Threshold u/s 4 of IBC should be met at time of Filing of CIRP application: NCLAT [Read Order]

The New Delhi bench of the National Company Law Appellate Tribunal( NCLAT) has allowed an appeal filed by the operational creditor holding that the threshold under section 4 of the Insolvency Bankruptcy Code (IBC), 2016 has to be seen at the time of filing of the application or at the time of admission of the application.

The appellant used to supply iron ore to the respondent through Devika Resources Pvt. Ltd., but the respondent never paid, thus the appellant served a demand notice under Section 8 of the IBC for a Rs. 1,16,25,583 default. The appellant then requested the start of the CIRP against the corporate debtor in an application filed under Section 9 of the IBC.

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After the CIRP application was accepted, the process got underway. The respondent, however, contested the order in front of the appellate tribunal, claiming that it was not given a chance to be heard. As a result, the tribunal was instructed by the appellate authority to rehearse the case and render a decision.

The appellant was notified by mail that the respondent had deposited Rs. 20 lakhs into the appellant's account while the tribunal's proceedings were still pending. The appellant argued that Rs. 20 lakh had been deposited without its consent and that it would be willing to reimburse the money. However, due to a lack of threshold, the tribunal rejected the Section 9 application.

According to the appellant, Section 5(11) of the IBC stipulates that the date of application submission by the financial or operational creditor is the date of CIRP initiation, and the date of application admission is regarded as the insolvency commencement date under Section 5(12) of the IBC.

In support of their argument, the appellant cited the Supreme Court's decision in the cases of Rajamundry Electric Supply Corporation Limited vs. A Nageshwara Rao & Ors., (1995) 2 SCR 1066, Manish Kumar vs. Union of India, (2021) 5 SCC 1, and the NCLAT's ruling in Hyline Medoconz Pvt. Ltd. vs. Anandaloke Medical Centre Pvt. Ltd., CA (AT) (Ins) No. 1036 of 2022.

The appellant argued that the Section 9 application had exceeded the Rs. 1 Cr. threshold; however, the respondent paid Rs. 20 lakhs to settle the outstanding balance during the application's pendency, which shouldn't affect the application because it was submitted after the threshold was crossed.

In contrast, the respondent argued that the threshold ought to be satisfied when the application is admitted rather than when it is filed. It further argued that the appellant's cited judgments were not applicable to the case's facts.

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The Principal Bench, comprising Justice Rakesh Kumar Jain (Member-Judicial) and Naresh Salecha (Member-Technical) noted that the rulings the appellant cited are relevant to the current circumstances and directly address the appellant's issue. The bench pointed out that by rejecting the application, the adjudicating authority had made a patent error.

The bench allowed the appeal by setting aside the impugned order and restored the Section 9 application back to the tribunal to decide the Section 9 application in accordance with the law.

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