Default threshold under IBC raised to Rs 1 crore

In a major relief for small and medium enterprises, the central government has raised the threshold for default under the IBC to Rs 1 crore from the current Rs 1 lakh.

Union Finance Minister Nirmala Sitharaman said that the decision has been taken to prevent triggering of insolvency proceedings against MSMEs.

She assured that the government will keep a watch on the situation and if the situation remains the same beyond April 30, the government may consider suspending Sections 7, 9, and 10 of the Insolvency and Bankruptcy Code (IBC) for six months.

Section 7 of the IBC is in relation to initiation of Insolvency Proceeding by Financial Creditor.

Section 9 covers initiation of Insolvency Proceeding by Operational Creditor.

Section 10 is in relation to initiation of Insolvency Proceeding by Defaulting Company.

This move is set to prevent companies from being forced into insolvency proceedings in such force majuere causes of default.

The decision comes amid the coronavirus scare and total lockdown across 30 states and union territories in India.

Businesses across the country have been severely hit and are likely to face financial losses due to the lockdown. Micro, Small and Medium Enterprises are likely to the more affected due to limited capital reserves. According to the Finance Ministry, it is working on a support package for the micro, small and medium enterprises (MSMEs), including liquidity support as well as quick processing of tax refunds and dues from the government, while a larger stimulus package may be looked at in due course.

The Finance Minister also announced that the extension of the deadline for filing returns of goods and services tax (GST) for March, April and May 2020 till June 30.

She also announced extension of the deadline for filing income tax returns for the financial year 2018-19 till June 30, 2020 in a bid to provide relief amid the coronavirus crisis.

Sitharaman also said that the government has halved the interest rate on delayed TDS deposits to 9%.

The Ordinance is yet to seek approval from the President. The Finance Minister said that no new matters shall be initiated in the National Company Law Tribunals (NCLTs), in order to ensure that the future economy is not hit due to the huge influx of matters due to the negative economic impacts caused by the COVID-19 pandemic.