Initiation of Insolvency Resolution Process by Operational Creditors

creditors

The Insolvency and Bankruptcy Code, 2016 (the “Code”) allows initiation of an insolvency process, under Section 6 in the prescribed manner, by financial creditors, operational creditors or the corporate debtor itself.

Section 5(20) has defined 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.”

Section 6 of the Code provides for “Persons who may initiate corporate insolvency resolution process” wherein the financial creditor, operational creditor or the corporate debtor itself, may initiate the insolvency resolution process”.

An application for insolvency of a corporate debtor or corporate person may be filed under Sections 7, 8 and 9 of the Code.

Section 8 of the Code provides for the initiation of an insolvency process by an operational creditor. An operational creditor may, on default of non-payment of dues by the corporate debtor deliver a “demand notice” (means a notice served by an operational creditor to the corporate debtor demanding payment) of such non-payment, under Section 8(1).

The corporate debtor shall, within 10 days of receipt of the demand notice, bring to the notice of the Operational Creditor of the “existence of a dispute” under Section 8(2)(a), i.e., the pendency of a suit or arbitration proceeding that was filed prior to the receipt of the “demand notice”, or the payment of “unpaid operational debt” as provided under Section 8(2)(b).

Consequently, in the absence of such payment and non-existence of a dispute between the two, the Corporate Insolvency Resolution Process can be initiated under provisions set out in Section 9 of the Code.