Part Payment Of Debt After Filing CIRP Plea Won't Affect IBC Threshold: NCLT Mumbai

The Mumbai bench of the National Company Law Tribunal (NCLT) has held that part-payments made by a corporate debtor after the filing of a Section 9 application under the Insolvency and Bankruptcy Code will not defeat the CIRP threshold. 

A bench of judicial member Nilesh Sharma and technical member Sameer Kakar reiterated, “…we hold that the threshold under Section 4 of Code is required to be made at the time of filing of application under Section 9 and even if some payment is made by the corporate debtor after filing of application by the applicant reducing the amount claimed to an amount below the threshold amount, the application will still be maintainable,” while dealing with a plea filed by Omshree Agro Tech Private Limited seeking initiation of corporate insolvency resolution process against Kasturi Farm Private Limited.

The operational creditor claimed a default of Rs 1.38 crore (₹1,38,98,889), including interest, arising from unpaid invoices for supply of soya de-oiled cake used as poultry feed.

The corporate debtor opposed the plea, contending that the threshold of Rs 1 crore under Section 4 of the Code was not met. It relied, among other things, on a payment of Rs 25 lakh made after receipt of the demand notice and its own ledger reflecting the outstanding amount to be below ₹1 crore.

Rejecting the contention, the tribunal held that the relevant date for determining whether the threshold is met is the date of filing of the application and not any subsequent stage.

Relying on the NCLAT's ruling in Devika Resources Pvt. Ltd. v. MAA Manasha Devi Alloys Pvt. Ltd., the tribunal reiterated that reduction of the claim amount below the statutory threshold during the pendency of proceedings does not render the application non-maintainable.

The bench further emphasised that under Section 8 of the Code, a corporate debtor must either repay the entire unpaid operational debt within 10 days of receipt of the demand notice or bring to notice the existence of a pre-existing dispute. Partial payment without clearing the entire dues does not bar initiation of the insolvency process.

The tribunal also noted that the corporate debtor failed to reply to the statutory demand notice and did not place any credible material on record to substantiate the existence of a pre-existing dispute. Its allegations regarding poor quality of goods and resultant losses were found to be unsupported by evidence and characterised as “moonshine and illusory contentions”.

The bench further recorded that despite being granted time, the corporate debtor did not file a reply to the application and its right to do so was closed.

Finding that all requirements under Section 9 were satisfied, including existence of operational debt above ₹1 crore at the time of filing, default, service of demand notice and absence of a genuine dispute, the tribunal admitted the plea.

It accordingly initiated the corporate insolvency resolution process against the corporate debtor, declared a moratorium under Section 14 of the Code, and appointed Rajesh Kumar Mittal as the interim resolution professional to take over the management of the company.