Financial debt under IBC requires borrowing-like disbursal; project sale advances lacked that character and Section 7 failed.

Advances made under a memorandum of understanding for transfer of a complete affordable housing project did not constitute financial debt because they were part of the sale consideration, not a disbursal for the time value of money. The NCLT noted that no interest was provided and that the transaction was not one in which money was raised for temporary use or infused as stakeholder support to keep the corporate debtor running. As the arrangement lacked the commercial effect of borrowing, the applicant was not a financial creditor and the claim did not fall within Section 5(7) or Section 5(8)(f) of the Insolvency and Bankruptcy Code, 2016. The Section 7 insolvency application was rejected.

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Issues: Whether the amounts advanced under the memorandum of understanding constituted a financial debt so as to make the applicant a financial creditor entitled to invoke Section 7 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The definition of financial debt under Section 5(8) requires a disbursal against consideration for the time value of money, and clause (f) covers amounts raised under other transactions having the commercial effect of borrowing. The memorandum of understanding did not provide for interest and was found to be an agreement for transfer of the complete project of affordable group housing, not a transaction by which money was raised for temporary use in the project. The advances were part of the sale consideration for acquisition of the project, and not funds infused as stakeholder support or as money advanced to keep the corporate debtor running. On these facts, the transaction did not have the commercial effect of borrowing.

Conclusion: The applicant was not a financial creditor and the claim did not amount to financial debt under Section 5(7) and Section 5(8)(f) of the Insolvency and Bankruptcy Code, 2016.

Final Conclusion: The insolvency application under Section 7 was rejected because the claimed amount did not satisfy the statutory test of financial debt.

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