Who are financial creditors under Indian law?

Section 5(7) of Insolvency and Bankruptcy Code defines financial creditors as any person to whom financial debt is owed. A creditor is any person to whom a debt is owed. A debt is a liability or obligation in respect of a claim, due from any person. An essential part of the term claim is a right to payment, or a right to remedy for breach of contract, which gives rise to a right to payment. To be considered a creditor of the corporate debtor, therefore, a right to payment is essential.

A secured creditor is generally a bank or other asset-based lender that holds a fixed or floating charge over a business asset or assets. When a business becomes insolvent, sale of the specific asset over which security is held provides repayment for this category of creditor. Unsecured creditors can include suppliers, customers, HMRC and contractors. They rank after secured and preferential creditors in an insolvency situation.


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