Frequently Asked Questions (FAQs) on Operational Creditors under IBC 2016


This document is prepared for education purpose only to the Users.
These FAQs are not the interpretation of the law; but provide only a simplistic explanation of terms/concepts related to Information Utilities under IBC, 2016.
For full particulars of laws governing the Information Utilities System, please refer to the Acts, Regulations, Guidelines and Circulars appearing under the provisions of Insolvency & Bankruptcy Code, 2016.

What is the purpose of enactment of the Insolvency and Bankruptcy Code 2016?

Ans. the purpose of the act is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, as a regulatory body for Insolvency and Bankruptcy law.

Who shall be termed as creditor under the Code?

Ans. A Creditor means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree holder.

Who is an Operational Creditor?

Ans. An Operational Creditor means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. They are suppliers of good or services to any company or operational debtor.

What is the difference between Financial Creditor and Operational Creditor?

Ans. Financial creditor is any person to whom a financial debt is owned and includes a person to whom such debt has been legally assigned or transferred to. Operational creditor is any person to whom operational debt is owned and includes a person to whom such debt has been legally assigned or transferred to.

On whom does the corporate insolvency resolution process is initiated upon default of a debt?

Ans. the corporate insolvency resolution process can be initiated against any debtor either by the Operational Creditor or Financial Creditor.

What constitutes default of a debt?

Ans.  Section 3(13) defines the default as non-payment of debt when whole or any part or installment of the amount of debt has become due and payable and not repaid by the debtor.

What is the procedure for initiating Insolvency Resolution process by the Operational Creditor?

Ans. As per Section 8(1), on the occurrence of default, the operational creditor shall first send a demand notice and a copy of an invoice to the corporate debtor demanding payment of amount involved.

The corporate debtor shall within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned notify the operational creditor of the existence of a dispute if any, and record of the pendency of the suit or arbitration proceedings. He shall also provide the details of the repayment of unpaid operational debt in case the debt has or is being paid.

What is the process of filing application by operational creditor for initiating corporate insolvency process against corporate debtor?

 Ans. As per Rule 6(1) and 6(2) of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, the operational creditor after expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment, shall make an application under section 9 of the code in Form 5, accompanied with documents, fee and records required as specified in Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. the operational creditor shall dispatch the said application by registered post or speed post to the registered office of the corporate debtor.

What are the documents to be furnished by the Operational Creditor to the Adjudicating Authority?

Ans. The Operational Creditor along with the application shall furnish

A copy of the invoice demanding payment or demand notice delivered to the operational debtor.
An affidavit to the effect that their is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt
A copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that their is no payment of an unpaid operational debt
Statement of Record as obtained from Information Utility.

Who can propose an interim resolution professional?

Ans. As per Section 9(4) the operational creditor may propose a resolution professional to act as an IRP.

What is meant by Demand Notice?

Ans. Demand Notice means a notice served by the operational creditor to the corporate debtor demanding repayment of the operational debt in respect of which the default has occurred.

What is the format for submitting the demand notice by an operational creditor?

Ans. It can be submitted in Form No.3 or a copy of an invoice attached with a notice in Form 4 as per Rule 5(1) of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016

What is the mode of delivery of demand notice or a copy of invoice demanding payment to the corporate debtor?

Ans. As per Rule 5(2) of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, the demand notice or a copy of the invoice may be delivered to the corporate debtor at the registered office by hand, registered post or speed post with acnoledgement due or by electronic mail service to a whole time director or designated partner or key managerial personnel of the corporate debtor.

Is it mandatory for the operational creditor to file the demand notice with the information utility?

Ans. As per S 5(3) of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, a copy of demand notice or invoice demanding payment served by the operational creditor shall also be filed with the information utility.

What will be the consequence if the demand is disputed?

Ans. If the demand is disputed and if such disputed has been raised before the issuance of the notice, application shall not be admitted as the Adjudicating Authority is not empowered to go into the dispute. Thus, application can be admitted only if demand of the debt is undisputed.

Do operational creditors has right to vote in the meeting of committee of creditors?

Ans. No, the operational creditors do not has the right in the meeting of committee of creditors, however the directors, partners, and one representative of operational creditors may attend the meeting of committee of creditors.

When does the Adjudicating Authority admit the application?

Ans. the Adjudicating Authority shall admit the application as per Section 9(5) of IBC Code 2016, within 14 days of the receipt of the application by operational creditor and communicate the same to both the operational creditor and operational debtor if,

If the application made as per Section 9(2) is complete
their is no repayment of the unpaid operational debt
the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor
No notice of dispute has been received by the operational creditor or their is not record of dispute in the information utility
their is no disciplinary proceedings pending against the resolution professional proposed by the operational creditor.

Can the Adjudicating Authority reject the application filed by the operational creditor under any reasons?

Ans. The Adjudicating authority can reject the application and shall communicate the decision to operational creditor if

The application made under Section 9(2) is incomplete
their has been repayment of the unpaid operational debt.
the creditor has not delivered the invoice or notice for payment to the corporate debtor.
Notice of dispute has been received by the operational creditor or their is a record of dispute
Any disciplinary proceeding is pending against any proposed resolution professional.

What is the time given by the Adjudicating Authority to rectify the defect of the application filed under CIRP by operational creditor?

