Entire Insolvency and Bankruptcy Code, 2016 revolves around the concept of debt. Let us look at what is debt under IBC?
Before getting into the article, here are the recommended readings:
The Insolvency and Bankruptcy Code, 2016 defines debt as any liability or obligation in respect of a claim that is due from any person and is payable in monetary terms. The term "claim" refers to a right to payment, whether or not the right is reduced to judgment, fixed, disputed, or contingent.
Under the IBC, debt includes financial debt, which means a debt that is borrowed or incurred against the payment of interest. This includes, but is not limited to, loans, debentures, bonds, and commercial papers. It also includes any amount raised through the issue of any other instrument, such as convertible preference shares.
Operational debt is another type of debt that is covered under the IBC. It refers to a debt that arises from payment for goods or services. This includes any debt that arises from the provision of services, such as rent, wages, and any other similar obligation.
In addition to financial and operational debts, the IBC also includes certain contingent and disputed liabilities as debt. A contingent liability is a liability that may or may not arise depending on the occurrence or non-occurrence of a specific event. For example, a claim against a debtor may be contingent if it is based on a pending lawsuit or an uncertain tax liability. A disputed liability is a liability that is disputed by the debtor or the creditor, and is subject to a pending legal or arbitration proceeding.
The inclusion of contingent and disputed liabilities as debt under the IBC is important as it ensures that all the liabilities and obligations of the debtor are taken into account while determining the claims of the creditors and the assets of the debtor. This is crucial in ensuring that the insolvency resolution process is fair and transparent for all parties involved.
In conclusion, the IBC defines debt broadly to include any liability or obligation that is due and payable in monetary terms, including financial and operational debts, as well as certain contingent and disputed liabilities.
In coming articles, we will discuss further about operational debt and financial debt in detail.
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