Threshold under IBC – One lakh or One Crore : A Dilemma

The prescribed threshold for filing an application for initiation of CIRP was raised from One lakh to One Crore in 2020. NCLT Ahmedabad has admitted M/s Rasna Private Ltd., (hereafter “Corporate Debtor or CD”) into CIRP where the default amount was Rs. 71,27,442/- (Rupees Seventy-One Lacs Twenty-Seven Thousand Four Hundred and Forty-Two only) which is less than the prescribed threshold. The date of filing the application for initiation of CIRP was April 24, 2019 where the threshold was Rs.1,00,000/- (Rupees One Lakh only), considering which the petition was admitted.

Facts:

M/s. Bharat Road Carrier Private Limited (hereinafter “Applicant or OC”) has transported goods to CD and raised certain invoices during the period from April 2017 to August 2018. On August 20, 2018, the applicant issued a demand notice to which the CD failed to comply with. Admittedly, the CD availed services of the Applicant and that there were disputes against the services of Applicant prior to issuance of Demand Notice u/s 8 of IBC. CD contented that the:

1. Applicant had concealed the fact that a civil suit for damages has been initiated in November 2018 by CD and the same was referred for mediation which subsequently failed due to absence of the Applicant;

2. There is a pre-existing dispute between parties.

The Dispute:

CD vide email dated August 11, 2018 informed the applicant about certain disputed/deficient bills and the applicant asked for details of the said bills. CD failed to provide the details and reasons for the said disputes.

Order:

The tribunal held that the arguments about the pre-existence of dispute by CD appear to be moonshine as they failed to provide details of the said disputed bill. The tribunal further held that the application was filed on April 24, 2019, there existed a default which was more than one lakh as was prescribed. Considering these facts, the Application was admitted and CIRP was initiated on September 1, 2023.

Aftermath:

As soon as the order for admission was passed, the CD preferred statutory appeal u/s 61 of the Code to NCLAT which is yet to be listed, heard and disposed. In the meanwhile, the CD has also moved a special civil application praying to issue appropriate writ or order or direction staying the effect of the NCLT Admission order until the said appeal before NCLAT is heard and disposed.

The CD submitted that the Interim Resolution Professional (hereinafter “IRP”) had on September 3, 2023 informed them that all the promoters and management of CD has to co-operate with IRP as was required u/s 19(1) of the Code; that they shall not operate any bank accounts of CD without IRP’s permission; to provide bank account details of CD; public announcement inviting claims which would be made on September 4, 2023; and that a separate communication would be sent to CD seeking required information for smooth conduct of CIRP of CD. The CD further submitted that they would not be in a position to operate the bank accounts vide the above said communication. It was prayed by the CD to pass a relief restraining IRP to act upon the admission order until the statutory appeal preferred is disposed of.

Gujarat High Court order:

After considering the facts and circumstances, the HC passed an ad-interim relief[1] that the admission order shall not be acted upon until the statutory appeal filed before NCLAT is listed for hearing.

Author’s opinion:

Key considerations here are that the application is filed 4 years ago, the default amount was considered as on the date of filing of Application and that the statutory appeal is still pending. The main objective of the Code which is time bound resolution is being frustrated. There would be many such cases pending before NCLT’s and NCLAT’s and these issues have to be addressed in order to curb the delay in admission and bringing a timely resolution to the CD.

References:

[1] R/Special Civil Application No. 15469 Of 2023