Thresholds in insolvency resolution: Rationale for different yardsticks for financial and operational creditors

The Insolvency and Bankruptcy Code (IBC) is a crucial part of India’s economic and financial changes. It helps resolve situations where a corporate entity cannot pay its debts. The IBC sets rules to make sure this process is balanced, fair and effective. In order to avoid misuse, the IBC has laid down certain ‘thresholds’ for a proceeding to be initiated before the National Company Law Tribunal. Such a threshold helps focus on more important cases which are of economic importance. This way, it stops the system from getting too busy with a multitude of cases involving smaller issues and defaults. In this article, we will discuss a significant difference between the process for operational creditors, compared to financial creditors, for initiating proceedings despite having a common threshold limit under the IBC.

Types of creditors and thresholds

Operational creditors, usually small businesses or service providers, supply goods or services to the corporate debtor without having security for the payments owed to them. These debts are often smaller, recurring and can be subject to genuine disputes, such as issues with substandard goods or services. On the other hand, financial creditors, typically banks and financial institutions, provide significant amounts of money to the corporate debtor. Their loans are often secured, and the agreements are well-documented with clear repayment schedules. Financial creditors are actively involved from the beginning, assessing the viability of the corporate debtor and playing a role in restructuring and reorganization during financial stress.

Given the differences in the status of operational and financial creditors, an understanding of threshold limits under the IBC is crucial for creditors to avail the benefits under the Corporate Insolvency Resolution Process (CIRP). Currently the threshold limit to initiate a proceeding under the IBC is set at INR 10,000,000 (Indian Rupees Ten Million) or approximately USD 120,000 (United States Dollars One Hundred and Twenty Thousand) (Default Threshold) for both operational and financial creditors.

Filing procedures and joint applications for financial and operational creditors

As explained, there is a fundamental difference between financial and operational creditors. Hence, the process for initiating insolvency proceedings for each of them also differs. Operational creditors are required to first deliver a demand notice to the corporate debtor before it can initiate insolvency proceedings. In contrast, there is no such pre-requisite imposed on the financial creditor; they can initiate insolvency proceedings immediately upon occurrence of default.

While both financial and operational creditors share the same financial thresholds for initiating insolvency proceedings against a corporate debtor, there is a notable difference under the law in how they can proceed. Financial creditors, whose individual default does not meet the Default Threshold, can collectively file for insolvency, with other financial creditor(s) to cumulatively achieve the Default Threshold against the same corporate debtor. However, this option is not available to operational creditors given that they must each issue their own demand notices, leading to variations in claims and timelines. This makes joint applications impractical for operational creditors due to the diverse nature of their debts and specific requirements. Financial creditors, on the other hand, can file joint applications more easily due to the structured nature of their debts, which typically have clearer terms and documentation, simplifying the process and providing clear evidence of defaults.

In essence, these procedural differences recognize the specific characteristics of operational and financial creditors. So, the process of dealing with insolvency is adjusted to fit the different roles and how much each person helps with the corporate debtor’s financial situation.

Legal precedents with creditor thresholds in focus

On July 25, 2022, the High Court of Rajasthan in the case of Vishnu Oil Mill Private Limited v. Union of India and Others (Vishnu Oil Mills Judgement), adjudicated upon the permissibility of a group of financial creditors triggering a CIRP jointly without meeting the Default Threshold individually. The High Court clarified that the provision unambiguously allows for financial creditors to initiate CIRP either individually or jointly with other financial creditors. Thus, the High Court held that a group of financial creditors can collectively reach the Default Threshold to initiate CIRP under the IBC.

In the case of Atanu Kumar Chatterjee and Others vs. Rolta Defence Technology Systems Private Limited before the National Company Law Tribunal, Mumbai Bench (NCLT), decided on October 06, 2023, operational creditors relied on the Vishnu Oil Mills Judgment. However, the NCLT held that the Vishnu Oil Mills Judgment applied to financial creditors, where there is clarity regarding applications being filed individually or jointly with other financial creditors. Conversely, the provisions for operational creditors under the IBC are worded differently. While the relevant section for financial creditors explicitly states, ‘ creditor either by itself or jointly with other financial creditors,..’, no such phrase, including synonyms, is found for operational creditors under the IBC.

Applicability and impact of thresholds on creditor dynamics

As discussed above, financial and operational creditors have different applicability for thresholds because they have distinct roles and interests in resolving financial issues. Financial creditors, typically large institutions or lenders can collectively meet the Default Threshold as they share similar financial interests. This collective approach is practical due to their substantial involvement and interconnectedness.

In contrast, operational creditors, often individual suppliers or service providers, must individually meet the Default Threshold. This recognizes their diverse and usually smaller financial stakes in insolvency cases. Operational creditors may have localized or specific concerns, and the individual threshold allows them to initiate proceedings independently when facing significant financial defaults.


In summary, the distinction in threshold mechanisms acknowledges the different dynamics and financial scales associated with financial and operational creditors. This helps in making the process more balanced, fair and practical while dealing with financial problems within the insolvency resolution framework. It is important for operational and financial creditors to understand the relevance of thresholds in this regard and how they could cooperate with other similarly placed creditors to achieve the threshold limits for initiating an action under the IBC.

Priyanka Zaveri | Principal Associate; Anshu Bhanot | Of Counsel, Veyrah Law

Views expressed above are for information purposes only and should not be considered as a formal legal opinion or advice on any subject matter therein.


The rules of the Bar Council of India prohibit lawyers and law firms from advertising or soliciting for work. This website is not meant for advertising the practice or for soliciting clients and is solely created for providing information. Any action taken by you based on the information provided in this website is at your own risk and Veyrah Law or its members will not be liable for any loss you suffer due to such actions. By accepting the terms contained here you agree that you have read and understood these terms, ‘Terms of Use’ and the ‘Privacy Policy’ contained in this website. Further, you agree that you are viewing the contents of this website at your own discretion to obtain necessary information.