Introduction
In a recent judgment, the NCLT Mumbai Bench has provided important clarifications regarding the applicability of the threshold limit for initiating corporate insolvency resolution processes under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016. The bench addressed the critical issue of whether the minimum default amount for triggering insolvency should be considered based on the date of the demand notice or the date of filing the application.
Background of the Case
The case involved Ralco Extrusion Private Limited, an operational creditor, who filed an application against Centech Engineers Private Limited, the corporate debtor, claiming a default in payment and seeking to initiate insolvency proceedings. The operational creditor argued that the default amount and the issuance of a demand notice under Section 8 of the IBC met the criteria for initiating proceedings.
Legal Analysis
Determining the Relevant Date for Threshold Limit Under IBC Application
The NCLT Mumbai Bench, comprising Hon’ble Shri K. R. Saji Kumar (Judicial Member) and Shri Sanjiv Dutt (Technical Member), emphasized that for determining the applicability of the threshold limit under Section 9 of the IBC, the relevant date is the date of filing the insolvency application, not the date of issuing the demand notice.
Important Paragraph from the Judgment:
“What is relevant for determining the minimum threshold is not the date of giving notice under Section 8 but the date when the application is filed.”
Application of Threshold Limit Under IBC Post Amendment
The bench referred to the amendment to the IBC effective from March 24, 2020, which raised the minimum default amount from Rs. 1 lakh to Rs. 1 crore. It was highlighted that any application filed after this date must reflect a default of at least Rs. 1 crore to be considered for admission under Section 9.
Key Excerpt from the Judgment:
“It is now settled that the threshold limit of Rs.1 crore will be applicable for applications filed under Sections 7, 9, and 10 on or after 24.03.2020, even if the debt in default is on a date earlier than 24.03.2020.”
Implications of the Judgment
This ruling has significant implications for operational creditors and corporate debtors. It clarifies that operational creditors need to ensure that the default amount meets the current threshold at the time of filing the application, regardless of when the debt became due or when the demand notice was issued.
Key Considerations for Operational Creditors
– Operational creditors must assess the default amount against the threshold effective on the application filing date.
– The issuance of a demand notice prior to the amendment does not grandfather older threshold limits for applications filed post-amendment.
Conclusion: Implications of the Judgment on Threshold Limit Under IBC Application
The NCLT Mumbai Bench’s decision brings clarity to the application of threshold limits under the IBC for initiating insolvency proceedings. This ensures that creditors are aware of the requirements and that insolvency processes are initiated only when substantial default amounts are involved, aligning with the legislative intent to prevent misuse of the insolvency framework.
This judgment serves as a guiding principle for similar cases, reinforcing the importance of adhering to statutory thresholds and procedural correctness in insolvency proceedings.
