The Insolvency and Bankruptcy Code, 2016 (IBC), has classified ‘Debt’ into ‘Financial Debt’ and ‘Operational Debt’ for the purposes of determining creditor’s rights under IBC.
The classification is primarily based on the true nature of transaction under the finance agreement through which the credit has been advanced and the nature of debt arising therefrom.
Such classification is further clarified by the Supreme Court in Global Credit Capital Limited vs. Sach Marketing Pvt. Ltd., 2024 SCC OnLine SC 649, where it was broadly discussed whether a Security Deposit specified in a Service Agreement shall classify as ‘Financial Debt’ or ‘Operational Debt’.
