Mirza & Associates, Advocates & Attorneys

There was some ambiguity in last more than one year in respect of applicability of Notification SO 1205(E) dated 24th March 2020 issued by the Ministry of Corporate Affairs. Said notification had increased the threshold limit of filing the insolvency petition either in section 7 or 9 of Insolvency & Bankruptcy Code 2016 [IBC 2016] from 1 Lakh to 1 Crore. Since said notification was silent in respect of its applicability in retrospective or prospective therefore some legal professionals were interpreting said notification in a manner that the same will be applicable only on prospective debts and shall not be applicable on the debts which occurred in past i.e. prior to the date of said notification and were filing the insolvency petitions in various NCLTs. Said ambiguity has been duly clarified now by the Hon’ble NCLAT in its Judgment dated 25^th October 2021 in the case of Jumbo Paper Products v. Hansraj Agrofresh Private Limited, Company Appeal (AT) (Ins) No. 813 of 2021

MERIT OF THIS CASE:

In the present case, Appellant/ Operational Creditor filed an insolvency petition u/s 9 of IBC 2016 before the NCLT Allahabad on 13^th November 2020 wherein the amount of default was INR 13,46,278/- (i.e. less than one crore). Said petition was dismissed by the NCLT on the ground of lack of a minimum threshold limit. Appellant/Operational Creditor challenged said order by filing the appeal on the following grounds:

LEGAL POSITION BEFORE 24^th March 2020:

As per section 4 of IBC 2016 and before 24^th March 2020 the minimum threshold limit for filing an insolvency petition under sections 7 & 9 of IBC 2016 was 1 Lakhs only. That’s mean if there was a default of a minimum of INR 1 Lakh Corporate or Financial Creditor can file the insolvency petition against the Corporate Debtor.

Section 4 of IBC 2016:

4. Application of this Part – (1) This part shall apply to matters relating to the Insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees.

Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees.

WHAT CHANGED AFTER 24^th March 2020?

In order to save the small Companies and Business setups ministry of Corporate Affairs used its power given under section 4 of IBC and issued a notification bearing number SO 1205(E) by which the minimum limit of default for filing an insolvency petition was increased to 1 Crore from 1 Lakh. After said notification, an Operational or Financial Creditor can only file an insolvency petition against a Corporate Debtor if there is a default of dues or debt of INR 1 Crore.

The notification No. S.O 1205 (E) dated 24^th March 2020 issued by the Ministry of Corporate Affairs:

S.O. 1205(E). –In exercise of the powers conferred by the proviso to section 4 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central Government hereby specifies one crore rupees as the minimum amount of default for the purposes of the said section.

HOW THIS JUDGMENT HAS CLARIFIED THE AMBIGUITY IN RESPECT OF FILING THE INSOLVENCY PETITION U/S 7 & 9 of IBC AFTER THE NOTIFICATION DATED 24^th MARCH 2020?

In this Judgment, the Hon’ble NCLT has duly clarified the doubt in respect of nature of debt for the calculation of minimum threshold limit of INR 1 Crore. The Hon’ble NCLAT was of the view that the threshold limit to be considered for section 9 application will be INR 1 crore.  This threshold limit will be applicable for applications filed u/s 7 or 9 on or after 24th March 2020 even if the debt is of a date earlier than. That’s mean no matter where the debt of date of prior to the 24th March 2020 but if the Creditor is filing an insolvency petition after 24^th March 2020 the minimum limit of default of debt should be 1 crore.