Financial debt
A 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.
Explained
Section 5(8) of the Insolvency and Bankruptcy Code, 2016 defines financial debt as a debt along with interest, if any, which is disbursed against the consideration for the time value of money. The core test therefore has two parts: there must be a disbursal, and it must be against the consideration for the time value of money. The definition then lists what it includes: money borrowed against payment of interest; amounts raised under acceptance credit facilities, note purchase facilities, or the issue of bonds, notes, debentures and similar instruments; liabilities under finance or capital leases; receivables sold or discounted other than on a non-recourse basis; amounts raised under any other transaction having the commercial effect of a borrowing; derivative transactions; counter-indemnity obligations for guarantees, indemnities, bonds, letters of credit or other instruments issued by a bank or financial institution; and liabilities under guarantees for any of these items.
The Explanation to clause (f), added in 2018, deems any amount raised from an allottee under a real estate project to have the commercial effect of a borrowing. Home buyers are therefore financial creditors, a position upheld in Pioneer Urban Land and Infrastructure Ltd. v. Union of India (2019).
A financial creditor under Section 5(7) is a person to whom a financial debt is owed, including an assignee. Under Section 7 a financial creditor may apply to initiate the corporate insolvency resolution process when a default has occurred, and the Explanation to Section 7(1) makes clear that the default may be on a financial debt owed to any financial creditor, not only the applicant. Allottees must apply jointly, being at least one hundred allottees of the same project or ten per cent of them, whichever is less. Under Section 21(2) the committee of creditors consists of financial creditors.
The contrast is with operational debt under Section 5(21), a claim for goods or services, including employment, or for statutory dues. Debt under Section 3(11) covers both. Examiners test the time value of money test, the allottee Explanation and the joint filing threshold.
What the law says
(8) “financial debt” means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes—
(a) money borrowed against the payment of interest;
(b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent;
(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
(d) 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;
(e) receivables sold or discounted other than any receivables sold on non-recourse basis;
Section 5(8) defines financial debt; 5(7) and 5(21)
Explanation.—For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor.
(2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed.
(3) The financial creditor shall, along with the application furnish—
Initiation of CIRP by a financial creditor
(3) [Subject to sub-sections (6) and (6A), where] the corporate debtor owes financial debts to two or more financial creditors as part of a consortium or agreement, each such financial creditor shall be part of the committee of creditors and their voting share shall be determined on the basis of the financial debts owed to them.
(4) Where any person is a financial creditor as well as an operational creditor,—
(a) such person shall be a financial creditor to the extent of the financial debt owed by the corporate debtor, and shall be included in the committee of creditors, with voting share proportionate to the extent of financial debts owed to such creditor;
Committee of creditors of financial creditors
(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;
(12) “default” means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not [paid] by the debtor or the corporate debtor, as the case may be;
(13) “financial information”, in relation to a person, means one or more of the following categories of information, namely:—
Section 3(11) debt; 3(12) default
For the exam
- Section 5(8) IBC: disbursal against consideration for the time value of money.
- Allottees of real estate projects are financial creditors (Explanation to Section 5(8)(f)).
- Section 7: default may be on a debt owed to any financial creditor.
- Allottees file jointly: 100 of the project or 10 per cent, whichever is less.
- Committee of creditors comprises financial creditors (Section 21(2)).
7 questions in the Law Maker question bank use this term. Practise Insolvency and Bankruptcy Code questions
Related terms
- 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).
- 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.