Every insolvency tribunal hears the same line from counsel for the corporate debtor: the Insolvency and Bankruptcy Code (IBC) is not a recovery mechanism. Yet, ask the supplier who files under Section 9 why he has come and the honest answer is almost always the same: he wants to be paid.
If resolution is the Code’s only legitimate purpose, does the law give the operational creditor any reason to want it? And why may he start a process in which he can lawfully be left with next to nothing? This piece argues that demanding a “resolution motive” from him is largely a fiction, which the IBC (Amendment) Act, 2026 has not cured. The better question is whether the debtor needs a collective process and whether the creditor can be given a fair route to payment before one begins.
Section 9(5) is mandatory in form: if the debt is unpaid and no notice of dispute has been received, the Adjudicating Authority “shall” admit. Mobilox Innovations v. Kirusa Software (2018) confined the inquiry to debt, default and a genuine pre-existing dispute - a filter on the debt, not on the creditor’s purpose. The 2026 Amendment goes further, making Section 7 admission mandatory within 14 days, displacing Vidarbha Industries and requiring reasons if a Section 9 application is not decided within 14 days.
Yet, the courts keep reading purpose back in. Swiss Ribbons v. Union of India (2019) treats revival as the aim and recovery as incidental. The operational creditor is caught between a purpose-blind statute and a purpose-driven jurisprudence.
Once the process begins, the Code offers him very little:
No vote: The Committee of Creditors (CoC) consists only of financial creditors [Section 21(8)]; one representative of operational creditors may attend, without a vote, if their dues reach ten per cent.
A floor at nothing: Operational debts rank below secured creditors, workmen, unsecured financial creditors and government dues in the Section 53 waterfall. The Section 30(2)(b) floor is tied to that waterfall, so it is usually close to zero.
Little review: K Sashidhar (2019) and Essar Steel (2020) treat the CoC’s commercial wisdom as largely non-justiciable; “fair and equitable” does not mean equal.
Extinguishment: Under Ghanashyam Mishra (2021), claims left out of an approved plan die. In Tata Steel Ltd v. Varsha (2026), the Supreme Court applied this to operational creditors’ pending suit and arbitration, while observing that small operational creditors, including MSMEs, stand “significantly disenfranchised”. It invited the Law Commission and Parliament to revisit the matter.
A rational supplier cannot want an outcome in which he has no vote and little share. What he can want is payment; Section 9 is the lever that produces it.
Because the Code separates the right to trigger the process from the right to govern it. The Bankruptcy Law Reforms Committee (2015) let any creditor trigger insolvency, since suppliers often feel a debtor’s distress first, but kept them off the CoC as neither able nor willing to restructure debt, a differentia Swiss Ribbons accepted. His compensations are slight: the Section 30(2)(b) floor, priority of payment under Regulation 38(1)(a) of the CIRP Regulations (order, not size) and an appeal under Section 61(3)(iii).
The right to initiate is itself the remedy: a Section 8 notice and the prospect of admission often produce payment. But only until admission. The substituted Section 12A now allows withdrawal only on the resolution professional’s application with 90 per cent CoC approval and only before resolution plans are invited. Once his application is admitted, the operational creditor cannot settle his own case; the financial creditors decide.
The Amendment, largely in force from May 26, 2026, did not address his position (Sections 30 and 31 as amended).
Section 30(2)(b) is retained, still tied to a waterfall in which he comes last, while new Section 30(2)(ba) recalibrates protection only for dissenting financial creditors.
Section 30(4) now requires the CoC to record reasons, Section 31(1) allows distribution to be approved separately and Section 31(2) lets a defective plan be sent back to the CoC, giving him a reviewable record and a stage to object. But regard to the Section 53 priority remains something the CoC “may” consider and whether he gets a seat on the new monitoring committee awaits regulations.
The Section 53 amendments still leave government dues and undersecured balances above him and the new creditor-initiated process under Section 58B is open only to notified financial institutions.
The process is more transparent, but no fairer to him.
The courts’ concern is real. Admission brings a moratorium and displaces management; used against a solvent company over one contested bill, Section 9 is coercion, not insolvency. Hence Mobilox refused admission where a genuine dispute existed and Transmission Corporation of AP (2019) cautioned against using the Code where the substance is a money claim.
