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Operational Creditors and MSMEs under the IBC

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  • Sampat, Dhairya

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.

Suggested Citation

  • Sampat, Dhairya, 2025. "Operational Creditors and MSMEs under the IBC," LawArchive su4p3_v1, Center for Open Science.
    • Handle: RePEc:osf:lawarc:su4p3_v1
    DOI: 10.31219/osf.io/su4p3_v1
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