Lender who advanced interest free loans corporate body is also Financial Creditor; can initiative CRIP : SC

The Supreme Court observed that a lender who advanced interest free loans to finance the business operations of a corporate body is a Financial Creditor and competent to initiate the Corporate Resolution Process under Section 7 of the Insolvency and Bankruptcy Code, 2016.

The bench comprising Justices Indira Banerjee and V. Ramasubramanian observed that There is no discernible reason, why a term loan to meet the financial requirements of a Corporate Debtor for its operation, which obviously has the commercial effect of borrowing, should be excluded from the purview of a financial debt.

The court also held that Financial Debt’ would include interest free loans advanced to finance the business operations of a corporate body,

The question considered by the bench in the appeal against National Company Law Appellate Tribunal was whether a person who gives a term loan to a Corporate Person, free of interest, on account of its working capital requirements is not a Financial Creditor,

And therefore, incompetent to initiate the Corporate Resolution Process under Section 7 of the IBC.

The bench further observed that sub-clauses (a) to (i) of Sub-section 8 of Section 5 of the IBC are illustrative and not exhaustive.

“The definition of ‘financial debt’ in Section 5(8) of the IBC cannot be read in isolation, without considering some other relevant definitions, particularly, the definition of ‘claim’ in Section 3(6), ‘corporate debtor’ in Section 3(8), ‘creditor’ in Section 3(10), ‘debt’ in section 3(11), ‘default’ in Section 3(12), ‘financial creditor’ in Section 5(7) as also the provisions, inter alia, of Sections 6 and 7 of the IBC.”, the court added

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