Minimum Default Amount to Trigger IBC Proceedings

The statutory scheme

Section 4 of the Code provides that Part II — the part dealing with insolvency resolution and liquidation of corporate persons — applies where the minimum amount of the default is one lakh rupees. The proviso empowers the Central Government to specify, by notification, a higher minimum amount of default, which shall not be more than one crore rupees.

The Central Government exercised that power by notification S.O. 1205(E) dated 24 March 2020, issued by the Ministry of Corporate Affairs, specifying one crore rupees as the minimum amount of default for the purposes of Section 4 of the IBC.

Two consequences follow. The operative threshold is one crore rupees, not the one lakh figure that appears on the face of Section 4. And one crore is the statutory ceiling: the proviso itself caps what the Government may specify, so no notification can raise the threshold further without an amendment to the Code.

Why Was the IBC Default Threshold Increased to ₹1 Crore?

The notification was issued on the day nationwide restrictions were announced in response to the COVID-19 pandemic. Its stated purpose was to protect companies, particularly micro, small and medium enterprises, from insolvency applications arising out of the economic disruption that followed.

The effect has proved durable rather than temporary: the notification carried no expiry date and continues to govern.

The policy trade-off it created is worth naming, because it cuts both ways. Raising the threshold shields smaller companies from being dragged into insolvency over modest sums. It equally removes the Code as a remedy for small creditors — often themselves MSMEs — owed amounts below one crore by larger counterparties.

The threshold is not retrospective

When the notification was issued, a question arose immediately: did it apply to applications already filed and pending admission? Tribunals took the view that the notification operates prospectively, so that applications filed before 24 March 2020 were not defeated by it. Litigation on the point continued for some time in different forums.

For any application contemplated now the question is academic, since the threshold applies to every fresh filing. It remains relevant only where an old application is still being defended on that basis.

How Is the Minimum Default Amount Calculated Under the IBC?

This is where applications are most often lost.

Default, not total debt. Section 3(12) defines default as non-payment of a debt when it has become due and payable. It is the amount in default that must reach one crore rupees, not the total facility, the contract value, or the sum of all dealings between the parties.

Measured at the time of filing. A part-payment that brings the outstanding default below one crore before the application is filed will defeat it. Corporate debtors facing a threatened application not infrequently make precisely such a payment.

Aggregation of a single creditor’s dues. A creditor may generally aggregate the amounts due to it — several unpaid invoices, several tranches of a facility — provided each is genuinely due and payable and none is time-barred. What a creditor may not do is add another creditor’s dues to reach the figure, since the threshold applies to the default in respect of which the applicant applies.

Interest. Whether contractual interest may be counted towards the threshold depends on whether interest is payable under the agreement or applicable law, as distinct from being claimed unilaterally in a demand notice. Interest asserted for the first time in order to cross one crore invites scrutiny.

Disputed components. Amounts genuinely in dispute are unlikely to assist an operational creditor in reaching the threshold, since the dispute itself is a separate ground of rejection.

Related limits that operate alongside the threshold

Meeting the threshold is necessary but not sufficient. Three other bars apply.

Limitation. Section 238A applies the Limitation Act, 1963 to proceedings under the Code. A debt on which limitation has expired cannot found an application, whatever its size.

The Section 10A bar. Section 10A prohibits the filing of an application under Sections 7, 9 or 10 in respect of a default arising during the period it specifies, beginning 25 March 2020, and provides that no application shall ever be filed in respect of such a default. This is a permanent exclusion for defaults falling within that window, not a temporary suspension, and it operates independently of the amount involved.

Pre-existing dispute. For an operational creditor, a plausible dispute pre-dating the demand notice defeats the application regardless of quantum, following Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353.

Practical implications

For a creditor owed less than one crore rupees, the Code is closed. The realistic alternatives are a summary suit, a commercial court proceeding where the dispute falls within the Commercial Courts Act, 2015, arbitration where the contract provides for it, or the statutory mechanism available to a micro or small enterprise in respect of delayed payments.

For a creditor at or above the threshold, the calculation should be documented in the application itself: which invoices or tranches, which due dates, what has been paid, and what remains. An application that presents a single consolidated figure without that breakdown invites a challenge on quantum, and a challenge on quantum in an insolvency application is a challenge to jurisdiction.

For a company facing a threatened application, the threshold is a defence worth examining early — both as to the arithmetic and as to whether components of the claimed sum are time-barred, disputed, or attributable to a default falling within the Section 10A window.

Frequently Asked Questions

What is the minimum default amount under the IBC?

The current minimum default amount for initiating insolvency proceedings against a corporate debtor is ₹1 crore, as notified under Section 4 of the IBC.

Can multiple unpaid invoices be combined to reach ₹1 crore?

Yes. A creditor may generally aggregate its own due and payable amounts, provided they are legally recoverable and not time-barred or genuinely disputed.

Is the total debt considered for the ₹1 crore threshold?

No. The relevant figure is the amount in default, not the debtor’s total outstanding debt or the total value of the underlying contract.

Can interest be included in the default amount?

Interest may be included where it is legally payable under the contract or applicable law. A creditor cannot simply add an unsupported interest amount to cross the ₹1 crore threshold.

What happens if the default is below ₹1 crore?

A fresh application under Section 7, Section 9 or Section 10 cannot be initiated on that default because it does not meet the prescribed minimum threshold.

Does meeting the ₹1 crore threshold guarantee admission?

No. The threshold is only one requirement. Limitation, Section 10A and, for operational creditors, a pre-existing dispute can independently prevent an application from being admitted.

Legal Information Disclaimer

This article is published for general legal information and educational purposes only. It reflects the position of Indian law as researched up to 10 August 2026 and may not account for subsequent amendments, notifications, rule changes or judicial developments. It is not legal advice, does not take into account any individual’s particular facts or circumstances, and no advocate-client relationship arises from reading it. Outcomes in litigation depend on the specific facts of each case and on procedural requirements in force at the relevant time. Readers dealing with an actual dispute should obtain independent professional advice from a qualified advocate of their own choosing before acting on any information contained here.

Sources / Authorities

• Insolvency and Bankruptcy Code, 2016 — Sections 3(12), 4, 7, 9, 10, 10A and 238A — India Code, https://www.indiacode.nic.in
• Notification S.O. 1205(E) dated 24 March 2020, Ministry of Corporate Affairs, F. No. 30/9/2020-Insolvency — one crore rupees specified as the minimum amount of default under the proviso to Section 4
• Limitation Act, 1963
• Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353
• Commercial Courts Act, 2015 — India Code, https://www.indiacode.nic.in