A supplier, contractor, landlord or consultant that a company has not paid has, under the Insolvency and Bankruptcy Code, 2016, a remedy: an application to the Hon'ble National Company Law Tribunal to put the company into insolvency resolution. The Code calls such a claimant an operational creditor and gives it a two-step route, a demand notice under Section 8 and then a petition under Section 9. The route is quick on paper, slower in practice, and it is not a recovery mechanism. This article explains who qualifies, what the notice must contain, how a dispute or limitation defeats the petition, what filing before the Hon'ble NCLT Mumbai Bench involves, and what admission delivers.
Who is an operational creditor
Section 5(20) defines an operational creditor as a person to whom an operational debt is owed, including an assignee. Section 5(21) defines operational debt as a claim in respect of the provision of goods or services, including employment, or dues arising under any law and payable to the Central Government, a State Government or a local authority. It covers suppliers, contractors, consultants, employees and tax authorities, and a landlord of commercial premises, whose claim for rent a five-member bench of the Appellate Tribunal treated as operational debt in Jaipur Trade Expocentre v. Metro Jet Airways Training (2022).
A financial creditor is owed money disbursed against the time value of money (Section 5(7) and 5(8)); it proceeds under Section 7, needs no demand notice and, after admission, votes. An unliquidated claim for damages, not yet crystallised by an award or decree, is not a debt for this purpose.
The Rs 1 crore threshold and the date of default
Section 4 fixes the minimum default at which Part II of the Code applies: one lakh rupees in the statute, with power in the Central Government to raise it to one crore rupees. By notification S.O. 1205(E) of 24 March 2020 the Government did so, and the higher figure applies to every petition filed on or after that date, whatever the date of default (Madhusudan Tantia v. Amit Choraria, Hon'ble NCLAT, 2020).
Default is non-payment of a debt, in whole or in part, when it has become due and payable (Section 3(12)). The date of default is the date on which payment fell due under the contract or the invoice; it starts limitation and must be stated in the notice and the petition. Section 10A bars any petition for a default that arose between 25 March 2020 and 24 March 2021. Whether contractual interest counts towards the threshold has been answered differently by different benches; a petition that depends on interest to cross the line should expect the argument.
The Section 8 demand notice: Form 3, Form 4 and the ten-day window
The route begins with a demand notice under Section 8(1), delivered on the occurrence of a default. Rule 5 of the 2016 Rules prescribes two forms: Form 3, a demand notice for the unpaid debt, and Form 4, a copy of the invoice with a notice attached; one or the other is used. The notice states the amount, the date of default and the particulars of the transaction, and is signed by the creditor or a person authorised on its behalf; the Hon'ble Supreme Court held in Macquarie Bank v. Shilpi Cable Technologies (2017) that an advocate may issue it.
Delivery is at the corporate debtor's registered office by hand, registered post or speed post with acknowledgement due, or by email to a whole-time director, designated partner or key managerial person (Rule 5(2)). A notice sent to a factory or project office does not count, and proof of delivery is the first document the Tribunal looks for.
Section 8(2) gives the corporate debtor ten days from receipt to bring to the creditor's notice a dispute, or a suit or arbitration filed before the notice was received, or to show payment by an attested record of an electronic transfer or an encashed cheque. Silence for ten days opens the door to Section 9; a genuine, pre-existing dispute closes it.
Pre-existing dispute: the Mobilox test
Section 5(6) defines dispute to include a suit or arbitration about the amount of the debt, the quality of goods or services, or a breach of representation or warranty. In Mobilox Innovations v. Kirusa Software (2017) the Hon'ble Supreme Court settled how the Tribunal treats a plea of dispute. The word "includes" means the dispute need not be a pending suit or arbitration; correspondence raising it before the notice will do. The Tribunal asks only whether there is a plausible contention requiring further investigation, which is not a patently feeble legal argument or an assertion of fact unsupported by evidence. If the dispute is spurious, hypothetical or illusory the petition is admitted; if it is real, the petition is rejected and the creditor is left to its ordinary remedies.
