A financial creditor is defined under Section 5(7) of the IBC to mean “a person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred”. In order to ascertain whether a person is a financial creditor, the debt owed to such a person must fall within the ambit a ‘Financial Debt’ as under Section 5(8) of the IBC.
A financial debt is defined under Section 5(8) of the IBC to mean: “a debt alongwith interest, if any, which is disbursed against the consideration for time value of money and includes –
- Money borrowed against payment of interest;
- Any amount raised by acceptance under any acceptance credit facility or its de-materialized equivalent;
- Any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
- The amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;
- Receivable sold or discounted other than any receivable sold on non-recourse basis;
- Any amount raised under any other transaction, including, any forward sale or purchase agreement, having the commercial effect of borrowing;
- Any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution;
- The amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause”
Homebuyers are also considered to be the financial creditors provided only if 10% or 100 homebuyers (whichever is less) or moe debenture holders agree to move the application for insolvency. Furthermore, it has also been held that dissenting financial creditors cannot be allowed to scramble CIRP. Also, the commercial freedom of individual financial creditors is non-justiciable, while the dissenting financial creditors should not be discriminated. The dispute with financial creditor is not relevant for deciding admission of insolvency resolutions proces. A notice is required to be given to corporate debtor for initiation of CIRP.
An operational creditor is defined under Section 5(20) of the IBC to mean “any person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred”.
In order to ascertain whether a person would fall within the definition of an operational creditor, the debt owed to such a person must fall within the definition of an operational debt as defined under Section 5(21) of the IBC.
An operational debt is defined under section 5(21) of the IBC to mean: “a claim in respect of the provisions of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority”.
Furthermore, statutory dues (income tax, sales tax, VAT,) are also treated as operational debt. Passing an arbitral award and steps taken to challenge the arbitral award constitutes a valid dispute with regard to operational debt as well as pending appeal under Arbitration and Conciliation Act.
The demand notice of unpaid operational debt can be issued by a lawyer on behalf of operational creditor.
Distinction between Financial and Operational Creditor
Distinction between a financial creditor and operational creditor has been drawn by the Bankruptcy Law Reforms Committee in para 5.2.1 of its final report. It states: “Here, the Code differentiates between financial creditors and operational creditors. Financial creditors are those whose relationship with the entity is a pure financial contract, such as a loan or debt security. Operational creditors are those whose liabilities from the entity comes from a transaction on operations…The Code also provides for cases where a creditor has both a solely financial transaction as well as an operational transaction with the entity. In such a case, the creditor can be considered a financial creditor to the extent of the financial debt and an operational creditor to the extent of the operational debt.”
The Hon’ble Tribunal while deciding the question of whether a flat purchaser could be considered an operation creditor considered the observations of the Bankruptcy Law Reforms Committee in paragraph no. 5.2.1 of the Final Report:
“Operational Creditors are those whose liability from the entity comes from a transaction on operations. Thus, the wholesale vendor of spare parts whose spark plugs are kept in inventory by car mechanics and who gets paid only after the spark plugs are sold is an operational creditor. Similarly, the lessor that the entity rents out space from is an operational creditor to whom the entity owes monthly rent on a three-year lease.”
From the caselaw discussed above, it is evident that the Tribunals are stringent in construing definition of ‘Operational Creditor’ under the IBC and are refraining from entertaining applications wherein the applicants are not strictly falling within the scope of the IBC and have alternate effective remedies available. The Hon’ble Tribunal has also in subsequent cases before it passed similar orders.
Table of Differences between Financial Creditor and Operational Creditor
|Particulars||Financial Creditor||Operational Creditor|
|1. Meaning||Section 5(7) – Financial creditor means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to.||Section 5(20) – Operational creditor means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.|
|2. Meaning of the term ‘Debt’||Section 5(8) – financial debt means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes items referred to in sub-clauses (a) to (i).||Section 5(21) – operational debt means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority.|
|3. Voting Share||Section 5(28) – Voting right of a financial creditor is based on the proportion of the financial debt owed to such financial creditor. The approval of committee of creditor shall be obtained by a vote of not less than seventy five percent of the voting shares.||Operational creditor shall not have any right to vote at the meeting of committee of creditors (CoC)|
|4. Initiation of CIRP||Section 7(1) – On occurrence of a default, a financial creditor shall eitherby itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority.||Section 8(1) – On occurrence of a default the operational creditor may, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor. The operation creditor may file an application after the expiry of 10 days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8|
|5. Appointment of IRP||Section 7(3) – The financial creditor shall along with the application furnish the name of the resolution professional proposed to act as an interim resolution professional||Section 9(4) – An operational creditor may propose a resolution professional to act as an interim resolution professional.|
|6. Constitution of CoC||Section 21(2) – The committee of creditors shall consist solely of financial creditors, and all financial creditors of the corporate debtor.||Operational creditors shall not form part of committee.|
|7. Submission of Financial Information||Section 215(2) – A financial creditor shall submit financial information and information relating to assets in relation to which any security interest has been created.||Section 215(3) – An operational creditor may submit financial information to the information utility.|
 Pioneer Urban Land Infrastructure & Ors. v. Union of India & Ors. 2019 SCC Online SC 1005; Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018.
 Insolvency and Bankruptcy (Amendment) Act, 2019.
 Edelweiss Asset Reconstruction Company Ltd. v. Sai Regency Power Corp. (P) Ltd., 2019 SCC Online NCLAT 921.
 K Shashidhar v. Indian Overseas Bank, 2019 SCC Online SC 257.
 Hero Fincorp Ltd. v. Rave Scans Pvt. Ltd. & Ors., Company Appeal (AT) (Insolvency) No. 745/2018.
 Vinayaka Exports and Anr. v. M/s Colohome Developers Pvt. Ltd, Company Appeal (AT) (Insolvency) No. 06/2019.
 Innoventive Industries Ltd. v. ICICI Bank & Anr. Civil Appeal No. 8337-8338/2019.
 Pr. Director General of Income Tax (Admn. & TPS) vs M/s. Synergies Dooray Automotive Ltd. & Ors., Company Appeal (AT) (Insolvency) No. 205/2017.
 Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., Civil Appeal No. 9405/2017.
 Macquarie Bank Limited v. Shilpi Cable Technologies Ltd., Civil Appeal No. 15135/2017.
 Co. Vinod Awasthy v. AMR Infrastructure Ltd., C.P. No. (IB)-10 (PB)/2017.
 Mukesh Kumar v. AMR Infrastructure Ltd., C.P. No. (IB)-30 (PB)/2017; Pawan Dubey v. JBK Developers Private Limited, C.P. No. (IB)-19 (PB)/2017.