{"id":51917,"date":"2021-08-30T15:28:54","date_gmt":"2021-08-30T09:58:54","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=51917"},"modified":"2021-10-19T17:47:14","modified_gmt":"2021-10-19T12:17:14","slug":"difference-between-financial-creditor-and-operational-creditor-under-ibc-2016","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/difference-between-financial-creditor-and-operational-creditor-under-ibc-2016\/","title":{"rendered":"Difference between Financial Creditor and Operational Creditor under IBC, 2016"},"content":{"rendered":"

Currently, the validity of petitions to initiate a corporate insolvency<\/a><\/strong> resolution procedure is mostly dependent on the applicant first convincing the Tribunal that it is either a “Financial Creditor” or an “Operational Creditor” under the Insolvency and Bankruptcy Code, 2016. Under the IBC, 2016, a financial creditor and operational creditor are two critical components of the insolvency process.<\/p>\n\n\n\n

On May 28, 2016, the most anticipated, the IBC, gained the President’s consent. The term “Creditor”<\/strong> is defined under Section 3 (10) of the Code:-<\/p>\n\n\n\n

“Creditor” means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder;”<\/em><\/p>\n\n\n\n

Meaning of Financial Creditor<\/h2>\n\n\n\n

Section 5(7) of the Insolvency and Bankruptcy Code defines a “Financial Creditor”<\/strong> as:-<\/p>\n\n\n\n

“A person who owes a financial debt, including anybody to whom such debt has been legally assigned or transferred.”<\/em><\/p>\n\n\n\n

To determine if a person is a financial creditor, the debt owed to that person must come under the definition of a “Financial Debt” as defined by Section 5(8) of the IBC.<\/p>\n\n\n\n

Section 5(8) of the IBC defines a “Financial Debt”<\/strong> as follows:-<\/p>\n\n\n\n

“A debt, including any interest, that is disbursed in consideration for the time worth of money & includes:-<\/p>\n\n\n\n

  1. Borrowed money that will be repaid with interest;<\/li>
  2. Any sum raised by acceptance under any acceptance credit arrangement or its de-materialized counterpart;<\/li>
  3. Any sum raised as a result of a note purchase facility or the issuance of bonds, notes, debentures, loan stock, or other similar instruments;<\/li>
  4. The sum of any liability arising from a lease or hire purchase agreement that is classified as a finance or capital lease in The Indian Accounting<\/a> Standards<\/a><\/strong> or other such accounting standards as specified;<\/li>
  5. Receivable sold or discounted other than a non-recourse receivable sold;<\/li>
  6. Any sum raised via any other transaction, along with any forward sale\/purchase agreement, that has the commercial impact of borrowing;<\/li>
  7. Any counter-indemnity duty arising from a bank or financial institution’s guarantee, indemnity, bond, documented letter of credit<\/a>, or other instruments;<\/li>
  8. The amount of any liabilities in relation to any of the guarantees or indemnities for any of the items specified to in sub-clause (a) – (h).”<\/li><\/ol>\n\n\n\n

    Meaning of Operational Creditor<\/h2>\n\n\n\n

    Section 5(20) of the IBC defines an “Operational Creditor”<\/strong> as:-<\/p>\n\n\n\n

    “Anyone who owes an operational debt, including anybody to whom such liability has been legitimately assigned or transferred.”<\/em><\/p>\n\n\n\n

    To determine if a person meets the criteria of an operational creditor, the debt owed to that person should meet the definition of an operational debt as established in Section 5(21) of the Insolvency and Bankruptcy Code.<\/p>\n\n\n\n

    Section 5(21) of the IBC defines “Operational Debt”<\/strong> as follows:-<\/p>\n\n\n\n

    “a claim for the supply of goods or services, as well as employment, or a debt for the repayment of dues originating under any legislation now in effect and payable to the Central Govt., any State or any regional government.”<\/em><\/p>\n\n\n\n

    Key differences between financial Creditor and Operational Creditor<\/h2>\n\n\n\n