Article

Difference between financial

creditor and operational creditor
Niddhi Parmar
parmar@vinodkothari.com

Vinod Kothari & Company

Corporate Law Services Group

corplaw@vinodkothari.com

May 31, 2016

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 Difference between financial creditor and operational creditor

Article
The most awaited Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “Code,
2016”) received president’s assent on May 28, 2016. Section 3(10) of the Code, 2016
defines the term creditor as follows –

"creditor" means any person to whom a debt is owed and includes a financial creditor,
an operational creditor, a secured creditor, an unsecured creditor and a decreeholder;

The Code, 2016 differentiates between financial creditors and operational creditors.
Financial creditors are those whose relationship with the entity is a pure financial contract,
such as a loan or a debt security. Operational creditors are those whose liability from the
entity comes from a transaction on operations.

We have analyzed the difference between both the terms i.e. financial creditor and
operational creditor below:

Particulars Financial Creditor Operational Creditor

Meaning Section 5 (7) - Financial creditor
means any person to whom a
financial debt is owed and
includes a person to whom such
debt has been legally assigned
or transferred to.
Section 5 (20) – Operational
creditor means a person to
whom an operational debt is
owed and includes any person to
whom such debt has been legally
assigned or transferred.

Meaning of the term Section 5 (8) - financial debt Section 5 (21) - operational debt
‘debt’ means a debt alongwith means a claim in respect of the
interest, if any, which is provision of goods or services
disbursed against the including employment or a debt
consideration for the time value in respect of the repayment of
of money and includes items dues arising under any law for
referred to in sub-clauses (a) to the time being in force and
(i). payable to the Central
Government, any State
Government or any local
authority.

Voting Share Section 5 (28) - Voting right of a Operational creditor shall not
financial creditor is based on have any right to vote at the
the proportion of the financial meeting of committee of
 Difference between financial creditor and operational creditor

Article
Particulars Financial Creditor Operational Creditor
debt owed to such financial creditor.
creditor. The approval of
committee of creditor shall be
obtained by a vote of not less
than seventy five percent of the
voting shares.

Initiation of Section 7 (1) – On occurrence of Section 8 (1) – On occurrence of

corporate a default, a financial creditor
insolvency shall either by itself or jointly
resolution process with other financial creditors
may file an application for
initiating corporate insolvency
resolution process against a
corporate debtor before the
Adjudicating Authority.
a default the operational
creditor may, deliver a demand
notice of unpaid operational
debtor copy of an invoice
demanding payment of the
amount involved in the default
to the corporate debtor. The
operation creditor may file an
application after the expiry of 10
days from the date of delivery of
the notice or invoice demanding
payment under sub-section (1)
of section 8, if the operational
creditor does not receive
payment from the corporate
debtor or notice of the dispute
under sub-section (2) of section
8.

Appointment of Section 7 (3) - The financial Section 9 (4) - An operational

Interim Resolution creditor shall along with the creditor may propose a
Professional application furnish the name of resolution professional to act as
the resolution professional an interim resolution
proposed to act as an interim professional.
resolution professional.

Constitution of Section 21 (2) - The committee Operational creditors shall not

committee of of creditors shall consist solely form part of committee.
creditor of financial creditors, and all
financial creditors of the
corporate debtor.
 Difference between financial creditor and operational creditor

Article
Particulars Financial Creditor Operational Creditor
Submission of Section 215 (2) - A financial Section 215 (3) - An operational
financial creditor shall submit financial creditor may submit financial
information information and information information to the information
relating to assets in relation to utility.
which any security interest has
been created.

Read articles on:

1. Our various write-ups on Bankruptcy Code can be viewed at: http://www.india-
financing.com/component/content/article/325.html

2. Read other articles on Companies Act, 2013 at: http://www.india-

financing.com/component/content/article/281.html