A creditor is someone who loans some credit to people, companies, other entities and so on, in the form of money, goods and services, credit facilities, and so on. The person the creditor loans this credit to is called the debtor. The debtor is responsible for returning the credit back to the creditor, with some amount of interest if such has been decided by them.  If the debtor is unable to pay back such credit, then the creditor can bring legal recourse against them. section 3(10) of the Insolvency and Bankruptcy Code, 2016 defines a creditor as someone to whom a debt is owed, which may include a financial creditor, an operational creditor, a secured creditor or unsecured creditor, and a decree-holder.[i] A debt is a liability or obligation with respect to a claim which is due by a person including operational or financial debt.[ii]

The Insolvency and Bankruptcy Code, 2016 has streamlined the recovery mechanism for creditors, from an earlier system which favored the debtors. This paper will look at the creditor’s right to file a case in the National Company Law Tribunal (“NCLT”) and the National Company Law Appellate Tribunal (“NCLAT”), which are the adjudicating authorities for these matters.

There are different types of creditors

• A financial creditor is someone whose entire relationship with the corporate debtor arises of a financial debt owed by the latter to the former. Thus, they are someone to whom a financial debt is owed.[iii]
• An operational credit is someone whose entire relationship with the corporate debtor arises out of an operational debt owed by the latter to the former. thus, they are someone to whom an operational debt is owed or to whom such debt has been transferred or assigned.[iv]

Creditors can further be divided into 2 categories

• Secured creditors are any creditor who has issued either a financial or operational credit towards someone, against some collateral as security if the collateral is not paid off.[v] Since, the debtor has something to lose if in case the debt goes unpaid, the risks are very less for the creditor, and as a result, the interest rates for this type of lending are low.
• Unsecured creditors are any creditors who lend credit either financial or operational, without obtaining any collateral.[vi] In case the debtor fails to pay the debt, the creditor will have to pursue a lawsuit to acquire the debtor’s assets.

Creditors when facing an issue with recovering debts owed to them by a corporate debtor can approach the adjudicating authorities and file an application to initiate the corporate insolvency resolution process (“CIRP”). This method differs for the financial creditor and for the operational creditor.

A financial debtor needs to file an application of lawsuit against the debtor under section 7 of the Insolvency and Bankruptcy Act, 2016. Before filing this application, the creditor needs to meet certain prerequisites:

1. There should be a financial debt, that is, there should be disbursement of the debt, and it should be on the time value of money.[vii]
2. The corporate debtor must have defaulted on the payment to this financial creditor. That is, there was non-payment of the financial credit to the creditor by the debtor.[viii]

To decide whether a default has happened or not, the adjudicating authority can go through the records of the information utility or any other evidence produced by the financial creditor in his favor. Any third financial creditor can apply for payment of a financial debt owed by the corporate debt owed to another financial creditor.[ix] the minimum amount of default amount required to start the CIRP process used to be 1 lakh rupees,[x] but now has been raised to 1 crore.[xi]

The form for applying for the CIRP process under section 7, needs to include, the particulars of the applicant, the particulars of the corporate debtor, particulars of the proposed interim resolution professional, particulars of financial debt, and any evidence on the same.[xii]

Along with this,

1. a proof of the existence of the financial debt,
2. proof of the existence of the default concerning the financial debt,
3. proof of payment of court fees,
4. communication by an insolvency professional who has been proposed to be the interim resolution professional,
5. documents showing particulars of security held,
6. application of appointment of the nominee, if the case is being filed by more than 1 financial creditor,
7. documents authorizing the applicant if not filed by the original creditor,
8. master data of the corporate debtor,
9. banker’s entries and evidence,[xiii] and
10. the affidavit supporting this application needs to be attached as well.

The financial creditor needs to pay a fee of Rs. 25,000 to file the application in the adjudicating authorities under section 7 as court fees.

