Rajasthan High Court issues notice on a writ petition on IBC

Rajasthan High Court issues notice on a writ petition on IBC

The respondents had filed a joint appeal under Section 7 for initiating Corporate Insolvency Resolution Process

The Rajasthan High Court has issued a notice on a writ petition seeking to declare Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, as unconstitutional. It facilitates a joint application by multiple financial creditors to prove the minimum default of Rs.1 crore.

A division bench of Justice Manindra Mohan Shrivastava and Justice Madan Gopal Vyas ordered the issuance of a notice to the respondents.

The order read, "The counsel, Additional Solicitor General, Mukesh Rajpurohit, appearing on behalf of the Government of India takes notice and is granted three weeks time to file the reply. Let notices be issued to the respondents, returnable within three weeks."

As per the petitioner, Vishnu Oil Mill Private Ltd, the respondents had filed a joint petition under Section 7 for initiating Corporate Insolvency Resolution Process (CIRP) against him. The respondents claimed to be the financial creditors, jointly proving a default of more than Rs.1 crore before the National Company Law Tribunal (NCLT), Jaipur Bench. However, individually, they claimed a default of much less than that amount.

Thus, appearing on behalf of the petitioner, advocate Hemant Kothari argued that only the financial creditors could file a joint application as provided under IBC. No such mechanism of joint application was prescribed for operational creditors.

The plea stated that as per Section 4 of the IBC, the minimum default for triggering the CIRP against a corporate debtor was Rs.1 lakh before March 2020. However, owing to the economic disruption caused by the onset of COVID-19 pandemic, the requisite of minimum default amount was increased to Rs.1 crore.

It was alleged that despite the increased amount in the threshold, the NCLT, vide the December 2021 impugned order issued notices on the application filed by the respondents, who were claiming to be the financial creditors. But none of them demonstrated a default of Rs.1 crore or more on his/her own.

Thus, the petitioner urged that the impugned order passed by the NCLT be quashed.