NCLT Kolkata holds Increased Threshold To Trigger Insolvency Apply prospectively [Read Order]

NCLT - insolvency - Threshold -Taxscan

The Kolkata bench of the National Company Law Tribunal (NCLT) ruled that the revised minimum threshold to trigger insolvency proceedings against companies will apply on a prospective basis.

The Corporate Debtor, Om Boseco purchased various foundry and chemicals from the Operational Creditor, Foseco India on credit. The Operational Creditor served a demand notice on the Corporate Debtor on 1 August 2019 for unpaid invoices issued between 12 March 2018 and 11 July 2019, along with interest thereon, for a total operational debt of INR 90,00,919.10.  Upon the Corporate Debtor’s failure to pay or respond to the same, the Operational Creditor filed an application for the initiation of CIRP before the NCLT Kolkata.

The NCLT Kolkata reserved orders after a final hearing on the application on 13 March 2020. However, the COVID-19 crisis caused a delay in passing orders. In the interim, on 13 May 2020, the Corporate Debtor requested a hearing by video-conference.

The issue raised in this case was whether this increase in threshold is prospective or retrospective in effect.

The Corporate Debtor argued that the Notification, made in exercise of the powers conferred under the proviso to Section 4(1) of the IBC, was retrospective in nature. As such, it was argued that the Operational Creditor’s application was no longer maintainable, as the default alleged was below the new threshold limit for initiation of CIRP.

Increasing the default threshold for initiation of CIRP had long been discussed and even recommended in the February 2020 Report of the Insolvency Law Committee as a measure to reduce the number of CIRP applications and to prevent the IBC from being used as a mere recovery mechanism of first resort. It is possible that other courts or tribunals deciding the Retrospectivity of the Notification may take this intent into account, which predates the COVID-19 crisis.

The Tribunal consisting of a Judicial Member Jinan K.R. held that the revised minimum threshold to trigger insolvency proceedings against companies will apply on a prospective basis.

The Tribunal relied primarily on the presumption of statutes being prospective unless found to be retrospective, either expressly or by necessary implication. The Tribunal also found the two above mentioned judgments to be inapplicable to the facts of the present case. In particular, the finding in Sleepwell Industries, that the amendment to Section 10(3) of the IBC was retrospective in nature, was found to be inapplicable to the said Notification.

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