Section 9 IBC Applications by Operational Creditors: Emerging Trends in NCLT Practice
The Insolvency and Bankruptcy Code, 2016 (“IBC”) enables operational creditors to initiate corporate insolvency resolution proceedings under Section 9 upon occurrence of a default. While the statutory framework remains unchanged, recent admission-stage practices—particularly at the Delhi Bench of the NCLT—signal a clear shift toward enhanced procedural and bona fide scrutiny.
1. Affidavit Affirming Absence of Collusion:
A recurring direction from the Tribunal is the filing of a specific affidavit affirming that the Section 9 petition is not collusive. This affidavit typically requires the applicant to declare that:
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The petition is not filed in coordination with the corporate debtor, its promoters, directors, or related parties;
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The insolvency process is not being triggered to achieve an indirect or strategic objective, including management change, regulatory arbitrage, or shielding the corporate debtor from other proceedings.
This concern is no longer theoretical. In Hytone Merchants Pvt. Ltd. v. Satabadi Investment Consultants Pvt. Ltd., the NCLAT, while discussing the admission of a Section 7 petition, held that even if the petition complies with all requirements of the Insolvency and Bankruptcy Code, 2016, and is filed collusively, not with the intention of "resolution" but otherwise, it is not mandatory to admit the Application.
This position has been reiterated consistently even in Section 9 petitions. In Wellnex Global Services India LLP v. Pacer Secure Services Limited, the NCLT, Principal Bench specifically directed the applicant to file an affidavit affirming absence of collusion, which was complied with before the petition was taken up further. The order demonstrates that collusion is being examined as a standalone admission-stage issue, not subsumed within general pleadings.
2. Affidavit Confirming the Petition Is Not a Recovery Proceeding:
Separately—and increasingly as an independent requirement—Tribunals are directing applicants to file an affidavit clarifying that the Section 9 application is not being used as a recovery mechanism.
Through this affidavit, the operational creditor affirms that:
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The petition is not a substitute for civil recovery, arbitration, or execution proceedings;
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The dominant objective is insolvency resolution under the IBC and not mere coercive recovery.
In Agarwal Foundries Private Limited v. POSCO E&C India Private Limited, the NCLAT reiterated that Section 9 cannot be invoked mechanically and that the Tribunal must be satisfied that the application reflects a real case of insolvency, rather than a pressure tactic for recovery.
More recently, in Shikhar Dhawan v. Absolute Legends Sports Pvt. Ltd. and Jiostar India Pvt. Ltd. v. Absolute Legends Sports Pvt. Ltd., the NCLT scrutinized Section 9 petitions to ensure that the insolvency framework was not being invoked as a pressure tactic for payment, particularly in commercially complex or high-value arrangements. These cases underscore that even undisputed dues do not automatically justify admission if the surrounding facts suggest a recovery-driven invocation of the Code.
3. Record of Default from NeSL: Statutory Position vs. Admission-Stage Expectation:
Another consistent admission-stage direction—particularly at the Delhi Bench—is the filing of the Record of Default (RoD) certificate issued by the National E-Governance Services Limited (NeSL).
At the doctrinal level, it is settled that a NeSL certificate is not mandatory in law. In R.K. Lala v. Ramky Infrastructure Ltd., the NCLT, Hyderabad Bench held that while an Information Utility record is a strong evidentiary tool, non-filing of such a certificate cannot, by itself, defeat a Section 9 application if default is otherwise established.
That said, practice has moved beyond the statutory floor. Tribunals increasingly view NeSL certification as:
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Independent verification of default;
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A mechanism to reduce threshold factual disputes; and
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A filter against speculative or recovery-oriented filings.
Insistence on NeSL certification also serves a broader insolvency-ecosystem function. Once a default is authenticated:
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Financial creditors are automatically intimated; and
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They are relieved from manually tracking litigation or insolvency proceedings initiated against the corporate debtor across fora.
This enhances transparency, reduces information asymmetry, and facilitates early inter-creditor coordination.
Practical Takeaways for Operational Creditors:
Based on recent Delhi NCLT practice and the aforementioned cases, the following factors are increasingly being treated as red flags suggesting recovery-driven misuse of Section 9:
1. Timing of the Petition:
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Section 9 filed immediately after issuance of demand notice, with no attempt at resolution.
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Petition filed parallel to or immediately after failure of civil recovery / arbitration proceedings.
2. Nature of the Commercial Relationship:
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Claims arising from complex commercial, sponsorship, marketing, or services arrangements where insolvency is not the natural remedy.
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High-value contracts where payment disputes exist but operational continuity of the debtor is evident.
3. Conduct of the Operational Creditor:
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Repeated adjournments sought after notice is issued—suggesting pressure tactics.
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Willingness to “settle” immediately upon admission threats.
4. Drafting Signals in the Petition
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Language focused on “recovery”, “payment”, or “clearing dues” rather than insolvency resolution.
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Failure to explain why insolvency, and not ordinary recovery, is the appropriate remedy.
Concluding Observations:
The emerging admission-stage approach—most visibly at the Delhi NCLT—reflects a shift from formal compliance to substantive gatekeeping. The Tribunal is no longer confined to verifying debt and default; it is actively assessing intent, bona fides, and systemic integrity.
This trend reflects a maturing IBC ecosystem, where safeguards against collusion and misuse are being actively enforced, and procedural tools like NeSL certificates enhance transparency and coordination among all creditors. Creditors who align their petitions with these expectations are more likely to have their insolvency applications admitted without protracted preliminary objections.
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