NEW DELHI: There is no end to the confusion over the threshold default amount at which insolvency proceedings should be triggered against a corporate debtor. While initially, this threshold was kept at Rs 1 lakh, at the onset of first wave of Covid-19 last year, the government had revised it to Rs 1 crore through an executive order.This revision was made at the same time when the government suspended the insolvency law for a year. Though the suspension came to an end on March 25 this year, the new Rs 1 crore threshold continues.
Will the government go back to the older threshold or will it continue with the new one (Rs 1 crore)? There seems to be no clear answer. Chairperson of Insolvency and Bankruptcy Board of India MS Sahoo said that it was an executive decision to revise the minimum default amount for initiating insolvency proceedings, and not a Parliament decision.
“The Parliament says that the threshold is Rs 1 lakh, but if the executive wants, the same can be increased to Rs 1 crore. Last year, the executive found the need to increase the threshold to Rs 1 crore, but if it (the executive) sees the need to revert back to Rs 1 lakh limit, it will,” he says, adding that given the policy compulsions of the government, it is difficult to say when and how.
But then, there are other views. Misha, partner at Shardul Amarchand Mangaldas & Co, is of the opinion that even if the decision (to increase the threshold) was taken during the pandemic as a relief measure for the industry, keeping in mind the overall distress in the economy and an earlier demand to increase the threshold, it is a decision that won’t be reversed.
But not revising the minimum amount for triggering insolvency may impact small vendors who have successfully used the insolvency law as a recovery mechanism. For example, a vendor moved an insolvency petition against GlaxoSmithKline Pharma for non-payment of an amount of Rs 8.5 lakh. Once threatened with the insolvency petition, GlaxoSmithKline paid back the amount and the insolvency application was withdrawn. As of March 31, 2021, there were over 17,000 insolvency applications involving defaults worth Rs 5.33 lakh crore which were resolved without getting admitted by the National Company Law Tribunal (NCLT).