Increased Threshold Limit Under IBC to 1 Crore Its Objective, Impact & Overview- The Indian government came out during the COVID 19 pandemic case with various decisions, reforms, amendments, notifications, orders, and press publishing, keeping note of the interest of various industries, organizations, and companies. Therefore considering the outbreak of the coronavirus, the central government on March 24, 2020, via the Ministry of Corporate Affairs notify S.O. 1205 (E) in exercising its authority granted under the clause 4 of the Insolvency Bankruptcy Act, 2016 (31 of 2016) (hereinafter referred to as “symbol” or “IBC”) reinforced the “default minimum from one INR lakh to INR One Crore (hereinafter referred to as “the notification.”) The said notification came in the post-announcement of the Minister of Finance issued by the Minister of Finance on March 24, 2020, as the Ministry highlighted the amendment as measures to protect the interests of MSMEs (“MSME”). COVID 19 During this outbreak, preventing such small and medium-sized enterprises from promoting insolvency proceedings when there are already Lighters.

The Minister of Finance also indicated during the announcement of relief measures to suspend the application of Articles 7, 9, and 10 of the Code for a period of six months to prevent the start of insolvency proceedings where the failure should not have been caused due to incitement to force majeure.

From the aforementioned announcement from the Minister of Finance, the motivation and goal behind the IBC notification were understood as two-fold, first to provide relief to the industry that would face deep financial difficulties in fulfilling its commitment during the crisis caused by the outbreak of COVID-19 and the second to protect the interest of MSME, the sector.

It is interesting that the amendment mentioned by notification was recommended primarily by the Insolvency Law Commission (“the Committee”), in a third report dated February 20, 2020 (“report”). The Committee’s recommendation for this amendment is to improve the functioning of the Code. The report was specifically informed of the projection of an increase in the maximum threshold or elimination of those affected if the system remained overburdened by the devastating delay in value. The report reflects the Committee’s need for this notification, which is to prevent the mechanism stipulated in the blog from achieving sub-optimal results, otherwise it is likely to lose its credibility among investors. In view of this, the Committee agreed that there was a need to review the minimum default for accepting a case under Article 4 of the Code. In light of the Committee itself, the Committee recommended that it would be appropriate to notify a higher default threshold of 50 LAK.

The Committee also noted that the blog’s great success has been that it has made debt enforcement more credible, especially for the major executive creditor’s category who are executive creditors, the group of executive creditors in our Indian economy authorized to start CIRP business under the Code. Under this mechanism, executive creditors have the negotiating power to reach out-of-court settlements with senior corporate debtors. In view of this, the Committee agreed to allow executive creditors to turn to the International Export Protection Center for a minimum default of 5 lakhs only.

Although the announcement of the minimum increase was announced during the current outbreak, it is clear from the Commission’s report that the increase was a favorite to simplify the Code and restore the overburdened separation authority. Therefore, it is also somewhat noted that the amendment has to be retained for a long time.

This relief and measures are developed as declared benefits, but the same benefit needs to be evaluated in real-time if it is actually checking the same benefits or not.

Amending Article 4 to increase the threshold maximum has direct effects on Articles 7, 9, and 10 of the law that is specifically discussed regarding submitting the application to the dismissal authority. This means in clear terms that the bottom line for thinking about the default amount has now been increased to INR 1 Crore without any contestant or exception. Henceforth, all requests of the financial creditor, the operational creditor in question, or even from the institutional debtor can only be considered if they are presented with a default cumulative amount greater than or equal to 1 crore.

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Outcome / impact
Everything has a dual effect on the nature of the law and such a modification. On the one hand, increasing the thresholds mentioned above was to reduce the overburdened separation body and protect the Ministry and Industry from default arising from the current epidemic. However, the other side remained unaddressed when it had a negative impact on the debt enforcement mechanism set forth in the Code, or on small and medium-sized enterprises or the operational creditor.

It should be noted that the most common question is whether the nothingness has a retroactive or potential effect, that is, does it apply to all cases already pending or to cases in which notice of request has been issued under Article 8 of the Code. The Committee has already reported this in its report and stated that “a grace period may be provided in which this creditor in a class may amend and submit its request according to the requirements of the above-mentioned threshold, However, if the creditor is not able to meet the minimum requirements for submitting this amended application during the prescribed grace period Accordingly, the request made by that creditor is considered withdrawn.

At the present time, the notification related to the increase in the threshold limit to 100 times the prospect limit, with no specific exemption or exemption for the creditor of small and medium-sized companies, has not been introduced, and the Ministry is silent about its retroactive effect on cases already pending with authority to adjudicate cases with Threshold previously notified. Therefore, this amendment applies only to the new application, which is not yet requested. Increased Threshold Limit Under IBC to 1 Crore
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