Operational Debt 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 NCLT in Col. Vinod Awasthy v. AMR Infrastructure Ltd. held that operational debt under Section 5(21) is confined to four categories — goods, services, employment and Government dues. Anything outside those four is de jure outside the definition.
The closed list
The reasoning in Vinod Awasthy is worth stating precisely. The Bench observed that the framers of the Code did not say that operational debt is any debt other than financial debt. Section 5(21) instead enumerates, and an enumeration excludes what it does not mention.
| Category | Example |
|---|---|
| Goods | Supply of materials against invoice |
| Services | Work done, professional services, leasing of premises |
| Employment | Salary and wages |
| Government dues | Statutory dues to the Centre, a State or a local authority |
The petitioner in that case had booked a flat which the developer failed to deliver by the due date. On the law as it then stood he was neither an operational creditor nor a financial creditor. The gap was later closed by legislation rather than by interpretation — the Explanation inserted into the definition of financial debt with effect from 6 June 2018 deems any amount raised from an allottee under a real estate project to have the commercial effect of a borrowing.
Advances: KLA Construction and Hitro Energy
These two decisions look contradictory and are not.
- In KLA Construction Technologies (P) Ltd. v. CKG Realty (P) Ltd. (NCLAT, 26 February 2018), non-payment of a mobilisation advance agreed at the time of entering a construction contract was held not to be operational debt — it was not in respect of goods, services, salary or a statutory due.
- In Consolidated Construction Consortium Ltd. v. Hitro Energy Solutions Pvt. Ltd., the Supreme Court held that a debt arising out of an advance payment made to a corporate debtor for the supply of goods or services is operational debt. There the order was cancelled and the default was in repaying the advance.
The Supreme Court's formulation is that the claim must bear some nexus with a provision of goods and services. It does not matter that the money flowed from the creditor to the debtor rather than the other way.
An advance paid for goods the debtor was to supply has that nexus, so its refund is operational debt. A mobilisation advance the debtor was to receive in order to start work — money owed to the contractor, not for anything the contractor supplied — does not. Test every advance by asking what it was consideration for.
What is not operational debt
- Joint development agreements. In Jesleen Kaur Papneja v. Raheja Developers Ltd. the NCLT held a JDA is not financial debt, and that collaboration and joint development agreements — though they may contain elements resembling loans — are characterised by mutual legal relationships for consideration, aimed at joint project development with profit sharing, rather than a claim for goods or services. Agreements must be read collectively, for their overall purpose and structure, and on the real intention of the parties.
- Damages. In Neeraj Jain (Director of Flipkart India) v. Cloudwalker Streaming Technologies the NCLAT held that damage claims do not constitute operational debt, and that the Code cannot be used to recover claims for damages rather than an undisputed operational debt.
What is operational debt
- Unpaid rent, even under an unregistered lease. In Rado Rexine Co. Ltd. v. Raksha Supreme Camouflage Pvt. Ltd. (NCLT New Delhi, 2025) a landlord was held to be an operational creditor. Lack of registration may be a hurdle in ordinary civil litigation but does not prevent admission of a Section 9 petition where the debt and the default are otherwise clearly established. The Code's summary proceedings focus on the fact of default rather than on document-registration technicalities. CIRP was admitted on a default of about Rs. 1.15 crore.
- A del credere agent's reimbursement. In Jatinder Oberoi v. Narendra Singh Chhabra the NCLAT held that where the agent had already paid the principal supplier and was seeking reimbursement for goods actually supplied, the transaction remained operational. The same litigation confirmed that a stay of the CIRP pauses the process but does not dissolve the resolution professional's statutory duties or return the company to the erstwhile management without a specific judicial direction.
- Regulatory refunds and disincentives. In TRAI v. Reliance Telecom Ltd. the NCLAT upheld the NCLT Mumbai in admitting security deposit balances refundable to postpaid subscribers and unspent balances in prepaid plans as operational debt. A financial disincentive levied by TRAI was held to be operational debt other than Government dues, being in the nature of a fine for not maintaining quality standards. The Tribunal rejected the argument that the TRAI Act, as a special statute, prevails over the IBC.
Common mistakes
- Treating operational debt as the residual category for everything that is not financial debt.
- Reading KLA Construction as holding that no advance can ever be operational debt.
- Filing a Section 9 petition for damages.
- Assuming a sectoral regulator's statute displaces the Code.