Section 9 of the IBC: Overview
Section 9 of the Insolvency and Bankruptcy Code deals with the initiation of the corporate insolvency resolution process by operational creditors. An operational creditor is defined under the IBC as any person to whom
an operational debt is owed and includes suppliers of goods or services to the company.
Key Provisions of Section 9
Demand Notice: Before initiating the CIRP, an operational creditor is required to issue a written demand notice to the corporate debtor, demanding payment of the outstanding operational debt. The debtor is given ten
days to respond to the notice and either make the payment or raise a dispute concerning the existence of the debt.
Application to Adjudicating Authority: If the corporate debtor fails to respond or disputes the debt within ten days, the operational creditor can file an application before the National Company Law Tribunal (NCLT)
to initiate the insolvency resolution process.
Adjudication by NCLT: The NCLT then examines the application to ensure its validity and authenticity. If the application meets the necessary requirements and there is no pre-existing dispute regarding the debt, the
NCLT admits the application and commences the CIRP.
Moratorium Period: Similar to other insolvency proceedings under the IBC, once the CIRP begins, a moratorium is imposed on the corporate debtor's assets. This prevents other creditors from initiating or continuing any
legal action against the debtor during the resolution period.
Appointment of Interim Resolution Professional (IRP): Upon admission of the application, the NCLT appoints an Interim Resolution Professional (IRP) to take over the management of the corporate debtor during the resolution
period.
Implications and Significance of Section 9
Protection for Operational Creditors: Section 9 of the IBC provides operational creditors with an effective mechanism to recover their dues from corporate debtors. It offers a time-bound and transparent process to initiate
the insolvency resolution, thereby preventing prolonged recovery battles.
Speedy Resolution Process: The IBC's time-bound nature ensures that the CIRP is completed within 330 days, promoting the efficient resolution of stressed assets. This aids in reducing the burden on the judicial system
and expediting the resolution process.
Balanced Approach: Section 9 strikes a balance between protecting the interests of operational creditors and preventing its misuse by incorporating stringent timelines and requirements. This ensures that operational
creditors cannot initiate the CIRP arbitrarily without a valid claim.
Encouragement for Timely Payments: Section 9 encourages corporate debtors to make timely payments to operational creditors. The provision of a ten-day notice period incentivizes debtors to address and resolve payment
disputes promptly.
Conclusion
Section 9 of the Insolvency and Bankruptcy Code has played a vital role in empowering operational creditors and streamlining the process of initiating the corporate insolvency resolution process. By providing a well-defined
mechanism for operational creditors to recover their dues, the IBC promotes a creditor-friendly environment while ensuring the efficient resolution of distressed corporate entities. As India continues its journey
towards fostering a robust insolvency ecosystem, Section 9 remains a crucial provision, safeguarding the interests of operational creditors and contributing to the overall effectiveness of the IBC.
