Financial debt requires borrowing on time-value-of-money terms; an interest-free unsecured loan does not create financial creditor status.

A loan transaction will not constitute financial debt under the Insolvency and Bankruptcy Code, 2016 unless the borrowing is accepted on terms involving consideration for the time value of money and a corresponding repayment obligation on those terms. Here, although the appellants' resolution contemplated a loan carrying interest and fixed repayment, the corporate debtor accepted the advance only as an interest-free unsecured loan. The essential ingredients of financial debt were therefore not established, and the appellants were not financial creditors.

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Issues: Whether the appellants could be treated as financial creditors on the basis of the loan transaction and whether the amount advanced constituted financial debt under the Insolvency and Bankruptcy Code, 2016.

Analysis: The appellants' own resolution contemplated a loan carrying 24% annual interest and repayment by a fixed date, but the corporate debtor's board accepted the amount only as an interest-free unsecured loan. On that basis, the corporate debtor had neither accepted any borrowing on interest nor undertaken to repay the amount with interest within a stipulated period. The essential ingredients of financial debt and the corresponding status of financial creditor were therefore not established.

Conclusion: The appellants were not financial creditors, and the amount in question did not amount to financial debt.

Ratio Decidendi: A loan transaction will not constitute financial debt unless there is acceptance of borrowing on terms involving consideration for time value of money and a corresponding obligation to repay on such terms.

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