THE MINIMUM THRESHOLD OF CIRP BEFORE NCLT UNDER SECTION 9 -IBC 2016

 

The minimum threshold of CIRP before NCLT under Section 9 -IBC 2016

 

The Insolvency & Bankruptcy Code (IBC) or referred to as  “Code” in short.  2016 was set up for expediting the issue of Corporate Insolvency Resolution Process (CIRP) entailing thereby the Financial Creditor and Operational Creditor for initiating the process as aforesaid so as to facilitate the resolution and/or dissolution process of corporate debtor, if necessary. The Code has provided a comprehensive mechanism to deal with the issue raised therein under a single window. As per section 4 of the Code, the minimum threshold for raising application before Adjudicating Authority in National Company Law Tribunal (NCLT) was fixed at Rs One (1) Lakh only.

However, the notification dated 24.03.2020 issued by the Ministry of Corporate Affairs, Government of India has now stipulated that the minimum amount of default limit for operational creditor for initiating CIRP as Rs. one crore (raising the minimum amount from Rs. one lakh to Rs one crore). The said notification is only 'Prospective in nature' and not a 'retrospective' as would be evident from the discussion that follows hereunder. It may through appear, that the said notification does not in express term speaks about the applicability of 'retrospective' or 'retroactive' operation, hence, it is prospective.

The section 4 of the Code may be perused in the context:

4. Applicability of this part-

(1)    This part shall apply to matters relating to the Insolvency and liquidation of Corporate debtors where the minimum amount of default if 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 Core Rupees.

NOTIFICATION:

As per the Notification No. S.O. 1205(E) dated 24.03.2020 issued by the Ministry of Corporate Affairs, the minimum amount of Default for an Application under Section 9 of the IBC, 2016 is enhanced to Rs. One Crore.

The Section 4 of Insolvency & Bankruptcy Code 2016 (IBC) reads as under:

The amendment to Section 4 of IBC had raised the threshold limit for preferring an 'Application' under the Code to Rs.1,00,00,000/-. The application by the Operational Creditor is required to be filed in FORM 5 before the Adjudicating Authority. If the claim of operational creditor relates back to the pre-amendment date, but the application before the Adjudicating Officer is filed after amendment, the relevant date for reckoning of threshold of Rs 1 Crore shall be the date of application and not the date when the claim relates to.

The law enunciated in this regard shall also be of pertinence:

(i)          It is held in Metal’s and Metal Electric Pvt Ltd Vs Goms Electricals Pvt Ltd (2022) ibclaw.in 196 NCLAT ( Principal Bench, New Delhi) that the threshold limit under Section 10A of the Code for initiation of CIRP is Rs.1 Crore (vide Notification to Section 4 of the Code dated 24.03.2020), this 'Tribunal' taking note of the fact that the Section 4 of the Code which specifies the minimum threshold of Rs.1 Crore, the same shall apply and if the sum claimed in the Application is below the sum of Rs 1 crore and if the application is filed subsequent to notification, before the 'Adjudicating Authority' after the Notification dated 24.3.2020 by which, the threshold limit was increased from Rs.1 Lakh to Rs. 1 Crore. Thus, inescapable and consequent conclusion that emerge is that the 'Application' filed is for a ums of less than Rs 1 Crore, the same shall not be maintainable, because of the lack of pecuniary jurisdiction to the 'Adjudicating Authority, (National Company Law Tribunal).

(ii)        The NCLAT, principal bench, New Delhi in Jumbo Paper Products Vs Hansraj Agro Fresh  Pvt Ltd Company Appeal (AT) (Ins) No. 813 of 2021  has observed that threshold limit of Rs.1,00,00,000/- will be applicable for an application filed under Section 7 or 9 on or after 24.03.2020, even if default was of a date, earlier than 24.03.2020.

(iii)       The Supreme Court in (i) Madhusudan Tantia Vs. Amit Choraria & Anr in CA (AT) (Ins) No. 557 of 2020 (ii) Union of India & Ors. Vs M/s. G.S. Chatha Rice Mills & Anr, Civil Appeal No. 3249 of 2020 and (iii) Union of India v M.C. Ponnose 2020 SCC online SC 770. 9. It is clear that the judgment in Madhusudan Tantia case (supra) shows that the demand notice under section 8 was issued on 31.7.2019 and the application under section 9 was filed on 5.9.2019. Both these dates are before 24.3.2020, and therefore threshold limit of the debt as per Law at the time the application under section 9 was filed was Rs. 1 Lakh and hence, there was no impediment in the hearing of the application by the  adjudicating Authorities.

(iv)       In Tharakan web Innovations Pvt Ltd Vs National Company Law Tribunal (2022) ibclaw.in28 HC The Kerala High Court in WP (C) No. 27636/2020 & 14158/2021 has reiterated the aforesaid. The date of default prior to 24.03.2020 shall not be relevant and what shall be relevant is the date when the application u/s 9 is filed before the Adjudicating Authority.

(v)         It is evident, therefore, that the said notification however will not apply to the pending applications filed before the concerned 'Adjudicating Authorities, under IBC prior to the issuance of the aforesaid notification, as the notification dated 24.03.2020 of the Ministry of Corporate Affairs, Government of India, shall be considered as prospective and not retrospective. There has been nothing in the amendment that may suggest the notification to be retrospective and obvious corollary to that shall be that the notification is prospective in nature and hence, pending application before the Adjudicating Authority irrespective of the claim being less than Rs 1 Crore shall be continued to be heard by the respective NCLTs, if filed before the date of above referred notification.

There is yet another dimension to it. The following question has also emerged:   

Whether the issue of maintainability of Section 9 IBC petition can be decided by Registrar of a Tribunal?

The Delhi High Court in Skillstech Services Pvt Ltd Vs Registrar NCLT, New Delhi WP (C) 474/2021 has categorically held that whether the notification as regards the enhancement of pecuniary limit of Rs 1 Crore or its applicability in a given case shall have to be decided by a bench or a Registrar to a Tribunal can decide it without placing it before the bench of NCLT is settled by Delhi High Court.

The para no. 6 and 7 as held by the Delhi High Court are of significance in this context.

6. This court is of the opinion that the question as to whether the NCLT has jurisdiction to entertain a particular case or not cannot be determined by the Registrar in the administrative capacity. The Registrar would have to place the matter before the appropriate bench of the NCLT, for the said question to be judicially determined. The appropriate bench of the NCLT would have to, then, take a considered view as to whether notice is liable to be issued in the matter or not.

7. The question as to whether the notification dated 24th March, 2020 applies to a particular petition that has been filed prior to the said notification or not is also a question to be determined by the Bench of the NCLT and not by the Registrar of the Tribunal”.

It therefore clearly follows that whether the application as regards its meeting of threshold of Rs 1 Crore or other ancillary aspect could be dealt with by the Registrar to a Tribunal is clearly negatived by the hon’ble High Court.

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                              Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com