Balancing Interests: A Critical Examination Of Equitable Treatment ForOperational Creditors Under The Insolvency And Bankruptcy Code (IBC)

Written by: Chikwanha Ntandoyenkosi, B.A.LL.B( 4^th Year ) , Lovely Professional University

Abstract

The Insolvency and Bankruptcy Code, 2016 (IBC) was enacted as a landmark reform to create a consolidated, time-bound framework for insolvency resolution in India, with the stated objective of balancing the interests of all stakeholders. However, the treatment of operational creditors—suppliers of goods and services essential for a company's daily functioning—has raised significant concerns regarding equity and fairness. This paper critically examines the position of operational creditors under the IBC, focusing on their structural subordination through limited participation in the decision-making process and low priority in the distribution of assets. Through an extensive doctrinal and comparative analysis, this study reviews the existing corpus of literature, analyzes the competing theoretical underpinnings of

creditor hierarchies, and evaluates the evolution of landmark judicial interpretations that have shaped the current landscape. It contrasts the Indian framework with the more mature insolvency regimes of the United Kingdom, United States, and Singapore to identify international best practices in protecting non-financial unsecured creditors. The paper argues that the current subordination of operational creditors is not only inequitable from a legal and ethical standpoint but also poses systemic risks to the broader economy, particularly the vital MSME sector which forms the backbone of India's supply chain. It concludes by offering specific, detailed legislative and regulatory recommendations aimed at recalibrating the Code to create a more balanced, just, and sustainable insolvency resolution process that

recognizes the vital contributions and legitimate claims of operational creditors.

Keywords: Insolvency and Bankruptcy Code, Liquidation, Corporate Insolvency, Creditor Rights,

Bankruptcy Law

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Volume 2 | Issue 1