Minimum Default and Insolvency Commencement Date under IBC

Two thresholds frame every corporate insolvency. The first is monetary: section 4 sets the minimum amount of default needed to start the process, now one crore rupees. The second is temporal: the Code distinguishes the date an application is filed from the date the process commences, and many timelines and rights run from one or the other. This note explains the minimum default, how it is calculated and how it varies across processes, and the significance of the initiation and insolvency commencement dates.

1. Section 4: Minimum Default

• Text. Part II applies to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees; the Central Government may, by notification, specify a minimum amount of default of higher value, not exceeding one crore rupees.
• 2020 notification. On 24 March 2020, as the pandemic lockdown began, the minimum was raised to one crore rupees, mainly to shield MSMEs, which were most vulnerable to small operational claims.
• Pre-pack proviso. The Central Government may specify a separate minimum for the pre-packaged process for MSMEs, not exceeding one crore rupees, and fixed it at ten lakh rupees in April 2021 (Topic 21)
• Purpose. To keep small claims, better suited to civil recovery, from triggering a process that affects the whole company and all its creditors, and to manage the workload of the NCLT.

Figure 1: Thresholds across processes

2. Madhusudan Tantia v Amit Choraria, 2022

The Supreme Court held that the notification of 24 March 2020 is prospective. Applications filed before that date continue to be governed by the old threshold of one lakh rupees, while applications filed on or after it must show a default of at least one crore rupees. The relevant date is the date of filing, not the date of default.

3. Computing the Amount of Default

• Default, not debt. The threshold refers to the amount in default, meaning the sum due and unpaid, not the total outstanding debt; a large loan with a small unpaid instalment may not qualify.
• Interest. Interest that has fallen due under the contract and remains unpaid forms part of the amount in default.
• Joint applications. Financial creditors may file jointly under section 7(1), and their defaults may together meet the threshold; classes of creditors and allottees must in any case file jointly in the numbers required.
• Defaults during the COVID period. Amounts that fell due between 25 March 2020 and 24 March 2021 cannot found an application (section 10A; Topic 15)

4. Part III

Section 78 applies Part III where the minimum amount of default is one thousand rupees, and allows the Central Government to raise it up to one lakh rupees. Since Part III is in force only for personal guarantors to corporate debtors, this low threshold currently matters mainly in proceedings against personal guarantors (Topic 65).

5. Initiation Date and Insolvency Commencement Date

Figure 2: Two dates that frame the process

• Initiation date, section 5(11). The date on which a financial creditor, corporate applicant or operational creditor makes an application to the NCLT for initiating CIRP.
• Insolvency commencement date, section 5(12). The date of admission of the application under section 7, 9 or 10.
• Proviso. Where the interim resolution professional is not appointed in the order admitting the application, the insolvency commencement date is the date on which the IRP is appointed by the NCLT.
• Why the distinction matters. The process, the moratorium and the suspension of the board begin only on the commencement date; between filing and admission, the corporate debtor's management remains in control and creditors may continue other remedies.

6. What Runs from These Dates

Figure 3: Consequences tied to the commencement date

• CIRP timeline. The process must be completed within 180 days from the insolvency commencement date, extendable once by up to 90 days, with an outer limit of 330 days including litigation time (section 12; Topic 32)
• Claims. The public announcement fixes the last date for submission of claims, and claims are generally valued as on the insolvency commencement date.
• Look-back period. Avoidance transactions are tested by reference to periods before the commencement date; the 2026 Amendment clarified that the look-back runs from the initiation date, so transactions made after filing but before admission are also caught (Topic 47)
• Related parties. Whether a creditor is a related party, and thus excluded from the CoC, is examined with reference to the time of the process.

7. Frequently Asked Questions

An operational creditor filed in February 2020 for a default of five lakh rupees. Is the application maintainable?

Yes. The one crore threshold applies only to applications filed on or after 24 March 2020. An application filed earlier is governed by the threshold of one lakh rupees, as held in Madhusudan Tantia (2022).

When does the moratorium begin: on filing or on admission?

On admission, which is the insolvency commencement date. Filing an application does not by itself stop other proceedings against the corporate debtor.

Can two financial creditors combine their defaults to reach one crore rupees?

Yes, by filing a joint application under section 7(1), which expressly allows financial creditors to apply jointly.

Does the one crore threshold apply to the total debt or the unpaid amount?

To the amount in default, meaning the sum that has fallen due and remains unpaid. A company may owe much more than one crore rupees in total, but an application lies only if the unpaid amount due is at least that figure.

Why does the Code define an initiation date separately?

Because some consequences relate to the date of filing rather than the date of admission. After the 2026 Amendment, for example, the look-back period for avoidance transactions runs from the initiation date, so transactions entered into after filing but before admission are not immune.

8. Related Topics

• Topic 6: Claim, Debt and Default. The meaning of default.
• Topic 22: Moratorium under Section 14. Effect of the commencement date.
• Topic 32: CIRP Timelines. The 330 day limit.