Operational Creditors explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The differentiation has survived constitutional challenge. That is not the same as being accepted by those it applies to.
The proposal from the floor
The session's open floor discussion returned repeatedly to the position of operational creditors within the Code's distribution framework, with a member of the audience specifically proposing that operational creditors be guaranteed some minimum, pre-defined share of recoveries, by analogy to whatever percentage financial creditors ultimately realize.
The answer from Swiss Ribbons
The panel's response, grounded in the reasoning in Swiss Ribbons, was that the current differentiated treatment of financial and operational creditors has already been tested and upheld by the Supreme Court, on the basis that financial creditors bring both the institutional expertise and the longer investment horizon needed to assess a corporate debtor's viability, whereas operational creditors' exposure is typically of a much shorter duration.
The Swiss Ribbons reasoning justifies why financial creditors, and not operational creditors, sit on the committee. Assessing whether a business is viable requires institutional capacity and a long horizon, and a supplier owed for one month's deliveries has neither.
But the question raised from the floor was about distribution, not composition — and the panel was candid that the two are not the same. It acknowledged that this rationale does not fully answer the practical unfairness felt by many operational creditors, including government departments recovering unpaid statutory dues, which frequently emerge from a CIRP with a very substantial haircut regardless of the underlying merit of their claims.
The phrase regardless of the underlying merit of their claims is the heart of it. A supplier who delivered goods on ordinary credit terms, whose invoice is undisputed, may recover a fraction — while a lender who assessed the credit risk, priced for it and took security recovers more.
The lender's better outcome is defensible: it bore the risk deliberately and secured itself. The supplier's is harder to explain to the supplier, who extended trade credit as a condition of doing business and had no realistic alternative.
Government departments recovering statutory dues are in a stranger position still. They did not extend credit at all; the liability arose by operation of law.
What would have to change
The panel noted that any move toward a claim-proportionate or otherwise more equitable distribution formula would require legislative change rather than judicial reinterpretation.
That follows from Swiss Ribbons itself. Having upheld the differentiation as constitutionally sound, the courts have no basis to revisit it — the question is one of policy, and policy is for Parliament.
Repeated representations on this point at various institutional forums have, to date, resulted in Government action, leaving the current position, however debated, as settled law pending any future amendment.
The recommendation
The panel recommended that the profession continue to press, through institutional channels such as the IBBI and the relevant parliamentary committees, both for expansion of NCLT's judicial capacity commensurate with the Code's growing caseload and for a considered, principled review of the distributional position of operational creditors, recognizing that the current settlement, while constitutionally sound, remains a live source of practical grievance a decade into the Code's operation.
The phrase constitutionally sound but a live source of practical grievance captures the position precisely. The law is settled; the argument is not.
The route that already exists
It is worth noting that operational creditors are not without leverage, even under the current framework. As the panel observed elsewhere, the credible threat of a section 9 filing has driven settlements exceeding Rs. 10,00,000 crore reached before admission — and a creditor paid in full before a CIRP begins is unaffected by the distribution framework entirely.
The grievance therefore bites hardest where the debtor was already beyond settling: the cases that proceed to a CIRP are, by definition, those where pre-admission payment was not possible.
Common mistakes
- Reading Swiss Ribbons as settling the distribution question rather than the composition question.
- Expecting a judicial route to a more equitable distribution formula.
- Assuming statutory dues rank differently from other operational claims.
- Advising an operational creditor to wait for a CIRP rather than pursuing settlement.