Timing therefore matters: the dispute must exist before the notice is received, and a denial raised for the first time afterwards is viewed with suspicion. The file matters too: emails complaining of late delivery, a debit note for defective goods, a withheld certificate under a works contract or a counter-claim in a pending arbitration can each be enough. The Code is a resolution mechanism, not a recovery mechanism, and Section 65 penalises a fraudulent or malicious application; a debtor with a genuine dispute should put it on record before a notice arrives, not after.
Limitation: Section 238A and B.K. Educational Services
Section 238A, in force from 6 June 2018, applies the Limitation Act, 1963 to proceedings before the Tribunal. In B.K. Educational Services v. Parag Gupta and Associates (2018) the Hon'ble Supreme Court held that the Act had applied from the Code's commencement, that Article 137 governs an application under Section 7 or Section 9, and that the three-year period runs from the date of default. A debt that fell due more than three years before the petition is barred unless the period has been extended: by a written acknowledgement before expiry under Section 18; by part payment under Section 19; or by exclusion of time spent in good faith before a forum without jurisdiction under Section 14. The demand notice itself does not stop the clock, and each invoice carries its own date of default, so a running account may be partly within and partly outside time.
Filing the Section 9 petition before Hon'ble NCLT Mumbai
Once ten days have passed without payment or a notice of dispute, Section 9(1) allows the creditor to apply. The application is in Form 5 under Rule 6, with the prescribed fee, and a copy is dispatched to the corporate debtor's registered office forthwith on filing (Rule 6(2)). Section 60(1) gives jurisdiction to the Bench for the place of the corporate debtor's registered office; for a company registered in Maharashtra or Goa that is the Mumbai Bench, at the MTNL Exchange Building, G. D. Somani Marg, Cuffe Parade. Filing is electronic, followed by physical filing at the registry, and the Bench issues notice to the corporate debtor before hearing the petition.
Section 9(3) lists what accompanies the application: the invoice or demand notice; an affidavit that no notice of dispute has been received; a certificate from the creditor's bank confirming non-payment, if available; any record with an information utility, if available; and any other proof of non-payment. Section 9(4) allows the creditor to propose an interim resolution professional, with the professional's consent in Form 2; if none is proposed, the Tribunal asks the Insolvency and Bankruptcy Board of India to recommend one.
Documents checklist
- Contract, purchase order or work order, with the payment terms and any interest clause.
- Invoices, delivery challans, goods receipt notes, e-way bills, completion certificates or timesheets proving supply.
- Ledger of account and bank statements showing what was paid and what remains.
- Demand notice in Form 3 or Form 4, with proof of delivery: postal receipt and tracking record, acknowledgement, or the email and its delivery report.
- Any reply received, and the correspondence before the notice, to show that no dispute existed.
- Acknowledgements of debt, balance confirmations or part payments relied on for limitation.
- The corporate debtor's MCA master data, and a search of the Hon'ble NCLT and IBBI records to confirm that no insolvency process is already under way.
- Authority for the signatory, the affidavit under Section 9(3)(b), and Form 2 consent of the proposed interim resolution professional, if one is proposed.
The stages, in theory and in practice
Section 9(5) requires the Tribunal, within fourteen days of receipt, to admit the application if it is complete, the debt is unpaid, the notice was delivered, no notice of dispute was received and no disciplinary proceeding is pending against the proposed professional, and otherwise to reject it, after allowing seven days to cure a defect. In Surendra Trading Co. v. Juggilal Kamlapat Jute Mills (2017) the Hon'ble Supreme Court held that the fourteen-day period is directory. Unlike Section 7, where Vidarbha Industries Power v. Axis Bank (2022) read the power to admit as discretionary, Section 9(5) says "shall": where the conditions are met, the petition is to be admitted.
