FAQs
Insolvency & IBC
Frequently asked questions about insolvency & ibc in India — answered by Corpus Juris Legal.
The minimum default amount for filing a Corporate Insolvency Resolution Process (CIRP) application is ₹1 crore. This threshold was raised from ₹1 lakh to ₹1 crore by a March 2020 notification, primarily to prevent misuse of IBC as a debt collection mechanism for small disputes. The ₹1 crore threshold applies to both Section 7 applications (financial creditors) and Section 9 applications (operational creditors).
The Insolvency Resolution Professional (IRP/RP) has the power to avail contracts or terminate them. Contracts with ipso facto clauses — provisions that automatically terminate on insolvency or CIRP commencement — are unenforceable under IBC. The moratorium under Section 14 prevents termination of essential contracts and institution of legal proceedings against the corporate debtor. However, the RP can choose to disclaim onerous contracts. Contracts that were entered into as part of a preferential transaction within two years of CIRP commencement can be avoided.
Promoters of companies undergoing CIRP are generally ineligible to submit resolution plans, subject to important exceptions. Section 29A of IBC bars persons who are NPAs, are guarantors, or have been convicted, or who are connected to insolvent companies from submitting resolution plans. The Supreme Court has upheld these eligibility conditions. However, promoters may be eligible if they settle all dues before submitting a plan, subject to the specific conditions of Section 29A. This is a fact-specific legal question that requires careful analysis.