An operation creditor can file a lawsuit in the adjudicating authorities to start the process of CIRP under section 9 of the Insolvency and Bankruptcy Code, 2016. Important factors about an operational debt

1. An operational debt is a debt owed with respect to goods and services including employment or repayment arising under the law to the government.[xiv] So, operational debts can only arise for goods and services, government dues, and employment.
2. The minimum amount of default which needs to arise for such a lawsuit to be filed in any of the adjudicating authorities is 1 lakh rupees. The same was raised to 1 crore rupees later.[xv]
3. There should be no existence of dispute between the parties to the application. It was opined by the tribunal in a case, that if there is a pre-existing dispute the application under section 9 can be rejected.[xvi] The dispute in question should be bona fide and exist naturally.[xvii]
4. Before filing the application, there should have been communication of demand notice, asking the debtor to pay back their dues within 10 days,[xviii] without which the action cannot be instituted.[xix] This action can only be undertaken by the operational creditor, and not even their lawyers.[xx]

The form for applying for the CIRP process under section 9, needs to include, the particulars of the applicant, the particulars of the corporate debtor, particulars of the proposed interim resolution professional, particulars of financial debt, and any evidence on the same.[xxi]

Othe additional documents to be submitted with the form include

1. Copy of invoice or the demand notice
2. Copy of information utility or record which confirmed that corporate debtor has not paid the debt
3. Affidavit stating there is operation debtor has received all notices relating to the dispute
4. Proof confirming that there has been no payment by the debtor
5. Copy of the certificate from financial institutions proving that there has been no payment by the debtor, not a mandatory requirement[xxii]
6. communication by an insolvency professional who has been proposed to be the interim resolution professional.

The financial creditor also needs to pay a fee of Rs. 2,000 to file the application in the adjudicating authorities under section 9 as court fees.

Since the institution of the Insolvency and Bankruptcy Code, 2016, the process of filing applications against corporate debtors by financial and operational unsecured debtors has become much easier and much more streamlined. The court can reject the application under both sections 7 and 9, in case the application does not meet all the requirements under the act. The act has changed the nature of the lawsuit which used to favor debtors, but now favors creditors.

[i] Insolvency and Bankruptcy Code, 2016, Section 3(10).

[ii] Insolvency and Bankruptcy Code, 2016, section 3(11).

[iii] Insolvency and Bankruptcy Code, 2016, Section 5(7).

[iv] Insolvency and Bankruptcy Code, 2016, section 5(20).

[v] James Chen, ‘Unsecured Creditor,’ (Investopedia, September 2022), < https://www.investopedia.com/terms/u/unsecuredcreditor.asp#:~:text=An%20unsecured%20creditor%20is%20an,borrower%20default%20on%20the%20loan.> Accessed 13^th October 2022.  

[vi] Ibid.

[vii] Insolvency and Bankruptcy Code, 2016, Section 5(8).

[viii] Insolvency and Bankruptcy Code, 2016, Section 3(12).

[ix] Innovative Industries v. ICICI Bank Ltd.,

[x] Insolvency and Bankruptcy Code, 2016, section 4.

[xi] Union Governemnt Notification, 24.03.2020

[xii] Adjudicating Authority Rules, Form 1, Rule 4.

[xiii] Banker’s Book Evidence Act, 1891, Section 2A.

[xiv] Insolvency and Bankruptcy Code, 2016, Section 5(21).

[xv] Union Governemnt Notification, 24.03.2020

[xvi] Mobilox Innovations Private Ltd. v. Kirusa Software Pvt. Ltd.,

[xvii] Raghuvir Buildcon Pvt. Ltd. v. Ketan Constructions Ltd.,

[xviii] Adjudicating Authority Rules, Form 3.

[xix] M/s Krystal Integrated Services Pvt. Ltd. v. M/s Indiaontime Express

[xx] Macquarie Bank Ltd. v. Uttam Galva Metallics Ltd.,

[xxi] Adjudicating Authority Rules, Form 1, Rule 4.

[xxii] Macquarie Bank Ltd. v. Shilpi Cable Technologies

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