Operational Debt under IBC 2016

 Under the Insolvency and Bankruptcy Code, 2016 (IBC), an "operational debt" is defined in Section 5(21) as:

"a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority."

Breakdown of the Definition:

An operational debt includes:

1. Dues for goods or services:

   • Any claim arising from the supply of goods or the rendering of services (including utilities, rent for use of premises, etc.).

2. Employment-related dues:

   • Salaries, wages, and other employment-related payments owed by the corporate debtor.

3. Statutory dues:

   • Taxes, duties, or penalties payable to the Central Government, State Government, or any local authority (e.g., income tax, GST, PF contributions).

Key Features:

• Operational creditors can initiate insolvency under Section 9 of the IBC.

• Before filing, they must issue a demand notice in Form 3 or 4.

• If the corporate debtor fails to pay or disputes the debt within 10 days, the operational creditor can file a petition before the NCLT.

Examples of Operational Debt:

• A vendor not paid for supplies delivered to a company.

• A service provider (like a logistics firm, IT services firm) owed fees.

• Employees claiming unpaid salaries.

• GST or income tax dues pending with the government.

Distinction from Financial Debt:

• Financial debt (Section 5(8)) involves money lent with consideration for time value (e.g., loans, bonds).

• Operational debt arises from day-to-day business transactions and obligations.