Debt
Also called: Legally enforceable debt, Debt or other liability
A liability to pay money that is due from one person to another. Its exact scope depends on the statute: the IBC, the Recovery of Debts Act, the NI Act and the Limitation Act each define or qualify it.
Explained
No single definition of debt governs all Indian law. Section 3(11) of the Insolvency and Bankruptcy Code, 2016 defines debt as a liability or obligation in respect of a claim which is due from any person, and includes a financial debt and an operational debt. Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993 confines debt to a liability claimed as due by a bank or financial institution, secured or unsecured, and legally recoverable on the date of the application; the SARFAESI Act adopts that meaning in Section 2(ha). Article 366(8) of the Constitution gives a separate, inclusive meaning for constitutional purposes.
Under the IBC the debt must be due, that is, payable and not deferred or barred by law. A financial debt under Section 5(8) is one disbursed against the consideration for the time value of money, while an operational debt under Section 5(21) arises from goods, services, employment or statutory dues. Default under Section 3(12) is non-payment of a debt that has become due. In Innoventive Industries (2017) the Court held that on a financial creditor's application it is enough that a default has occurred, even if the debt is disputed, so long as it is due, whereas in Mobilox (2017) a plausible pre-existing dispute defeated an operational creditor's application.
Under Section 138 of the Negotiable Instruments Act, dishonour of a cheque is an offence only if it was issued for the discharge of a debt or other liability, which the Explanation limits to a legally enforceable debt. Section 139 presumes such a debt, and Rangappa (2010) held the presumption rebuttable on a preponderance of probabilities.
Examiners also test limitation. A time-barred debt is not extinguished; only the remedy by suit is barred, as held in Punjab National Bank v. Surendra Prasad Sinha (1992), and a written acknowledgment under Section 18 or a part payment under Section 19 of the Limitation Act starts a fresh period only if made before the prescribed period expires. For Section 19, debt does not include money payable under a decree or order of a court.
What the law says
(11) “debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;
Clause (11) defines debt; clause (12) defines default
[[(2B)] “base resolution plan” means a resolution plan provided by the corporate debtor under clause (c) of sub-section (4) of section 54A;]
(3) “Chapter” means a Chapter under this Part;
(4) “constitutional document”, in relation to a corporate person, includes articles of association, memorandum of association of a company and incorporation document of a Limited Liability Partnership;
Clauses (8) and (21) define financial debt and operational debt
[(g) “debt” means any liability (inclusive of interest) which is claimed as due from any person [or a pooled investment vehicle as defined in clause (da) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)] by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application [and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or;]]
Clause (g) defines debt claimed by banks and financial institutions
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice. Explanation.—For the purposes of this section, “debt of other liability” means a legally enforceable debt or other liability.
Explanation limits debt or other liability to a legally enforceable one
It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section138 for the discharge, in whole or in part, of any debt or other liability.
Presumption that a cheque was received for discharge of a debt
(b) “debt” does not include money payable under a decree or order of a court.
Part payment gives a fresh period; debt excludes decretal amounts
Example
For example, if B gives A a cheque purely as a gift and it is dishonoured, no offence under Section 138 arises, because the cheque was not drawn for the discharge of a legally enforceable debt or other liability.
For the exam
- IBC Section 3(11): debt is a liability in respect of a claim that is due; includes financial and operational debt.
- Section 138 NI Act needs a legally enforceable debt or other liability; Section 139 presumes it.
- Limitation bars the remedy, not the debt; Section 27 extinguishes only rights to property.
- Part payment made before limitation expires, acknowledged in writing, gives a fresh period (Section 19).
- For Section 19, debt excludes money payable under a decree or order of a court.
811 questions in the Law Maker question bank use this term. Practise Banking & Financial Laws questions
Judgments
- Rangappa v. Sri Mohan (2010)The presumption under Section 139 of the Negotiable Instruments Act includes the existence of a legally enforceable debt or liability; it is rebuttable, and the accused need only raise a probable defence on a preponderance of probabilities.
- Innoventive Industries Ltd. v. ICICI Bank (2017)Upholding admission of ICICI Bank's Section 7 application, the Court held that the Maharashtra Relief Undertakings Act is repugnant to the Insolvency and Bankruptcy Code, 2016 and that a suspension of liabilities under it cannot stall insolvency resolution.
- Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (2017)An operational creditor's insolvency application under Section 9 IBC must be rejected if the corporate debtor shows a pre-existing dispute that is plausible and not spurious, hypothetical or illusory; the Adjudicating Authority does not decide its merits.
- Punjab National Bank v. Surendra Prasad Sinha (1992)Section 3 of the Limitation Act bars only the remedy, not the debt; a bank holding a guarantor's fixed deposit as security could appropriate it towards a time-barred loan, and the guarantor's criminal complaint was quashed.
Related terms
- Financial debtA debt, with interest if any, disbursed against the consideration for the time value of money, including the items listed in Section 5(8) of the Insolvency and Bankruptcy Code, 2016.
- Corporate debtorUnder Section 3(8) of the Insolvency and Bankruptcy Code, 2016, a corporate person who owes a debt to any person.
- Financial creditorUnder Section 5(7) of the IBC, any person to whom a financial debt is owed, including a person to whom such debt has been legally assigned or transferred.
- Operational creditorA person to whom an operational debt is owed, including an assignee or transferee of that debt (Section 5(20) of the Insolvency and Bankruptcy Code, 2016).
- ChequeA bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand, including the electronic image of a truncated cheque and a cheque in electronic form. Section 6 of the NI Act.
- Period of limitationUnder Section 2(j) of the Limitation Act, the period prescribed for a suit, appeal or application by the Schedule. In criminal law, the period in Section 514 BNSS for taking cognizance.
Further reading
Checked 12 November 2026. Statutory text is quoted from the Bare Acts library, taken from India Code. See the full glossary.