Operational creditor is any person to whom a debt arising from the provision of goods, services, employment, or statutory dues payable to the government is owed by the corporate debtor. Under Indian law, the term is defined in Section 5(20) of the Insolvency and Bankruptcy Code, 2016, and the procedure for initiating insolvency by an operational creditor is governed by Sections 8 and 9.
Legal definition
Section 5(20) of the Insolvency and Bankruptcy Code, 2016 defines:
"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.
Section 5(21) defines operational debt:
"Operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority.
The four categories of operational debt are: (i) debts for goods supplied; (ii) debts for services rendered; (iii) debts arising from employment; and (iv) statutory dues payable to government.
How courts have interpreted this term
Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17
The Supreme Court upheld the differential treatment of operational creditors and financial creditors under the IBC, holding that the classification serves an intelligible differentia with a rational nexus to the object of the Code. The Court observed that financial creditors are in the business of assessing and managing financial risk and make their lending decisions based on the viability of the corporate debtor, while operational creditors provide goods and services in the ordinary course of business. This fundamental difference justifies their different roles in the resolution process.
Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (2018) 1 SCC 353
The Supreme Court held that the NCLT, when considering an application by an operational creditor under Section 9, must reject the application if the corporate debtor raises a dispute that existed before the receipt of the demand notice. The Court clarified that the existence of a "dispute" is to be determined on a prima facie basis — there must be a plausible contention requiring investigation, not a vague or manufactured dispute.
B.K. Educational Services Pvt. Ltd. v. Parag Gupta & Associates (2019) 11 SCC 633
The Supreme Court held that limitation applies to applications filed under Section 9 by operational creditors. The application must be filed within three years from the date when the right to apply accrues, i.e., from the date of default.
Why this matters
The distinction between operational and financial creditors is one of the most litigated and debated aspects of the IBC. Operational creditors — suppliers, service providers, employees, and government authorities — are essential to the corporate debtor's business but occupy a subordinate position in the insolvency hierarchy compared to financial creditors.
For practitioners, the most significant practical implications are: (1) operational creditors can trigger the CIRP under Section 9, but the threshold is lower and the process includes a mandatory demand notice (Section 8) with a 10-day response period; (2) operational creditors are not members of the CoC and do not have voting rights; (3) under any resolution plan, operational creditors must receive at least the liquidation value of their claims (Section 30(2)(b)); and (4) operational creditors whose debt is at least 10% of the total debt may attend CoC meetings as observers.
A critical safeguard for operational creditors is the demand notice mechanism. Before filing a Section 9 application, the operational creditor must deliver a demand notice to the corporate debtor. If the corporate debtor responds with evidence of a pre-existing dispute or proof of payment, the application cannot be admitted. This mechanism ensures that the insolvency process is not used as a debt recovery tool for genuinely disputed claims.
Related terms
Contrasting concept:
Related process:
Adjudicating authority:
Frequently asked questions
Can an operational creditor file for insolvency against a company?
Yes. Under Section 9 of the IBC, an operational creditor who has not received payment of an operational debt exceeding the threshold amount (currently Rs. 1 crore, as notified by the Central Government) can file an application before the NCLT for initiating the CIRP, after delivering a demand notice under Section 8 and not receiving payment or a dispute notice within 10 days.
Why are operational creditors excluded from the Committee of Creditors?
The Supreme Court in Swiss Ribbons held that financial creditors and operational creditors form distinct classes. Financial creditors lend money based on the borrower's viability and have a long-term interest in the corporate debtor's survival, while operational creditors provide goods and services in the ordinary course of business. The Court held this classification is constitutionally valid.
What minimum payment must an operational creditor receive under a resolution plan?
Under Section 30(2)(b), a resolution plan must provide for payment to each operational creditor of an amount not less than the amount that would be payable in the event of liquidation of the corporate debtor. This is the liquidation value guarantee for operational creditors.
Can the corporate debtor dispute an operational creditor's claim?
Yes. If the corporate debtor, within 10 days of receiving the demand notice under Section 8, brings to the notice of the operational creditor the existence of a dispute or provides evidence of payment, the operational creditor cannot file a Section 9 application. The Supreme Court in Mobilox clarified that the dispute must be genuine and not manufactured.
This entry is part of the Veritect Indian Legal Glossary, a comprehensive reference of Indian legal terminology grounded in statutory text and judicial interpretation.
Last updated: 2026-03-27. Veritect provides this content for informational purposes and does not constitute legal advice.