The Insolvency and Bankruptcy Code, 2016 (IBC) is a transformative piece of legislation in India, designed to consolidate and streamline laws related to insolvency and bankruptcy for companies, partnership firms and individuals. Enacted to replace a patchwork of outdated laws, the IBC aims to resolve financial distress in a time-bound manner, maximize the value of assets, promote entrepreneurship, ensure credit availability and balance the interests of all stakeholders, including creditors, debtors and investors. A key component of this framework is the Corporate Insolvency Resolution Process (CIRP), which provides a structured approach to address corporate defaults. For operational creditors entities that supply goods or services to a company Form 5 Insolvency and Bankruptcy Code, 2016, is a critical tool. It allows them to formally initiate CIRP when a company, referred to as the corporate debtor, fails to pay for goods or services provided. This article explores Form 5 by explaining its purpose, the process of filing it and its role within the IBC framework, all in simple terms suitable for a general audience.
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What is Form 5 Insolvency and Bankruptcy Code, 2016?
Form 5 is an application form that operational creditors must submit to the Adjudicating Authority, typically the National Company Law Tribunal (NCLT), to start the CIRP against a corporate debtor under Section 9 of the IBC. An operational creditor is an entity or individual that provides goods or services on credit, such as a supplier of raw materials or a service provider like a contractor. In contrast, a corporate debtor is the company that owes money for these goods or services.
Form 5 is governed by the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 and specifically Rule 6 which outlines the requirements for initiating CIRP by operational creditors. The form requires detailed information about the creditor, the debtor, the debt and evidence of default, ensuring that only legitimate claims proceed to the insolvency process.
Why is Form 5 Important?
Form 5 Insolvency and Bankruptcy Code, 2016 provides a structured, time-bound mechanism to address non-payment, reducing the need for prolonged legal battles that were common under older laws like the Companies Act, 1956, or the Sick Industrial Companies Act, 1985. By requiring a demand notice before filing, the IBC ensures fairness with giving debtors a chance to settle or dispute claims. The detailed documentation required in Form 5 also filters out frivolous claims and makes sure that only genuine cases proceed to CIRP.
This process promotes a business-friendly environment by encouraging timely payments and providing creditors with an efficient tool to recover dues. It also aligns with the goals of IBC of maximizing asset value and balancing stakeholder interests.
Structure of Form 5
Form 5 Insolvency and Bankruptcy Code, 2016 is divided into several parts to capture details:
Part I: Particulars of Applicant (Operational Creditor) – Includes the creditor’s name, address and contact details.
Part II: Particulars of Corporate Debtor – Details the company’s name, registered office and identification details.
Part III: Particulars of Proposed Interim Resolution Professional (if proposed) – Names a professional to manage the CIRP, if suggested by the creditor.
Part IV: Particulars of Operational Debt – Specifies the amount owed and the nature of the debt.
Part V: Particulars of Operational Debt (Documents, Records and Evidence of Default) – Requires supporting documents to prove the debt and default.
Additionally, Form 5 must be accompanied by annexures, such as:
Annex I: Copy of the invoice or demand notice (Form 3) served on the corporate debtor.
Annex II: Copies of all documents referenced in the application.
Annex III: Bank or financial institution statements confirming non-payment by the debtor.
Annex IV: An affidavit supporting the application’s accuracy.
Annex V: Written communication from the proposed interim resolution professional (Form 2, if applicable).
Annex VI: Proof of payment of the application fee.
These requirements ensure transparency and accountability in the process.
Read about Insolvency Resolution by Operational Creditors.
The Journey to Filing Form 5
The process of filing Form 5 involves several steps to ensure fairness and give the corporate debtor an opportunity to resolve the issue before formal insolvency proceedings begin. Below is a detailed breakdown of the steps leading to the filing of Form 5.
Step 1: Issuing a Demand Notice (Form 3)
When an operational creditor believes a corporate debtor has defaulted on payment for goods or services, they must first issue a demand notice in Form 3, as prescribed under Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The demand notice must include:
The amount of the unpaid debt.
Details of the goods or services provided.
A demand for repayment within 10 days.
A warning that failure to pay or dispute the debt will lead to the initiation of CIRP.
The notice must be delivered to the corporate debtor’s registered office, ensuring formal communication.
Step 2: Corporate Debtor’s Response
Upon receiving the demand notice, the corporate debtor has 10 days to respond. There are two possible responses:
Payment: If the debtor pays the full amount within 10 days, the matter is resolved and no further action is required.
Dispute: If the debtor believes there is a genuine dispute (e.g., the goods were defective or not delivered), they must notify the creditor with evidence of the dispute, such as pending legal proceedings. If a dispute is raised, the creditor cannot proceed with CIRP until the dispute is resolved.
If the debtor neither pays nor raises a dispute within 10 days, the creditor can move to the next step.
Step 3: Filing Form 5
If the corporate debtor fails to pay or dispute the debt within the 10-day period, the operational creditor can file Form 5 with the NCLT to initiate CIRP. The form must be accompanied by all required documents, including proof of the demand notice, evidence of non-payment and an affidavit. The creditor must also serve a copy of Form 5 to the corporate debtor and the Insolvency and Bankruptcy Board of India (IBBI) before filing with the NCLT, ensuring transparency.
Find out What Insolvency is
What Happens After Filing Form 5?
