Operational creditor
A person to whom an operational debt is owed, including an assignee or transferee of that debt (Section 5(20) of the Insolvency and Bankruptcy Code, 2016).
Explained
Section 5(20) of the Insolvency and Bankruptcy Code, 2016 defines 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. Operational debt under Section 5(21) is a claim in respect of the provision of goods or services including employment, or a debt in respect of payment of dues arising under any law and payable to the Central Government, a State Government or a local authority. Suppliers, service providers, employees and workmen, and government departments owed statutory dues are typical operational creditors.
The contrast is with a financial creditor, to whom a financial debt is owed, that is, a debt disbursed against the consideration for the time value of money. The Supreme Court has upheld the different treatment of the two classes, noting that financial creditors are involved from the outset in assessing viability and that their defaults are easy to verify. The committee of creditors under Section 21(2) comprises the financial creditors, and decisions are taken by the voting share of financial creditors.
An operational creditor must follow a two step route. Under Section 8(1), on a default, it delivers a demand notice or a copy of the invoice demanding payment. Under Section 8(2), the corporate debtor has ten days to bring to its notice the existence of a dispute, or the record of a pending suit or arbitration filed before receipt of the notice, or payment of the debt. Only if neither payment nor notice of dispute is received may the creditor apply under Section 9. The Adjudicating Authority must decide within fourteen days, admitting the application if it is complete, the debt is unpaid, the notice was delivered and no notice or record of dispute exists, and rejecting it otherwise, after giving seven days to remove defects in an incomplete application. The default must reach the threshold under Section 4, now one crore rupees.
Examiners test the ten day period, the effect of a pre-existing dispute, and the difference from a financial creditor, who applies under Section 7 without a demand notice.
What the law says
(20) “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;
Clauses (20), (21) define operational creditor and debt; (6) dispute
(1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed.
(2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor—
(a) existence of a dispute, [if any, or] record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute;
Demand notice and ten day reply
(1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.
(2) The application under sub-section (1) shall be filed in such form and manner and accompanied with such fee as may be prescribed.
(3) The operational creditor shall, along with the application furnish—
Application by operational creditor; admission and rejection
(4) Where any person is a financial creditor as well as an operational creditor,—
(a) such person shall be a financial creditor to the extent of the financial debt owed by the corporate debtor, and shall be included in the committee of creditors, with voting share proportionate to the extent of financial debts owed to such creditor;
(b) such person shall be considered to be an operational creditor to the extent of the operational debt owed by the corporate debtor to such creditor.
Committee of creditors comprises financial creditors
(1) This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is [one crore rupees]: Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees.
[Provided further that the Central Government may, by notification, specify such minimum amount of default of higher value, which shall not be more than one crore rupees, for matters relating to the pre-packaged insolvency resolution process of corporate debtors under Chapter III-A.]
Minimum default for the corporate insolvency process
Example
For example, a software vendor unpaid for services delivers a demand notice. If, within ten days, the company shows that it had raised a genuine dispute about the quality of the services before the notice, the vendor's Section 9 application must be rejected.
For the exam
- Section 5(20) IBC; operational debt under Section 5(21) covers goods, services, employment and statutory dues.
- Demand notice or invoice first (Section 8(1)); debtor has 10 days to point out a dispute or pay.
- A plausible pre-existing dispute defeats the Section 9 application (Mobilox, 2017).
- Committee of creditors comprises financial creditors (Section 21(2)).
- Financial creditors apply under Section 7 without any demand notice.
9 questions in the Law Maker question bank use this term. Practise Insolvency and Bankruptcy Code questions
Judgments
- Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (2017)An operational creditor's insolvency application under Section 9 IBC must be rejected if the corporate debtor shows a pre-existing dispute that is plausible and not spurious, hypothetical or illusory; the Adjudicating Authority does not decide its merits.
- Swiss Ribbons Pvt. Ltd. v. Union of India (2019)The Court upheld the constitutional validity of the challenged provisions of the Insolvency and Bankruptcy Code, 2016, including the financial and operational creditor distinction and Sections 12A, 29A and 53, and directed Circuit Benches of the NCLAT.
Related terms
- Financial creditorUnder Section 5(7) of the IBC, any person to whom a financial debt is owed, including a person to whom such debt has been legally assigned or transferred.
- Corporate debtorUnder Section 3(8) of the Insolvency and Bankruptcy Code, 2016, a corporate person who owes a debt to any person.
- Financial debtA debt, with interest if any, disbursed against the consideration for the time value of money, including the items listed in Section 5(8) of the Insolvency and Bankruptcy Code, 2016.
- Resolution professionalAn insolvency professional appointed to conduct the corporate insolvency resolution process, including an interim resolution professional. Section 5(27) of the IBC, 2016; Section 79(21) gives the meaning for individuals.
- Resolution planA plan proposed by a resolution applicant for insolvency resolution of the corporate debtor as a going concern in accordance with Part II of the Insolvency and Bankruptcy Code, 2016 (Section 5(26)).
Further reading
Checked 6 November 2026. Statutory text is quoted from the Bare Acts library, taken from India Code. See the full glossary.