Recently, on July 26, 2021, a Division Bench of the Supreme
Court pronounced a judgement1 upholding that interest free
loans would fall under the definition of 'financial debt'
as defined under section 5(8) of the Insolvency and Bankruptcy
Code, 2016 (IBC).
Facts leading to Supreme Court's decision
M/s Sameer Sales Private Limited (Original Lender), advanced a
term loan of INR 1.60 crores to its sister concern, M/s Samtex
Desinz Pvt. Ltd. (Corporate Debtor) for a period of two years for
working capital requirement. The Original Lender assigned the
outstanding loan to M/S Orator Marketing Pvt. Ltd. (Appellant).
The Appellant filed an application under section 7 of IBC for
initiation of corporate insolvency resolution process (CIRP)
against the Corporate Debtor. The adjudicating authority (AA)
rejected the section 7 application vide its order dated February 1,
2020. While rejecting the application, the AA held that neither the
loan agreement has any provision
