2022 (10) TMI 325 - HC - Insolvency and Bankruptcy

Initiation of CIRP - threshold limit for triggering CIRP - joint application - validity of Section 7 of the Insolvency and Bankruptcy Code, 2016 - requirement of default threshold of Rs.1 crore in individual capacity - HELD THAT - On a plain reading of Section 7, it becomes clear that there is no ambiguity in the provision which requires any interpretation other than what is conveyed in its literary sense. The section clearly stipulates that the application for triggering CIRP may be initiated by a financial creditor either individually or jointly with other financial creditors. Previously the threshold default limit for filing the CIRP application was only Rs.1 lakh and it has been drastically increased to Rs.1 crore vide Gazette Notification dated 24.03.2020. It can easily be envisaged that in cases of MSMEs, there may not exist financial creditors whose individual debt is Rs.1 crore or above. If the threshold limit was to be fixed at Rs.1 crore qua each individual financial creditor, then there was no reason whatsoever for allowing joint applications by financial creditors. The statute i.e., Section 7 of the IBC as amended vide Gazette Notification dated 05.06.2020, admits no other interpretation except that a group of financial creditors can converge and join hands to touch the financial limit of Rs.1 crore stipulated under Section 7 so as to initiate a CIRP under the IBC. Petition dismissed.

Summary

Issues:
Validity of Section 7 of the Insolvency and Bankruptcy Code, 2016 and the order passed by the National Company Law Tribunal, Jaipur Bench against the petitioner.

Analysis:
The petitioner challenged the validity of Section 7 of the IBC, which allows for the initiation of corporate insolvency resolution process by financial creditors when a default has occurred. The petitioner argued that the threshold limit for triggering CIRP was increased to Rs. 1 crore from Rs. 1 lakh due to the financial distress caused by the Covid-19 pandemic. The petitioner contended that the joint application by financial creditors should require a minimum default of Rs. 1 crore per individual creditor. However, the respondents opposed this interpretation, stating that the language of Section 7 is unambiguous and allows for joint applications with a total minimum threshold of Rs. 1 crore. The Court noted that the Supreme Court had previously upheld the validity of Section 7 in the Swiss Ribbons case and found no ambiguity in the provision.

The Court emphasized that the purpose of the amendment increasing the threshold limit was to provide smaller financial creditors, including MSMEs, with an efficient remedy under the IBC. The Court held that the statute and the amendment were formulated to allow a group of financial creditors to collectively reach the Rs. 1 crore threshold to initiate CIRP. The Court rejected the petitioner's argument that each individual creditor should meet the threshold, as it would defeat the purpose of allowing joint applications by financial creditors. The Court concluded that the statute admits no other interpretation than allowing joint applications to trigger CIRP.

In light of the above analysis, the Court found no merit in the writ petition challenging the validity of Section 7 of the IBC and dismissed the petition. The petitioner was granted the liberty to pursue appropriate legal remedies against the order passed by the NCLT. The writ petition was dismissed with the mentioned observations.