| Stage | What the Code provides | What to expect at the Hon'ble NCLT Mumbai Bench |
|---|---|---|
| Demand notice (Section 8) | Form 3 or Form 4, delivered at the registered office or by email to a whole-time director or key managerial person. | Delivery is scrutinised; a notice to the wrong address restarts the process. Many notices end in payment or settlement here. |
| Reply period | Ten days from receipt to show a pre-existing dispute or payment. | A debtor that intends to contest usually replies within the ten days; a late reply is still read for what it shows. |
| Petition (Section 9) | Form 5 after the ten days; copy to the debtor; decision within fourteen days. | E-filing, registry scrutiny, defects to cure; first listing commonly within a few weeks to two months. |
| Notice and hearing | The corporate debtor is heard before admission. | Reply, rejoinder, adjournments. An uncontested petition is commonly decided within three to six months of filing; a contested one often takes a year or more. |
| Admission | Order under Section 9(5); moratorium under Section 14; interim resolution professional appointed. | Public announcement within three days; claims invited; the petitioner becomes one claimant among many. |
| CIRP | 180 days, extendable by 90, outer limit 330 days (Section 12). | Extensions beyond 330 days are granted in some cases; a resolution plan or liquidation follows. |
The ranges are indicative and vary with the court, the docket and the parties.
What admission means: moratorium, IRP and the committee of creditors
Admission is not payment. Under Section 13 the Tribunal declares a moratorium, orders a public announcement and appoints an interim resolution professional. The moratorium under Section 14 stays suits and proceedings against the corporate debtor, bars the transfer of its assets and the enforcement of security, prevents an owner or lessor from recovering property in its possession and protects essential and critical supplies. The board is suspended and management vests in the professional (Section 17), who runs the company as a going concern. The petitioner no longer controls the process; it files its claim in Form B and waits with everyone else.
The committee of creditors under Section 21 consists of the financial creditors, and operational creditors do not vote. Where their aggregate dues are at least ten per cent of the total debt, a representative may attend meetings without a vote (Section 24). Only where the corporate debtor has no financial creditors, or all of them are related parties, is the committee formed from operational creditors under the proviso to Section 21(8) and Regulation 16: the eighteen largest by value, with one representative each of workmen and employees. A resolution plan must pay operational creditors at least the higher of their liquidation value and their share under the Section 53 waterfall (Section 30(2)(b)); Essar Steel (2019) confirmed that the committee may otherwise treat them differently from financial creditors. If no plan is approved within the time Section 12 allows, the company goes into liquidation, where operational creditors rank after secured creditors, workmen and employees, unsecured financial creditors and government dues.
A Section 9 petition is a lever, not a decree. It moves a solvent debtor to pay; it moves an insolvent one into a process the creditor does not control.
Withdrawal, settlement and the alternatives
Most demand notices in Mumbai end in payment or a settlement rather than an admission order; the prospect of a moratorium concentrates minds. Before admission, the petition may be withdrawn with the Tribunal's permission under Rule 8 of the 2016 Rules, and the settlement is usually recorded in the order. After admission, withdrawal is governed by Section 12A and Regulation 30A: an application through the resolution professional, approved by ninety per cent of the voting share of the committee of creditors. The Hon'ble Supreme Court upheld the ninety per cent requirement in Swiss Ribbons v. Union of India (2019) and held in GLAS Trust Co. v. BYJU Raveendran (2024) that a withdrawal cannot bypass that procedure through the Appellate Tribunal's inherent powers. A settlement after admission must carry the committee with it, which is a very different negotiation.
