IBC – Threshold limit proposed to be enhanced for CIRP

At present Rs 1 lakh is the threshold limit to file an application in NCLT for triggering the incidence of Corporate Insolvency Resolution Process(CIRP) under Insolvency & bankruptcy Code,2017(IBC).

This had resulted into flooding of applications in NCLT. In last three and half year, approx. 23,000 cases have come to the NCLT under IBC.It is pertinent to note that almost 65% of such cases are settled prior to the admission under IBC.

This led the Government to explore the ways to curtail the burden on NCLT’s all over the India. In India, unfortunately, the IBC has been opted for mostly to recover bad debts rather than for pure resolution.This has added the hues and cry over the various unsuccessful CIRP as most of the case had no resolution plan approved.

The Government of India on realising this crisis has had been exploring over reducing such applications.Hence, finally assigned a high level government led panel to study the trend of CIRP and its impacts and come out with recommendations accordingly.

It is being claimed that default threshold for initiation for insolvency proceedings against companies under the Insolvency and Bankruptcy Code (IBC) will be increased in the following manner :

a. MSME companies – from Rs 1 lakh to Rs 5 lakhs

b. Other companies – from Rs 1 lakh to Rs 5o lakhs

It is equally significant to note that there is serious consideration on these aspects for the sole thinking that let the IBC be deployed and restricted to large and complex cases as resolution cannot be with small exposures.

IBC process has different phases and NCLT are cluttered with every small and big cases and whereas, the main purpose of IBC was pure restructuring and resolution and if that objective is to be achieved then the threshold limit needs to be increased.