Increased threshold limit of Rs. 1 Crore under IBC does not apply retrospectively: NCLT Kolkata
By : Legal Era
Update: 2020-05-26 13:19 GMT
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Recognizing the financial difficulties, especially by Medium, Small and Micro Enterprises (MSMEs), as may be faced by corporate debtors in repayment of their dues on account of economic recession caused due to COVID-19, the Central Government had, vide notification no. S.O. 1205(E) dated 24th March 2020 (Notification), raised the threshold of default from the then existing limit of Rs. 1 lakh...
Recognizing the financial difficulties, especially by Medium, Small and Micro Enterprises (MSMEs), as may be faced by corporate debtors in repayment of their dues on account of economic recession caused due to COVID-19, the Central Government had, vide notification no. S.O. 1205(E) dated 24th March 2020 (Notification), raised the threshold of default from the then existing limit of Rs. 1 lakh to Rs. 1 crore for initiating insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC). The Notification, however, did not clarify whether the revised threshold would also apply retrospectively i.e., to the applications pending admission on the date of the Notification.
This question came up before the National Company Law Tribunal (NCLT), Kolkata Bench, in an application under section 9 filed by Foseco India Limited against Om Boseco Rail Products Limited. The applicant Foseco India Limited, filed an application under Section 9 of the IBC for initiation of Corporate Insolvency Resolution Process (CIRP) against the corporate debtor, viz., Om Boseco Rail Products Limited for the alleged default in payment of operational debt to the tune of Rs. 90 lakhs.
The Corporate Debtor (CD) contended that because of the amendment to section 4 of the IBC that introduced a proviso to Section 4 that, “Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees” is retrospective in operation and therefore this application after the amendment is not maintainable for want of pecuniary jurisdiction of this Tribunal as the amount involved in the matter is less than One Crore. Further the Counsel for the CD contended that similar amendment to section 10(4) (c) was introduced by the Government in the matter of Sleep Well Industries Ltd. that the operation of 10 (4) (c) is retrospective and therefore, the operation of the above proviso to section 4 of the Code is to be held as retrospective.
On the other hand, the Counsel for the Operational Creditor argued that whether Notification under section 4 of the IBC raising the minimum default limit shall be applicable to the applications pending for admission? He stated that it is a well- settled law that a statute is presumed to be prospective unless it is held to be retrospective, either expressly or by necessary implication. When the amendment to section 4 of IBC was brought about, a proviso was inserted enhancing the pecuniary jurisdiction for filing applications as against small and medium scale industries which nowhere in the notification mentioned that its application will be retrospective.
The NCLT, vide its order held that nowhere in the Notification is it mentioned that it would apply retrospectively and therefore, the amendment shall be considered prospective in nature and not retrospective.
The NCLT admitted the insolvency application, imposed a moratorium in accordance with sections 13 and 15 of the IBC, and approved the appointment of an interim resolution professional.