Govt may increase default threshold for invoking IBC: Injeti Srinivas

The government is planning to raise the threshold for invoking insolvency proceedings to prevent businesses being dragged into bankruptcy tribunals for minor defaults, corporate affairs secretary Injeti Srinivas said on Monday.

Injeti was referring to cases where it has been observed that in few sectors, particularly where there has been large number of applications coming where single class borrowers such as homebuyers or debenture holders, have triggered insolvency proceedings.

“If a single homebuyer is triggering because ₹1 lakh threshold has crossed, one day default has crossed and otherwise well functioning company comes to NCLT (National Company Law Tribunal), it is not a happy situation,” he said, adding that the government has received recommendations regarding the same from the urban development ministry as well as the real estate industry.

Currently, business can be dragged to insolvency tribunal or NCLT if there is a minimum default of ₹1 lakh. In the last three years, 21,000 cases have come under the ambit of insolvency proceedings , out of which nearly 10,000 cases have been settled. Out of this, 8,500 refer to cases prior to admission to courts and about 1,500 cases resolved and some cases are ongoing.

With NCLT getting clogged with rising number of cases, Srinivas said that IBC is the best option in case where the outstanding amount is large. However, in case of where the dues are smaller, it is best to settle the case outside insolvency tribunals as the process is rigorous. He further explained that there will not no specific direction from the government regarding the same and banks have the liberty to decide if they want to drag any particular case to NCLT if the loan turns bad.

On Monday, Mint reported that the government is set to curb lenders’ penchant to drag companies to bankruptcy courts at the slightest delay in loan repayments through a change in the insolvency code, amid rising strain on balance sheets because of a slowing economy.

In September, Minister of State for Finance Anurag Thakur had also cautioned bankers that lenders should refer cases to the NCLT only if a satisfactory resolution was not available outside the courts, move that will also help in reducing litigation.