If you go through business or legal news, you very often come across the term “Operational Creditor.” But what is that, actually? Let’s simplify it in simple words.
What is an operational creditor?
An operational creditor is a person or company that provides goods or services to another company and is owed money by them for the same. Whereas banks or any other financial institutions lend money, thereby earning through interest, operational creditors earn by selling products or offering services.
Why It Matters
At the heart of the IBC, an Operational Creditor-when a company defaults on paying its dues-could approach the NCLT seeking recovery of dues. That is important, as that gives a legal avenue for suppliers and service providers to get paid.
Simple Example
Suppose a company delivers office supplies to another firm. If the receiving firm does not pay the invoice, then a supplier like this automatically turns into an Operational Creditor. They have the right to approach the NCLT for the recovery of debt.
This mechanism protects the interests of small and large businesses. If it were not in place, firms would get away with delaying payments indefinitely, thus hurting the cash flow of suppliers.
In a Nutshell
An Operational Creditor is anyone who is owed funds for any goods and/or services provided to a business entity. Operational Creditors are an essential part of maintaining fair business practices. So, the next time you hear on the news of an NCLT case taking place in an Operational Creditor, you should know that it simply means that someone is making a claim to repay funds they are rightfully owed.
Frequently Asked Questions (FAQ)
Q1. Is a person an Operational Creditor?
Even an individual with their own operation, offering goods and/or services and having a claim against another entity that it owes money, qualifies as an Operational Creditor.
Q2. How does an Operational Creditor approach the National Company Law Tribunal?
They file a case under the Insolvency and Bankruptcy Code (IBC) if the company is unable to pay dues.
Q3. Is an Operational Creditor the same as a bank?
No. Banks are financial creditors who lend funds. These operational creditors earn revenues through the supply of goods/services.
Q4. Why is the role of an Operational Creditor important?
It guarantees that the firms are charged for the services or products utilised by them, befitting the principle of equity.
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