9911796707
TMI BlogTHRESHOLD LIMIT TO INITIATE CORPORATE INSOLVENCY RESOLUTION PROCESSX X X X Extracts X X X X X X X X Extracts X X X X ..... THRESHOLD LIMIT TO INITIATE CORPORATE INSOLVENCY RESOLUTION PROCESS - By: - Mr. M. GOVINDARAJAN - Corporate Laws / IBC / SEBI - Dated:- 27-10-2022 - - Threshold limit Section 4(1) of the Insolvency and Bankruptcy Code, 2016 ( Code for short) provides that Chapter I of the Code shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is Rs.1 lakh. The proviso to this section provides that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than Rs. 1 crore. Insolvency Law Committee The Committee noted that due to the low threshold of default, a large number of applications we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re being filed for initiation of CIRP. This large number of applications is adding pressure on judicial infrastructure, which is causing delays both at the stage of admission and during litigation in the CIRP. These delays cause uncertainty for investors and have the potential to hinder a value maximizing insolvency resolution. Further, due to the low threshold for default, there is a chance that solvent debtor companies would be pushed into the CIRP. The Committee agreed to review the minimum default threshold for admitting a case under Section 4 of the Code . The Committee recommended Rs.50 lakhs as threshold amount to initiate corporate insolvency resolution process. Increase in limit The threshold limit Rs.1 crore h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been raised with effect from 24.03.2020, vide Notification No. S.O. 1205(E), dated 24.03.2020. This limit has also been made applicable for matters relating to the prepackaged insolvency resolution process of corporate debtors under Chapter III-A with effect from 04.04.2021. Who may initiate corporate insolvency resolution process? Section 6 of the Code provides that where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter. Threshold effect only after notification In BLS POLYMERS LIMITED VERSUS M/S RMS PO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WER SOLUTIONS PRIVATE LIMITED - 2021 (7) TMI 1331 - NATIONAL COMPANY LAW TRIBUNAL, NEW DELHI , admitted an application made under section 9 of the Code , wherein the debt had arisen prior to the notification dated 24.03.2020 to the tune of Rs.35,74,942/-. The corporate debtor raised an objection that pursuant to the threshold notification issued by Ministry of Corporate Affairs, the threshold amount for initiating corporate insolvency proceedings against any corporate debtor had been increased from Rs. 1 lakh to Rs.1 crore, and therefore the present application was liable to be dismissed. While considering the issue of the threshold notification's applicability, the Adjudicating Authority observed that the threshold notifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation may not apply where- a demand notice under section 8 of the Code has already been delivered prior to the threshold notification, but the application has then been filed after the threshold notification date the default has occurred prior to issuance of threshold notification date, but a demand notice for an application under section 9 of the Code has not been sent; an application has already been filed but not admitted by the Adjudicating Authority against a corporate debtor; and an application has been admitted for the initiation of the corporate insolvency resolution process against a corporate debtor . Based on the above, the Adjudicating Authority held that as far as the circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of points three and four are concerned, there was no dispute regarding the threshold notification's lack of applicability because every notification has a prospective effect unless the notification specifically mentions that it will have retrospective effect. In relation to the conditions envisaged in point one, the Adjudicating Authority was of the view that all of the three relevant sections (i.e, sections 7, 9 and 10 of the Code) are triggered only once a default occurs. It is only when section 9 of the Code has been triggered due to a default occurring that a demand notice under section 8 of the Code must be sent to the corporate debtor. Based on the Adjudicating Authority s clarification of the law's p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition regarding this scenario, it can be seen that a default occurring is a prerequisite to such proceedings. The Adjudicating Authority opined that the application contexts outlined above can be filed if a default has occurred prior to the threshold notification date. In relation to the conditions envisaged at point two, the Adjudicating Authority was of the view that in cases where the default has occurred prior to the date that the threshold notification is issued on, and no demand notice (as provided for in section 9 of the Code ) was delivered prior to the date of notification, the notification will not be applicable. The Adjudicating Authority held that the minimum threshold in such cases, as per section 4 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Code , is Rs.1 lakh. The Adjudicating Authority held that the threshold notification is applicable only in respect of defaults which occurred on or after the threshold notification date. But the Kerala High Court THARAKAN WEB INNOVATIONS PVT. LTD. VERSUS NATIONAL COMPANY LAW TRIBUNAL, CYRIAC NJAVALLY AND CYRIAC NJAVALLY VERSUS UNION OF INDIA, M/S. THARAKAN WEB INNOVATIONS PVT. LTD. - 2022 (2) TMI 466 - KERALA HIGH COURT , held that once the Government has exercised the said power by issuance of a notification fixing the minimum amount of default as Rs.1 crore, the Section will have to be read by replacing the words one lakh rupees by rupees one