Once Form 5 Insolvency and Bankruptcy Code is submitted, the NCLT reviews the application to verify the default and make sure compliance with procedural requirements. The steps in the CIRP are given below:
Admission of Application
If the NCLT finds the application valid and confirms a default (typically a debt of at least ₹1 lakh, up to ₹1 crore as per government notification), it admits the application, triggering the CIRP. Upon admission:
A moratorium is imposed, halting new lawsuits, existing legal proceedings and asset seizures against the debtor. This protects the company while a resolution is sought.
The insolvency commencement date is set, marking the start of the 180-day CIRP period (extendable by 90 days with creditor approval).
Appointment of Interim Resolution Professional (IRP)
The NCLT appoints an IRP who is a qualified professional registered with the IBBI to manage the corporate debtor’s affairs during CIRP. The IRP takes over the company’s operations, protects its assets and oversees the resolution process. If the creditor proposed an IRP in Form 5, the NCLT may appoint that professional, provided they meet the eligibility criteria.
Formation of Committee of Creditors (CoC)
Within days of admission, a Committee of Creditors is formed which is primarily consisting of financial creditors (e.g., banks and financial institutions). Operational creditors may have representation if specified in regulations. The CoC is responsible for key decisions, such as approving resolution plans or replacing the IRP with a Resolution Professional (RP).
Resolution Plan
During the CIRP, interested parties (e.g., potential buyers or investors) submit resolution plans within 21 days of an invitation by the RP. These plans outline how the company will be restructured, who will manage it and how debts will be repaid. The CoC evaluates the plans and approves one with at least a 66% vote. The approved plan is then submitted to the NCLT for final approval within 30 days.
Approval and Implementation
If the NCLT approves the resolution plan, it becomes binding on all stakeholders and the company is revived under new management or ownership. If no plan is approved within the 180-day (or extended 270-day) period, the NCLT may order liquidation where the company’s assets are sold to repay creditors.
Real-World Example
Let’s illustrate how Form 5 empowers suppliers to take action against non-paying companies efficiently. Consider a hypothetical scenario: Company X, a supplier of office furniture, delivers ₹5 lakh worth of furniture to Company Y on credit. Company Y fails to pay within the agreed terms.
Step 1: Company X sends a demand notice (Form 3) to Company Y, demanding ₹5 lakh within 10 days.
Step 2: Company Y does not respond or pay within the 10-day period.
Step 3: Company X files Form 5 with the NCLT, attaching the invoice, proof of delivery, bank statements showing non-payment and an affidavit.
Step 4: The NCLT reviews and admits the application, initiating CIRP for Company Y.
Step 5: An IRP is appointed, a CoC is formed and the resolution process begins to either revive Company Y or liquidate its assets.
Also read about Section 12A of IBC, 2016.
Key Provisions of the IBC Related to Form 5
The following table summarizes key sections of the IBC relevant to Form 5 and the CIRP process for operational creditors:
Section | Description | Key Details |
Section 4 | Application of Part II | Applies to corporate debtors with defaults between ₹1 lakh and ₹1 crore. |
Section 6 | Persons who may initiate CIRP | Allows operational creditors, financial creditors, or the corporate debtor to initiate CIRP. |
Section 8 | Insolvency resolution by operational creditor | Requires a demand notice (Form 3) with a 10-day response period. |
Section 9 | Application by operational creditor | Governs filing of Form 5 after non-payment or non-disputed debt; NCLT decides within 14 days. |
Section 12 | Time limit for CIRP | 180 days, extendable by 90 days with 75% CoC approval. |
Section 13 | Moratorium | Imposed upon admission, halting legal actions against the debtor. |
Section 21 | Committee of Creditors | Comprises financial creditors; decides on resolution plans and RP continuation. |
Section 50 | Liquidation order | Issued if no resolution plan is approved within the time limit. |
Summary
Form 5 Insolvency and Bankruptcy Code, 2016, is a vital tool for operational creditors to address non-payment by corporate debtors. It fits seamlessly into the IBC’s framework, which prioritizes timely resolution, asset value maximization and stakeholder fairness. By requiring a demand notice and detailed documentation, Form 5 Insolvency and Bankruptcy Code makes sure a transparent and equitable process, reducing unnecessary litigation and promoting a robust financial ecosystem.
For businesses, understanding Form 5 is important for managing financial relationships and protecting their rights in cases of default. As part of the IBC, it contributes to a more efficient and predictable insolvency resolution process in India.
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Form 5 Insolvency and Bankruptcy Code: FAQs
Q1. What is a Form 4 in IBC?
Form 4 is the prescribed format for filing an application by an operational creditor to start the corporate insolvency resolution process under the Insolvency and Bankruptcy Code.
Q2. What is Form A under IBC?
Form A is the standard notice sent by an operational creditor to a debtor company, demanding payment of an unpaid invoice before initiating insolvency proceedings under the Code.
Q3. What is the Insolvency and Bankruptcy Code?
The Insolvency and Bankruptcy Code (IBC) is India's 2016 law that provides a single framework for resolving insolvency and bankruptcy of companies, partnerships and individuals in a time-bound way.
Q4. What are the 4 pillars of IBC?
The four pillars are: the Insolvency and Bankruptcy Board of India, Insolvency Professionals, Information Utilities and Adjudicating Authorities.
Q5. Why is IBC called code not act?
IBC is called a "code" because it consolidates and amends multiple fragmented insolvency laws into one comprehensive, unified legal framework, unlike a single-issue "act."