Unadjusted Trade Advance Payable With Interest Rate Qualifies As Financial Debt U/S 5(8) Of IBC: NCLAT

The NCLAT has ruled that unadjusted trade advance payable with an interest rate qualifies as "financial debt" under Section 5(8) of the IBC. This significant decision broadens the scope of what constitutes financial debt in insolvency proceedings. Trade advances are typically operational in nature. However, if such an advance carries an interest component and remains unadjusted, the NCLAT views it as a financial debt, giving the creditor the right to initiate insolvency proceedings under the IBC. This provides clarity and expands the avenues for creditors to recover their dues.