IBC Proceedings by Operational Creditors: Recovery of Unpaid Business Invoices

Executive Summary

The Insolvency and Bankruptcy Code, 2016 allows an operational creditor to initiate corporate insolvency resolution proceedings against a corporate debtor in case of default. However, IBC is not an ordinary recovery mechanism. It is a serious insolvency framework.

Process Flow

Unpaid Invoice
        ↓
Demand Notice
        ↓
10-Day Period
        ↓
No Payment / No Valid Dispute
        ↓
NCLT Application
        ↓
Admission / Rejection
        ↓
CIRP if admitted

Case Law Integration

In Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353, the Supreme Court held that if there is a genuine pre-existing dispute before receipt of demand notice, a Section 9 application may be rejected. The dispute must not be spurious, hypothetical or illusory.

In K. Kishan v. Vijay Nirman Company Pvt. Ltd., (2018) 17 SCC 662, the Supreme Court held that IBC should not be used to short-circuit genuinely disputed claims, especially where adjudicatory proceedings are pending.

In Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17, the Supreme Court recognised that IBC is focused on resolution and revival, not mere debt recovery.

Documents Required

Conclusion

IBC may be effective where debt and default are clear and no genuine pre-existing dispute exists. If the claim is heavily disputed, arbitration, civil suit, commercial suit or MSME proceedings may be more appropriate.