crore . As such, from the date of amendment, Part II of the IBC can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply only to matters relating to insolvency and liquidation of corporate debtors, where the minimum amount of default is Rs.1crore. Once that is the position, the application of Part II itself is taken away with effect from 24.03.2020 as far as defaults less than Rs.1 crore are concerned and hence no application can be filed after 24.03.2020 regarding an amount where the default is less than Rs.1 crore. Threshold limit in a joint application Section 7(1) of the Code provides that a financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government, may file an application for initiating corporate insolvency res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olution process against a corporate debtor before the Adjudicating Authority when a default has occurred. The financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than 100 of such allottees under the same real estate project or not less than 10% of the total number of such allottees under the same real estate project, whichever is less. The financial creditors, referred to in clauses (a) and (b) of sub-section (6A) of section 21 , an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than 100 of such creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the same class or not less than 10% of the total number of such creditors in the same class, whichever is less. In case of joint application how the threshold is to be computed? Either each applicant has the threshold limit or jointly. The Rajasthan High Court in VISHNU OIL MILL PRIVATE LTD. VERSUS UNION OF INDIA, INSOLVENCY AND BANKRUPTCY BOARD OF INDIA, MR. DILIP BAFNA HUF, MRS. MEENA BAFNA, MR. YASH BAFNA, MR. MOOLCHAND HUNDIA, PROP OF MOOLCHAND AND COMPANY - 2022 (8) TMI 1060 - RAJASTHAN HIGH COURT held that a group of financial creditors can converge and join hands to touch the financial limit of Rs.1 crore to initiate corporate insolvency resolution process. The High Court, in a writ petition filed by a group o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f financial creditors, held that on a plain reading of Section 7 of the Code it becomes clear that no ambiguity in the provision which requires any interpretation other than what is conveyed in its literary sense. Section 7 clearly stipulates that the application for triggering corporate insolvency resolution process may be initiated by a financial creditor either individually or jointly with other financial creditors. Previously the threshold default limit for filing the application was only Rs. 1 lakh. The same has been increased to Rs.1 crore with effect from 24.03.2020. It can easily be envisaged that in case of MSMEs, there may not exist financial creditors whose individual debt is Rs. 1 crore and above. If the thre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shold 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 Code and the amendment in Section 7 makes it clear that the same was formulated in such a manner so as to provide a means of efficacious redressal of the smaller financial creditors and to give them an opportunity of availing the speedy remedy under the Code rather than being relegated to other onerous proceedings for securing their money. The High Court held that section 7 of the Code as amended 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 to init ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate corporate insolvency resolution process. Total default The quantum of defaulted amount, if default is more than one case, shall be not less than Rs.1 crore. If it is below Rs.1 crore, application for corporate insolvency resolution process cannot be initiated by the operational creditor against the corporate debtor. In M/S BEETEL TELETECH LIMITED VERSUS ARCELIA IT SERVICES PRIVATE LIMITED - 2022 (10) TMI 871 - NATIONAL COMPANY LAW TRIBUNAL , NEW DELHI BENCH , the petitioner initiated corporate insolvency resolution process under section 9 of the code against the respondent corporate debtor. The respondent raised a purchase order on 25.10.2019 upon the applicant. The applicant supplied the same and raised t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he invoice dated 31.12.2019 to the tune of Rs.1.32 crore. The respondent made a party payment of Rs.42.50 lakhs on 23.09.2020. On 19.10.2021 the respondent issued a cheque to the petitioner for Rs.1.18 crores. The same was dishonored on 24.11.2020. The respondent, in a meeting with the petitioner on 17.12.2020, assured that the dues would be settled by the end of December 2020. On 19.12.2020 the respondent paid a sum of Rs.17,74,910/0 and Rs. 1 lakh on 25.03.2021. The respondent filed reply and the applicant also submitted counter reply. The Adjudicating Authority observed that the applicant has claimed a sum of Rs.1,15,11,486/- which includes principal Rs.1,01,80,986 and interest Rs.13,30,500/- for the period from 29.02.2020 to 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .12.2021 @ 18% per annum. The Adjudicating Authority observed that the majority period falls under the suspension period due to COVID, during which no corporate insolvency resolution process cannot be initiated. During that period no interest can be claimed. The Adjudicating Authority that the majority of invoices indicated in Part IV of the application has not been submitted before it by the applicant. Further the Adjudicating Authority observed that some part payments have not been adjusted against the claim. The Adjudicating Authority concluded that the applicant could not able to establish beyond doubt the quantum of unpaid operational debt @ Rs. 1 crore. Therefore the Adjudicating Authority dismissed the application. - - Sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
