In Brief
A term loan of Rs. 1.60 crores was advanced interest-free by a sister concern to meet the working capital needs of a corporate debtor. The debtor defaulted, leaving Rs. 1.56 crores outstanding. The assignee sought to initiate insolvency proceedings under Section 7 of the IBC, but the NCLT and NCLAT dismissed the petition, holding the assignee was not a "financial creditor" because the loan carried no interest. The Supreme Court allowed the appeal, holding that a term loan advanced for business operations constitutes "financial debt" even if interest-free, as it has the commercial effect of borrowing. The Court emphasized that the definition of "financial debt" does not expressly exclude interest-free loans and must be read in context with the IBC's broader purpose of rehabilitating corporate debtors.
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