Apartment Buyers as Financial Creditors: Pushing the Conceptual Limits of the Indian Insolvency Regime

Mohan, M P Ram; Raj, Vishakha

A unique feature of the Indian insolvency regime is itsclassification of debt into “operational” and “financial” debt. InSwiss Ribbons v. Union of India, the Supreme Court of Indiatenaciously upheld the difference between operational andfinancial creditors and declared this classification constitutionallyvalid. Last year, the Insolvency and Bankruptcy Code, 2016 (IBC)was amended to include amounts raised from allottees (persons towhom an apartment or plot in a real estate project has beenallotted) within the definition of “financial debt,” thus makingallottees financial creditors. Though the amendment was passed toempower allottees in India’s real estate sector, it revived a moregeneral discussion on the characteristics of operational andfinancial creditors.This paper posits that the amendment was enacted at thecost of stretching the definition of “financial creditor” beyond itsconceptual limit and interfering with the IBC’s insolvencyresolution mechanism. We use the United States’ and the UnitedKingdom’s insolvency regimes as a point of reference forascertaining the role of creditors in insolvency proceedings andwhether operationalizing the insolvency regime to solve problemsin a particular sector is justified.

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Columbia Journal of Asian Law

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Published Here
August 17, 2022