Whether to serve a notice at all is a judgment. Section 9 suits a clear, documented, undisputed debt above the threshold, owed by a company solvent enough to pay when pressed. It does not suit a disputed account or a debtor already in trouble, where admission simply places the creditor in a queue. The alternatives are a commercial suit under the Commercial Courts Act, 2015, in the City Civil Court or the Hon'ble Bombay High Court depending on value; arbitration where the contract provides for it; a reference to the Micro and Small Enterprises Facilitation Council under Section 18 of the MSMED Act, 2006; and a complaint under Section 138 of the Negotiable Instruments Act, 1881 where a cheque has been dishonoured. The firm's insolvency and bankruptcy practice advises operational creditors and corporate debtors at each of these stages; you can contact us to discuss a particular debt.
Key takeaways
- An operational creditor is owed for goods, services, employment or statutory dues (Section 5(20) and 5(21)); the default must be at least one crore rupees.
- The Section 8 notice in Form 3 or Form 4 goes to the registered office; the debtor has ten days to show payment or a dispute.
- A genuine pre-existing dispute defeats the petition, and the Tribunal asks only whether it is plausible (Mobilox Innovations, 2017); the Code is not a recovery mechanism.
- Limitation is three years from the date of default (B.K. Educational Services, 2018), extended by a written acknowledgement or part payment, not by the demand notice.
- Admission brings a moratorium and a resolution professional, not payment; operational creditors have no vote unless there are no financial creditors, and withdrawal after admission needs ninety per cent of the committee.
Frequently asked questions
My unpaid invoices add up to Rs 60 lakh. Can I file under the IBC?
No. Since the notification of 24 March 2020 under Section 4, a Section 9 petition needs a default of at least one crore rupees, and the Appellate Tribunal has held that the higher threshold applies to every petition filed on or after that date. Interest counts only where the contract or the invoices provide for it, and even then the point is argued. Below the threshold the remedies are a commercial or summary suit, arbitration if the contract provides for it, a reference to the Facilitation Council for a registered micro or small enterprise, or a Section 138 complaint if a cheque has bounced.
The company replied to my demand notice after the ten days had passed. Does that count as a dispute?
The timing of the reply is not decisive; what matters is whether a genuine dispute existed before the notice was received. A late reply that points to earlier correspondence, a debit note, a rejected delivery or a pending arbitration can still defeat the petition, because the Tribunal reads the record as a whole. A bare denial raised for the first time after the notice, unsupported by any earlier document, is the kind of spurious or illusory dispute that Mobilox Innovations v. Kirusa Software (2017) says the Tribunal should disregard.
Do I need a bank certificate to file a Section 9 petition?
Not as a condition of filing. Section 9(3)(c) asks for a certificate from the financial institution maintaining your account confirming non-payment, but since the 2018 amendment the words are 'if available', and the Hon'ble Supreme Court had already held in Macquarie Bank v. Shilpi Cable Technologies (2017) that the certificate was not mandatory. Bank statements, the ledger and an affidavit of non-payment are accepted; a certificate, where the bank will give one, saves argument.
Will I get paid once the petition is admitted?
Not by the admission itself. Admission starts a corporate insolvency resolution process: a moratorium under Section 14, an interim resolution professional in place of the board, and a committee of financial creditors on which operational creditors have no vote unless the company has no financial creditors. You file a claim in Form B and receive what the resolution plan provides, subject to the floor in Section 30(2)(b), or in liquidation what the Section 53 waterfall allows. Most operational creditors who are paid are paid before admission, when the debtor settles to avoid the process.
How long does a Section 9 petition take at the Hon'ble NCLT Mumbai Bench?
Section 9(5) gives the Tribunal fourteen days to admit or reject, but the Hon'ble Supreme Court held in Surendra Trading Co. v. Juggilal Kamlapat Jute Mills (2017) that the period is directory. In practice, after registry scrutiny and notice to the corporate debtor, an uncontested petition at the Mumbai Bench is commonly decided within three to six months of filing, and a contested one often takes a year or more, depending on the court, the docket and the adjournments. The ranges vary and are indicative only.
This article is general information on Indian law, not legal advice. How the law applies depends on your facts; please consult an advocate before acting on it.
