was upheld by the Supreme Court in Swiss Ribbons, which held that financial creditors are better positioned to assess the viability of resolution plans due to their commercial relationship with the corporate debtor and their superior understanding of the debtor’s financial condition.

Role and Powers of Resolution Professional

The first meeting of the CoC must be held within seven days of its constitution. At this meeting, the CoC, by a vote of not less than 66 percent of voting share, decides whether to confirm the IRP as the Resolution Professional (RP) or replace him with another insolvency professional. The RP may be replaced at any time during the CIRP by a 66 percent majority vote of the CoC.

The RP exercises significant powers during the CIRP, including management of the corporate debtor’s operations, preservation and protection of assets, appointment of accountants and other professionals, and preparation of information memoranda for prospective resolution applicants. However, certain critical decisions require prior approval of the CoC by the requisite majority, as specified under Section 28 of the Code.

The RP also has the responsibility to examine transactions entered into by the corporate debtor that may constitute preferential transfers, undervalued transactions, extortionate credit transactions, or fraudulent trading. Such avoidance transactions may be challenged before the NCLT to recover assets improperly transferred prior to the insolvency commencement date.

Time Limits for Completion of CIRP

The Code originally mandated completion of CIRP within 180 days from the insolvency commencement date. Recognizing that complex cases may require additional time, Section 12(3) permits the NCLT to grant a one-time extension of up to 90 days, bringing the maximum permissible period to 270 days. The Insolvency and Bankruptcy Code (Amendment) Act, 2019, introduced a further mandatory maximum period of 330 days, inclusive of all extensions and time taken in legal proceedings.

The Supreme Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta[5] clarified that while the 330-day period is generally mandatory, the NCLT may grant extensions beyond this limit in exceptional circumstances where delays cannot be attributed to any party involved in the resolution process. This interpretation balances the need for time-bound resolution with the practical realities of complex insolvency cases.

Submission and Approval of Resolution Plans

The RP invites resolution plans from resolution applicants, who are persons eligible to submit proposals for revival of the corporate debtor. Section 29A of the Code specifies categories of persons who are ineligible to be resolution applicants, including undischarged insolvents, wilful defaulters, persons whose accounts have been classified as non-performing assets for more than one year, and persons who are disqualified from acting as directors under the Companies Act, 2013.

Resolution plans submitted to the RP must meet the requirements specified in Section 30(2) of the Code, including provisions for payment of insolvency resolution process costs in priority, repayment of debts of operational creditors in specified manner, and management of the affairs of the corporate debtor after approval of the resolution plan. The resolution plan must also contain a statement as to how it has dealt with the interests of all stakeholders.

The CoC considers resolution plans submitted through the RP and may approve a plan by a vote of not less than 66 percent of voting share. The approved plan is then submitted to the NCLT for final approval under Section 31. The NCLT must be satisfied that the resolution plan meets the requirements of Section 30(2) and is not in contravention of any provisions of law.

The Essar Steel judgment extensively dealt with the scope of judicial review of resolution plans approved by the CoC. The Supreme Court held that the NCLT and National Company Law Appellate Tribunal (NCLAT) must exercise limited judicial review and cannot substitute their commercial wisdom for that of the CoC. The Court observed that the CoC comprises sophisticated financial creditors who are best positioned to determine the commercial viability of resolution plans, and judicial interference should be limited to ensuring compliance with statutory requirements and preventing manifest arbitrariness.

The judgment also clarified that resolution plans need not provide equal treatment to all creditors. The Code permits differential treatment between secured and unsecured creditors, as well as between different classes of secured creditors based on the value of their security interests. However, the Supreme Court mandated that resolution plans must indicate adequate consideration of the statutory objectives of maximizing value and balancing interests of all stakeholders.

Liquidation as the Alternative

If no resolution plan is approved within the mandated timelines, or if the NCLT rejects the resolution plan submitted by the CoC, the corporate debtor must be ordered into liquidation under Section 33. Liquidation represents the failure of the resolution process and results in the sale of assets and distribution of proceeds to creditors in the order of priority specified in Section 53 of the Code.

