Operational Creditors and MSMEs under the IBC

Dhairya Sampat

No su4p3_v1, LawArchive from Center for Open Science

Abstract: The Insolvency and Bankruptcy Code (IBC) 2016 distinguishes creditors into financial creditors (those who lend money, e.g. banks) and operational creditors (those owed for goods, services, or operational dues) . Most Micro, Small and Medium Enterprises (MSMEs) participate in insolvency as operational creditors, since they typically supply goods/services rather than extend credit . Under IBC, an operational creditor may initiate Corporate Insolvency Resolution Process (CIRP) by serving a demand notice (Section 8) and filing under Section 9 if the corporate debtor defaults . The Code defines an operational creditor broadly (Sec 5(20)) but imposes procedural requirements not applicable to financial creditors. For example, the operational creditor must serve a demand notice detailing the unpaid debt and wait ten days for payment or dispute . Only if no payment or dispute occurs may it file a Section 9 petition (within 3 years of default) . By contrast, a financial creditor under Section 7 needs only to file evidence of default (no separate demand notice is mandated) and may do so jointly with other financial creditors to meet the default threshold.

Date: 2025-12-02
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Persistent link: https://EconPapers.repec.org/RePEc:osf:lawarc:su4p3_v1

DOI: 10.31219/osf.io/su4p3_v1

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