Financial creditor
Also called: FC
Under 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.
Explained
Section 5(7) of the Insolvency and Bankruptcy Code, 2016 defines a financial creditor as any person to whom a financial debt is owed, and includes a person to whom such debt has been legally assigned or transferred. The definition therefore turns on the nature of the debt. A financial debt under Section 5(8) is a debt, with interest if any, disbursed against the consideration for the time value of money, and the clause lists examples such as money borrowed against interest, bonds and debentures, lease liabilities and guarantees.
Clause (f) of Section 5(8) covers any amount raised under a transaction having the commercial effect of a borrowing, and its Explanation deems an amount raised from an allottee under a real estate project to be such an amount. Home buyers are therefore financial creditors. The contrast is with an operational creditor under Section 5(20), to whom an operational debt is owed, meaning a claim for goods or services, including employment, or for statutory dues (Section 5(21)).
A financial creditor may apply to the Adjudicating Authority under Section 7 to start the corporate insolvency resolution process when a default has occurred, alone or jointly with others. It need not first serve a demand notice, which an operational creditor must do under Sections 8 and 9. For allottees under a real estate project, the application must be filed jointly by not less than one hundred allottees of the same project or ten per cent of them, whichever is less.
The committee of creditors under Section 21(2) comprises all financial creditors of the corporate debtor, and they decide on the resolution plan. A financial creditor that is a related party of the corporate debtor has no right of representation, participation or voting in the committee, subject to the proviso for regulated financial creditors that became related parties only by converting or substituting debt into equity.
What the law says
(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;
Clauses (7), (8), (20) and (21): financial and operational creditor and debt
(1) A financial creditor either by itself or jointly with [other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government,] may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.
[Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6A) of section 21, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such creditors in the same class or not less than ten per cent. of the total number of such creditors in the same class, whichever is less:
Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten per cent. of the total number of such allottees under the same real estate project, whichever is less:
Initiation of insolvency resolution by a financial creditor
(1) After the expiry of the period of ten 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, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.
(2) The application under sub-section (1) shall be filed in such form and manner and accompanied with such fee as may be prescribed.
(3) The operational creditor shall, along with the application furnish—
Operational creditor route, after demand notice, for contrast
(2) The committee of creditors shall comprise all financial creditors of the corporate debtor:
Provided that a [financial creditor or the authorised representative of the financial creditor referred to in sub-section (6) or sub-section (6A) or sub-section (5) of section 24, if it is a related party of the corporate debtor,] shall not have any right of representation, participation or voting in a meeting of the committee of creditors.
[Provided further that the first proviso shall not apply to a financial creditor, regulated by a financial sector regulator, if it is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares [or completion of such transactions as may be prescribed,] prior to the insolvency commencement date.]
Committee of creditors comprises financial creditors
For the exam
- Section 5(7) IBC: person owed a financial debt, including an assignee.
- Financial debt is disbursed against consideration for the time value of money (Section 5(8)).
- Home buyers are financial creditors by the Explanation to Section 5(8)(f).
- FC applies under Section 7 on default without any demand notice.
- Committee of creditors consists of financial creditors; related party FCs cannot vote (Section 21(2)).
20 questions in the Law Maker question bank use this term. Practise Insolvency and Bankruptcy Code questions
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.
- 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).
- Corporate debtorUnder Section 3(8) of the Insolvency and Bankruptcy Code, 2016, a corporate person who owes a debt to any person.
- Resolution planA plan proposed by a resolution applicant for insolvency resolution of the corporate debtor as a going concern in accordance with Part II of the Insolvency and Bankruptcy Code, 2016 (Section 5(26)).
- Resolution professionalAn insolvency professional appointed to conduct the corporate insolvency resolution process, including an interim resolution professional. Section 5(27) of the IBC, 2016; Section 79(21) gives the meaning for individuals.
Further reading
Checked 6 November 2026. Statutory text is quoted from the Bare Acts library, taken from India Code. See the full glossary.