Two 2026 decisions continue this line. In Anjani Technoplast v. Shubh Gautam, 2026 , the Supreme Court refused to let a decree holder use Section 7 in place of execution against a solvent company and imposed ₹5 lakh costs; the reasoning applies with greater force to Section 9. In Srinivasa Reddy Velagala v. Sravanthi Infratech (2026), it held that unadjudicated damages are not “operational debt”, that each unpaid invoice is a separate default and that the Code does not revive time-barred claims. Section 65 penalises initiation for any purpose other than resolution or liquidation.
Recovery is the creditor’s only rational purpose, yet Section 9 cannot become an execution court. The way through is to change the question from what the creditor intended, to whether the debtor is genuinely unable to pay, or a solvent company withholding a particular payment. Section 65, read sensibly, should catch the creditor who coerces a solvent debtor over a contested sum, not every supplier who wants his money from a debtor that cannot pay its creditors generally. A settlement after a Section 8 notice is the Code working, not being abused.
If payment is what the operational creditor legitimately wants, the law should give him a clean route to it before insolvency is triggered. Section 12A of the Commercial Courts Act, 2015 already bars a commercial suit not seeking urgent interim relief until pre-institution mediation is exhausted, a requirement Patil Automation v. Rakheja Engineers (2022) held mandatory. Section 18 of the MSMED Act likewise sends an MSME supplier’s claim to conciliation first.
The IBC has gone only halfway. IBBI’s November 2024 discussion paper, following an Expert Committee report, proposed voluntary mediation before a Section 9 filing. A debtor that uses delay as strategy will simply decline. Up to April 30, 2024, 21,466 Section 9 applications were disposed of before admission, against 3,818 admitted. Anyone who has sat on an NCLT bench knows the pattern: the petition is listed, the debtor seeks time and the matter is settled or withdrawn before admission. The tribunal becomes an expensive negotiating table. Most cases already end without a CIRP; the question is whether they end in an orderly way.
A mandatory window in Section 9 could provide for:
Mediation before an IBBI-panel mediator within 30 days after the Section 8 notice period, extendable once by consent;
Exclusion of that period for limitation, as under Section 12A(3) of the Commercial Courts Act;
A settlement enforceable as a decree, with no plea of pre-existing dispute on the settled sum if the debtor defaults;
The debtor’s non-participation treated as evidence of inability to pay; and
An exception for urgent cases, such as a risk of dissipation of assets.
The obvious objection is delay in a Code built on timelines. But 30 days is modest compared to the time a contested petition already spends awaiting admission and the urgent-case exception guards against a debtor using the window to strip assets. Nor would the mediator decide disputes: where a genuine dispute exists, Mobilox already shuts the door. Mediation is meant for the undisputed bill that simply goes unpaid.
The creditor can then settle while the claim is still his, before Section 12A hands that decision to the CoC. The solvent debtor is spared a moratorium over one bill. And the debtor that cannot pay even in mediation reveals itself as a fit case for a collective process. For an MSME supplier, whose working capital is locked in that one unpaid bill, the difference between a quick settlement and a CIRP is often the difference between survival and closure.
The Varsha invitation gives Parliament an opening:
Mandatory pre-institution mediation, as set out above.
A distress filter: A rebuttable presumption of inability to pay, displaced by clear proof of solvency such as deposit of the undisputed amount. This replaces an unworkable motive test with an objective one.
A voice at distribution: A voting representative, or at least a right of objection, for operational creditors at the separate distribution stage.
A real floor: A minimum share of plan value for operational creditors, with priority for MSME suppliers.
Mandatory regard to priority: “May” in Section 30(4) should become “shall”, so that departures require reasons the tribunal can test.
The operational creditor stands at the gate with a key the law hands him, then tells him not to use it for the only purpose that makes sense to him. The 2026 Amendment has made the room better lit; it has not given him a chair. Until it does, the honest course is to stop pretending that the supplier files for resolution, to give him a fair chance to be paid before he knocks and to ask whether the debtor before the tribunal truly needs a collective cure.
VP Singh is an advocate practicing in the Supreme Court and a former Member, NCLAT and former Member (Judicial), NCLT.
Views are personal.