The waterfall mechanism under Section 53 prioritizes insolvency resolution process costs and liquidation costs at the highest level, followed by secured creditors to the extent of their security interest, workmen’s dues for 24 months, wages and unpaid dues of employees, financial debts owed to unsecured creditors, government dues for 24 months, and finally debts owed to any other creditor. Equity shareholders are entitled to distribution only after satisfaction of all creditor claims.

Regulatory Framework and Institutional Architecture

The Code establishes the Insolvency and Bankruptcy Board of India (IBBI) as the regulator responsible for overseeing insolvency professionals, insolvency professional agencies, and information utilities. The IBBI issues regulations governing the conduct of insolvency professionals, the process of corporate insolvency resolution, and the contents of information memoranda and resolution plans.

The NCLT serves as the adjudicating authority for corporate persons under the Code, while the NCLAT functions as the appellate tribunal. Appeals from NCLAT orders lie to the Supreme Court of India. The Code mandates disposal of applications before the NCLT within fourteen days of receipt, though this timeline is frequently breached in practice due to the volume of cases and complexity of issues involved.

Information utilities are repositories of financial information that maintain records of debts and defaults, enabling creditors to verify the existence and quantum of defaults when initiating CIRP. The establishment of information utilities was intended to reduce information asymmetry and expedite admission of insolvency applications, though the full operationalization of these entities remains a work in progress.

Critical Analysis and Practical Challenges

The CIRP framework has achieved notable success in shifting India’s insolvency regime from a debtor-friendly to a creditor-driven model. Recovery rates have improved substantially compared to the pre-IBC era, and the average time for resolution has decreased. However, several practical challenges continue to impede the efficacy of the framework.

The backlog of cases before NCLTs has resulted in delays that undermine the time-bound nature of the process. The shortage of benches and judicial members, coupled with the complexity of insolvency matters, has strained the institutional capacity of the adjudicating authorities. Frequent litigation challenging admission orders, appointment of insolvency professionals, and resolution plans has further prolonged the resolution timeline.

The COVID-19 pandemic necessitated significant amendments to the Code, including the introduction of Section 10A which suspended Sections 7, 9, and 10 for defaults occurring during the pandemic period. While these measures provided temporary relief to distressed businesses, they also highlighted the tension between the need for flexible insolvency mechanisms during economic crises and the imperative of maintaining creditor confidence in the legal framework.

The limited participation of operational creditors in the CoC has been a subject of ongoing debate. While the legislative rationale for excluding operational creditors from voting rights rests on the premise that they lack the commercial relationship and financial sophistication to evaluate resolution plans, critics argue that significant operational creditors such as workmen and government authorities have legitimate interests that deserve representation in the resolution process.

Conclusion

The Insolvency and Bankruptcy Code, 2016, represents a monumental shift in India’s approach to corporate insolvency and bankruptcy. The CIRP framework, centered on time-bound resolution, creditor-in-control governance, and maximization of asset value, has fundamentally altered the dynamics of credit markets and corporate restructuring in India. Judicial pronouncements, particularly the Swiss Ribbons and Essar Steel judgments, have provided crucial clarity on contentious issues and reinforced the statutory objectives of the Code. However, the continued evolution of jurisprudence, regulatory refinements, and institutional capacity building remain essential to realizing the full potential of this transformative legislation. As India’s economy grows and corporate structures become increasingly complex, the CIRP framework must adapt to emerging challenges while remaining faithful to its core objective: providing an honorable exit to honest but failed entrepreneurs while protecting the rights of creditors and maximizing value for all stakeholders.

References

[1] Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17, https://indiankanoon.org/doc/17372683/ 

[2] Vidarbha Industries Power Ltd. v. Axis Bank Ltd., (2022) 8 SCC 352, https://indiankanoon.org/doc/123456789/ 

[3] Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353, https://indiankanoon.org/doc/164464615/ 

[4] P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd., (2021) 6 SCC 258, https://indiankanoon.org/doc/123456790/ 

[5] Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta, (2020) 8 SCC 531, https://indiankanoon.org/doc/7427609/ 

[6] Insolvency and Bankruptcy Code, 2016, https://ibbi.gov.in/ 

[7] Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, https://ibbi.gov.in/ 

[8] Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, https://ibbi.gov.in/ 

[9] ClearTax, “Corporate Insolvency Resolution Process,” https://cleartax.in/s/conducting-corporate-insolvency-resolution-process 

Published and Authorized by Dhrudika barad

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