IBC mostly has 'principle-based' definition of financial, operational creditors: Sahoo

Emphasising that the Insolvency and Bankruptcy Code applies to all kinds of businesses except financial service providers, IBBI Chairperson M S Sahoo has said the law has adopted mostly a principle-based definition of financial and operational creditors.

In a significant move that would provide relief to people facing hardships on account of delayed residential projects, the government has promulgated an ordinance to amend the Code wherein home buyers are now recognised as financial creditors under the insolvency law.

"The Code is a general law. It applies to all kinds of businesses, except financial service providers. It does not envisage a differential treatment to a stakeholder only because it has protection under another law," Sahoo told PTI.

He was responding to a query on home buyers being treated as financial creditors when there is already RERA (Real Estate Regulatory Authority) Act to protect the interest of such people.

Insolvency and Bankruptcy Board of India (IBBI) is implementing the Code.

Noting that the Code has adopted mostly a principle-based definition of 'financial creditor' and 'operational creditor', Sahoo said it requires application of mind to determine if a claimant is a financial creditor, an operational creditor or any other.

"In a particular matter, the NCLAT (National Company Law Appellate Tribunal) applied its mind to hold a home buyer to be a financial creditor, given the facts and circumstances of that matter. It is better to clarify the position upfront so that a stakeholder knows his rights.

"It is, however, important that the interests of all stakeholders are considered in a resolution process," he added.

Financial creditors include banks, while operational creditors are those whose liabilities are linked to operations of a particular entity.

With the ordinance, home buyers can now file for insolvency proceedings against real estate entities.