Financial creditor status and default under IBC can arise from payments made on behalf of a corporate debtor.

A shareholder or promoter-director is not automatically excluded from being a financial creditor where payment is made on behalf of the corporate debtor toward a loan carrying time value of money. Documentary material such as the agreement and bank records may be sufficient to show a financial debt, breach by the corporate debtor, liability to repay, and default for a section 7 IBC application. The note also states that a non-signatory status and the existence of an arbitration clause do not by themselves defeat maintainability under section 7, and that the debt may fall within the statutory definition of financial debt.

---

---

Issues: Whether the applicants proved the existence of a financial debt and default so as to maintain an application under section 7 of the Insolvency and Bankruptcy Code, 2016, and whether the applicants could be treated as financial creditors on the facts of the case.

Analysis: The application was founded on money paid by the applicants towards discharge of the corporate debtor's loan liability and on the failure of the corporate debtor to reimburse the amounts. The Tribunal held that a shareholder or promoter-director is not excluded, as a matter of law, from the ambit of financial creditor where the payment is made on behalf of the corporate debtor against a loan carrying the element of time value of money. The documentary material, including the agreement and bank records, was treated as sufficient to show breach by the corporate debtor, liability to repay the sums advanced, and consequent default. The objection that the first applicant was not a signatory to the agreement and that an arbitration clause existed was rejected as immaterial to maintainability under section 7. The Tribunal also accepted the resignation of the second applicant from directorship and found the debt to fall within the statutory definition of financial debt.

Conclusion: The application under section 7 was maintainable, the applicants were held to be financial creditors, and the existence of default was established.

---