That this is the time when Global Economy is facing huge challenge due to spread of COVID-19 and by which there is significant disruption in supply chain management and this is also resulting in increase of default rise. And there will be lot of cases where party will not be able to honour their financial commitments to make the timely payment. That in IBC-2016 there is a section 9 which is captioned as “Application for initiation of corporate insolvency resolution process by operational creditor” wherein in case of not making timely payment of supply by Corporate Debtor the supplier can approach to the Adjudicating Authority under IBC and demand CIRP proceedings.
That Central Government has proactive in perceiving this situation and has come out with enhancing the limit up to which no claim for doing default can be launched before National Company Law Tribunal. In practice, it is observed that the code is being used as a recovery tool for creditors whereas the preamble of the code speaks otherwise. The creditors generally are opposed to going for the traditional civil suit for recovery or invoking the jurisdiction of ageing debt recovery tribunals. Therefore government should have to cautious in making any change post the current epidemic in the insolvency legislation which primarily safeguards the interest of creditors as well as the debtor.
INCREASE IN THRESHOLD FOR DEFAULTS
MCA Amends Section 4 of Insolvency and Bankruptcy Code, 2016 to increase Threshold of default to Rs 1 crore. Section 4 deals with defaults relating to the insolvency and liquidation of corporate debtors. Section 4 is been amended vide S.O. 1205(E) Dated 24th March, 2020. Revised Threshold is applicable from 24.03.2020.
The Central Government has specified the threshold to be one crore rupees from the erstwhile threshold of one lakh as the minimum amount of default for the matters relating to insolvency of Corporate Debtors. The increase in the threshold is believed to provide a safeguard to Micro Small and Medium Enterprises (MSME) for defaults arising due to the disruption in operation cycle caused by the current lockdown. The increase in the threshold is indeed a breather for MSME. However, from a different perspective, the increase of threshold for defaults may just gravely affect the MSME as in catena of cases the operational creditors are these enterprises which initiate resolution process against companies for their dues which remains unpaid. The dues of such small-scale MSME may be less than One Crore rupees, however in dearth of a frugal resolution it might serve as a roadblock for such enterprises and thereby making them prospective Corporate Debtors.
That legislature should come out with different threashold for different default and this one crore is provided for Financial default as well as for Operational default. A summary suit in a civil court might not be able to provide relief as quickly as one would expect them to be from NCLT.