Unpaid by a Company? The Section 9 IBC Route, and What Defeats It

Why the IBC route has teeth

A supplier with unpaid invoices has always had remedies — a civil suit, a summary suit under Order XXXVII, arbitration if the contract provides for it. What they have rarely had is speed or leverage.

The Insolvency and Bankruptcy Code, 2016 changed that. An unpaid operational creditor can apply to have the corporate debtor placed into the corporate insolvency resolution process. Admission has severe consequences for the company: the board is suspended, control passes to an insolvency professional, and a moratorium under Section 14 bars other proceedings. For a solvent company that has simply been slow to pay, the prospect of losing control of the business is a powerful reason to settle.

That leverage is precisely why the courts have been careful to keep the Code from becoming an ordinary debt-recovery mechanism — and why the pre-existing dispute defence matters so much.

Who is an operational creditor

An operational debt under Section 5(21) is a claim in respect of the provision of goods or services, including employment, or a debt in respect of dues arising under any law payable to the government. An operational creditor under Section 5(20) is the person to whom such a debt is owed.

In practice this covers suppliers of goods, service providers and contractors, employees and workmen for unpaid wages, and statutory dues. It is distinct from a financial creditor, whose debt is disbursed against consideration for the time value of money and who applies under Section 7 instead.

The distinction matters beyond the form of application. Operational creditors do not sit on the committee of creditors in the same way financial creditors do, so the strategic value of a Section 9 application usually lies in the pressure it creates before admission rather than in the resolution process afterwards.

The threshold

The minimum amount of default was originally one lakh rupees. By a notification dated 24 March 2020, issued under the proviso to Section 4, the Central Government raised it to one crore rupees. Below that figure the Code is simply not available, and the creditor must use ordinary civil remedies.

The threshold is applied to the amount of default, and creditors sometimes aggregate several unpaid invoices against the same corporate debtor to cross it. Whether that is permissible on the facts is contested territory and depends on how the debts arise.

Step one: the demand notice under Section 8

The process begins with a statutory notice. On the occurrence of a default, the operational creditor delivers a demand notice to the corporate debtor under Section 8(1). It is issued in Form 3, or alternatively a copy of the invoice demanding payment may be delivered in Form 4, under the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

The corporate debtor then has ten days. Within that period it must either pay, or bring to the creditor's notice the existence of a dispute — including a record of a pending suit or arbitration filed before receipt of the notice — or a record of payment already made.

Service is not a formality. Applications regularly fail because the notice went to an address that was not the registered office, or because proof of delivery could not be produced. The notice should go to the registered office as shown on the MCA record, with proof retained.

Step two: the application under Section 9

If the ten days pass without payment and without notice of dispute, the operational creditor may apply to the Adjudicating Authority — the National Company Law Tribunal — under Section 9, in Form 5.

The application must be accompanied by the invoice or demand notice, an affidavit that no notice of dispute was received, and a certificate from a financial institution maintaining the creditor's accounts confirming non-payment. The creditor may, but need not, propose an interim resolution professional.

The Tribunal examines whether the debt and default are established, whether the notice was properly served, whether the application is complete, and whether any disciplinary proceeding is pending against the proposed professional. Where the application is incomplete, Section 9(5) requires the Tribunal to give seven days' notice to rectify before rejecting it.

Jurisdiction follows the registered office of the corporate debtor. For a company registered in Karnataka, that is the NCLT, Bengaluru Bench.

What defeats the application: pre-existing dispute

This is the single most important point in the whole process, and the reason many Section 9 applications fail.

In Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (2017), the Supreme Court held that where the corporate debtor raises a dispute that existed before receipt of the demand notice, the Tribunal must reject the application. Crucially, the Tribunal is not required to satisfy itself that the defence will succeed. It need only determine whether there is a plausible contention requiring further investigation — a dispute that is not spurious, hypothetical, illusory or unsupported by evidence.

The practical effect is stark. An exchange of emails, predating the demand notice, in which the debtor complains about quality, quantity, delay or deficiency of service, is frequently enough to end the application. The Tribunal will not weigh the merits of that complaint; it will simply hold that the dispute is one for a civil court or arbitrator, not for the insolvency process.

For a creditor, this means the correspondence file should be reviewed honestly before the notice is issued. For a corporate debtor facing a Section 9 notice, it means the first question is whether a genuine dispute was raised on the record before the notice arrived.

What the IBC (Amendment) Act, 2026 changed

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 introduced a set of reforms to the corporate insolvency framework. Three points affect the operational creditor route directly and should be checked against the current text and commencement notifications before acting:

• Information utility filing. Operational creditors are now required to submit financial information to an information utility before filing under Section 9 — an obligation that previously applied to financial creditors. This is a step to build into the timeline rather than discover at the filing counter.
• Reasons for delay. Where the Adjudicating Authority does not pass an order within fourteen days of receipt of the application, it must record the reasons for the delay in writing — a procedural-discipline measure aimed at admission timelines.
• Creditor-initiated process. A new out-of-court creditor-initiated mechanism was introduced. Where a corporate insolvency resolution process has already been initiated, that mechanism cannot be triggered against the same corporate debtor, preserving the primacy of an admitted proceeding.

Because these provisions are recent, and because commencement of individual sections can be staggered by notification, the position should be verified as at the date of filing rather than assumed.

Choosing the right remedy

Section 9 is not always the right tool. It is unavailable below one crore. It is defeated by a genuine pre-existing dispute. And it is an insolvency remedy, not a recovery suit — the Supreme Court has repeatedly cautioned against using the Code as a substitute for debt collection.

Where the debt is admitted and documented but below the threshold, a summary suit under Order XXXVII of the Code of Civil Procedure is often faster than an ordinary suit, because the defendant must seek leave to defend. Where the contract has an arbitration clause, that route governs. Where a cheque was issued and dishonoured, proceedings under Section 138 of the Negotiable Instruments Act run in parallel. And under the Commercial Courts Act, 2015, pre-institution mediation under Section 12A is mandatory unless urgent interim relief is sought.

Limitation applies throughout. A suit on a contract must ordinarily be brought within three years under Article 55 of the Limitation Act, 1963, and the Limitation Act has been held to apply to applications under the Code as well. Delay narrows the options.

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