Government Planning To Increase Threshold Of Default To Invoke IBC, Says Corporate Affairs Secretary Injeti Srinivas

The government plans to increase the threshold amount to invoke bankruptcy proceedings in order to prevent businesses from being dragged into bankruptcy tribunals even for minor defaults, Corporate Affairs Secretary Injeti Srinivas has announced.

Currently, businesses can be dragged to the National Company Law Tribunal (NCLT) even if there is a minimum default of merely Rs 1 lakh.

He referred to cases where there have been a large number of applications by single class borrowers such as homebuyers or debenture holders triggering insolvency proceedings.

He stated that since a merely single homebuyer can trigger off bankruptcy proceedings because the Rs 1-lakh threshold has been crossed, several well-run companies end up being dragged to the NCLT, which is not a happy situation.

He stated that the government has received several recommendations regarding the same from the urban development ministry as well as the real estate industry.

He stated that in the last three years alone, 21,000 cases have come under the ambit of insolvency proceedings, out of which 8,500 cases refer to admission to courts, while about 1,500 cases have been resolved, and 1,500 cases are still on in bankruptcy courts.

Since the NCLT has been clogged with so many such cases, he stated that the Insolvency and Bankruptcy Code (IBC) ought to be an option only in cases where outstanding amounts are large.

He stated that when outstanding amounts are smaller, it would be best to settle such cases outside insolvency tribunals, in order to avoid the rigorous process.

He mentioned that the government would also look at making IBC proceedings less litigation prone, as well as more transparent. It would also examine if there could be a ‘hybrid’ system of auction, where there would be a rigorous examination of eligibility of applicants.