Operational Creditors v. Financial Creditors: Evolution of Differences

[Shubham Sancheti is a 4th year B.A., LL.B. (Hons.) student at NALSAR University of Law, Hyderabad] The Insolvency and Bankruptcy Code, 2016 [“Code”] has had its maiden anniversary but problems regarding its interpretation have continued since its inception. The segregation of the “operational creditor” from the “financial creditor” is one of the areas which still needs jurisprudential and statutory clarity. The fact that the Gujarat High Court recently admitted a petition challenging the constitutional validity of Code, as well as the ordinance amending it, on the grounds of being violative of articles 14 and 19 of the Constitution reinforces the need for a proper interpretation of the Code. The Code distinguishes between two classes of the creditors, fundamentally over the fact that a financial creditor provides the debt for a relatively longer period of time. Nevertheless, the definition of “debt” under the Code is not…

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