Ans. The Adjudicating Authority shall, before rejecting an application, gives a notice to the applicant to rectify the defect in his application within 7 days of the date of receipt of such notice.

From when does the corporate insolvency resolution process commence?

 Ans. the corporate insolvency resolution process shall commence from the date of admission of the application under Section 9(5) of IBC 2016.

What is the format for submitting the information by an Operational Creditor to an Information Utility?

Ans. It can be submitted in Form C – Data Input File Format prescribed & published by NeSL in its Website.

Whether the data is to be submitted to NeSL (IU) for all invoices?

Ans. the information regarding all invoices lodged with the debtor can be submitted to the IU which when get autanticated by the debtor can be halpful to Operational Creditor who can fall back in case of default. When the same Operational Creditor is providing services / supply of goods to a particular Corporate Debtor involving multiple invoices, the Operational Creditor can submit consolidated data/ information / documents to an Information Utility

Whether a Registered User will receive any acknowledgement on submission of information on a Debt?

Ans. On receipt of information submitted by a Registered User, an Information Utility shall assign a Unique Identifier to the information including records of debt, acknowledge the User and notify the User of Unique identifier to the Information (Debt), the terms and conditions of authentication/verification and the manner in which the information can be accessed by other parties.

Whether the Registered User will be allowed to view the information stored with an Information Utility?

Ans. An Information Utility in all cases shall enable the User upon registration to view the date on which the information was last updated, the status of autantication/verification while providing access to information.

Whether the operational creditor registered with one Information Utility can submit the updates to another Information Utility?

Ans. Yes, the operational creditor may submit the information to any other Information Utility as per IBC.

Whether the User will get any periodical statement from the Information Utility?

Ans. NeSL will provide every Registered User an annual statement of all information pertaining to that User, free of cost.

Can a person modify or correct the information submitted to Information Utility?

Ans.  Yes, a person may modify or update or rectify an error, in the financial information submitted to an Information Utility by stating reasons in the manner as may be prescribed in the Code/Regulations.

What is the process of autantication?

Ans. As per the provisions of IBC, 2016 & IU Regulations, the financial information furnished by one of the parties connected to a debt needs to be verified & autanticated by all other parties connected to the debt by affixing their digital signature or Aadhar based e-signature.  NeSL would be storing the autanticated information with it, for providing it during the Insolvency Resolution Process.

Whether all parties of debt i.e., Operational Creditor and Debtor need to autanticate the information that is submitted to NeSL?

Ans. Yes. All the parties connected to debt need to electronically autanticate the information with an IU, in order to store the information.

What happens if the Debtor does not autanticate the Default information?

Ans. Such cases pending for autantication beyond 7 days would be referred back to operational creditor for resolution.

What is the procedure for retrieval of information by a Debtor / Insolvency Resolution Professional?

Ans.   For accessing information from an Information Utility, a person has to pay such fees and access/retrieve such information in such form and manner as has been specified in the Regulations.

The applicant is required to submit the prescribed request for retrieval of information. The format is published in NeSL’s Web-site.  On receiving the request, NeSL would verify his/her identity, his/her relationship to the debt and on being satisfied, would register him as a User & enable access to the connected debt information.

Whether IU would furnish the information stored with it to others?

Ans. NeSL, as IU would enable access to the information stored with it, only to persons authorized in IBC, ie., parties connected to default, Insolvency Resolution Professionals, Adjudicating Authority and IBBI as per the Regulation 23.

What is the utility of information stored with an Information Utility?

Ans.  The autanticated information stored with an IU is relied upon as a legal evidence in the Insolvency Resolution Process.  The autanticated information cannot be repudiated.  It halps in establishing the facts of borrowing and facts of default.   theirfore, this enables saving of time in Resolution Process before the Adjudicating Authority.

The purpose of this is to remove information asymmetry and dependency on the debtor’s management for critical information that is needed to swithtly resolve insolvency.

What is the punishment for non- disclosure of dispute or repayment of debt by operational creditor?

Ans. If the operational creditor willfully or knowingly concealed in an application under Section 9 the fact that the corporate debtor had notified him of the dispute in respect of the unpaid operational debt or the full and final repayment of the unpaid operational debt or has knowingly and willfully authorized or permitted such concealment, such operational creditor or person shall be punishable with imprisonment for a term which shall not be less than one year but may extend to five years or with fine which shall not be less than one lakh rupees but may extend to one crore rupees or with both.

Whether the Information Utility would be levying any fee for extending its services to Operational Creditors?

Ans. NeSL, as Information Utility, would be collecting the fee for extending its various services like User Registration, Submission of information, Autantication, Retrieval, Upload of documents / Documents holding fee, etc.

What is the procedure to lodge a grievance on the services of Information Utility?

Ans. Any person not satisfied with the service offered by NeSL as an Information Utility may lodge his / her grievance in the Web-based Grievance Redressal Mechanism enabled in its website NeSL would resolve all such grievances in a time bound manner, withwithin 7 working days and inform the Complainant by e-mail.

In case the maker of the representation is not satisfied with the reply, he can escalate the matter to Grievances Redressal Committee of NeSL, which would be examined by the said Committee and informed within in 10 working days.