Initiation of Corporate Insolvency Resolution Process by Operational Creditor : Analytical Aspects

Pragya Lalwani

Insolvency and Bankruptcy Code, 2016 ensures protection of interest of not only the financial creditor but also the operational creditor which can be witnessed through inception of Corporate Insolvency Resolution Process (CIRP) by creditors under the Code. This write up enlightens the process of filing of application for insolvency resolution of corporates by the operational creditors.

1. Opening Note

Part II of the Insolvency and Bankruptcy Code, 2016(Code, in short) provides for the insolvency resolution and liquidation of the corporate persons. Whenever a corporate debtor makes default in payment of any debt due which amounts to minimum of one lakh rupees then an insolvency or liquidation proceedings may be initiated against such corporate debtor under the Code, though this amount may be increased upto one crore rupees by the Central Government. Liquidation is the second stage, which is adopted on failure of the first stage i.e., insolvency resolution process of the corporate debtor.

Upon default both creditor and debtor have a right to initiate the insolvency resolution process of the corporate debtor. As per the Code, not only the financial creditors but operational creditors can also initiate the insolvency resolution process. Here we will explore the aspects of initiation of corporate insolvency resolution process(CIRP) by the operational creditor taking support of recent judgements.

2. Meaning of operational creditor

The term 'operational creditor' has been defined under clause (20) of section 5 of the Insolvency and Bankruptcy Code, 2016. Accordingly, operational creditor means a person to whom an operational debt is owed and includes any person to whom such debt has been assigned or transferred.

Thus, presence of operational debt due is an essential element for initiating CIRP against the corporate debtor by an operational creditor.