Answer By law4u team
The Insolvency and Bankruptcy Code (IBC) recognizes two broad categories of creditors: financial creditors and operational creditors. Operational creditors are entities or individuals owed money by the corporate debtor for goods supplied, services rendered, or employment-related dues. Their role is crucial in ensuring that operational dues do not remain unpaid indefinitely and they have specific rights under the IBC to initiate insolvency proceedings, though with some procedural safeguards.
Definition of Operational Creditor
Legal Definition
As per Section 5(20) of the IBC, an operational creditor means a person to whom an operational debt is owed and includes any supplier of goods or services, including employees and workmen.
Operational Debt – Section 5(21)
Operational debt refers to 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.
Types of Operational Creditors
Suppliers and Service Providers
Those who supply raw materials, goods, or provide services to the corporate debtor.
Employees and Workmen
Salary, wages, or other employment dues payable to staff.
Government Authorities
Dues payable as taxes, cess, or other statutory dues to central, state, or local government bodies.
Others
Any party owed dues related to the operational activities of the company.
Rights and Process for Operational Creditors
Demand Notice
The operational creditor must first deliver a demand notice or invoice demanding payment to the corporate debtor.
Reply Period
The corporate debtor has 10 days to either pay the debt or raise a dispute with proper particulars.
Filing for CIRP
If no payment or valid dispute is raised within 10 days, the operational creditor can file an application under Section 9 of the IBC to initiate CIRP.
Threshold Limit
Since March 2020, the default amount must be at least ₹1 crore for the CIRP to be admitted.
Limited Role in CoC
Operational creditors do not form part of the Committee of Creditors (CoC) but can participate in meetings with limited voting rights on resolution plans.
Significance
Operational creditors often represent smaller claims compared to financial creditors but constitute the backbone of business operations.
The process safeguards against frivolous or vexatious claims by requiring a demand notice and dispute resolution window.
Ensures timely payment of dues to suppliers, employees, and statutory bodies.
Example
A vendor supplies raw materials worth ₹60 lakhs to a manufacturing company. After the due date, the company does not make payment.
Steps by the vendor (operational creditor):
- Sends a demand notice to the company requesting payment.
- Waits for 10 days for payment or dispute.
- If unpaid and no dispute raised, the vendor cannot file for CIRP since ₹60 lakhs is below the ₹1 crore threshold.
- The vendor may explore alternative recovery options like arbitration or civil suits.
- If the outstanding amount was ₹1.2 crore and no dispute raised, the vendor could apply to NCLT under Section 9 to initiate insolvency proceedings.
