NCLAT Sets Aside Insolvency Admission Against Raja Udyog as Debt Falls Below ₹1 Crore

In a significant ruling underscoring the importance of the statutory debt threshold under the Insolvency and Bankruptcy Code (IBC), the National Company Law Appellate Tribunal (NCLAT) at New Delhi has set aside an order admitting a corporate debtor into insolvency. The bench, comprising Judicial Member Justice Mohd. Faiz Alam Khan and Technical Member Naresh Salecha, allowed the appeal of Loknath Prasad Gupta, a director of Raja Udyog Private Limited, against the order of the Kolkata bench of the National Company Law Tribunal (NCLT).

A Loan Extended During the Pandemic, Then a Default

The case arose from financial assistance provided to Raja Udyog Private Limited during the Covid-19 pandemic. Three financial creditors—Dinesh Chand, Girish Chandra, and Anju Agarwal—advanced loans totaling ₹2.25 crore to the company, relying on promises of prompt repayment. The company paid interest until April 2022 but then stopped all payments. After demand notices in early 2025 and dishonoured cheques, the creditors filed a Section 7 application under the IBC on 28 April 2025, claiming an outstanding amount of approximately ₹3.18 crore, including interest.

An Undertaking and Partial Payments

On 20 May 2026, the corporate debtor, through its director Om Prakash Gupta, filed an undertaking before the NCLT admitting the liability and promising to pay the entire ₹3.18 crore within 30 days. Between 20 June and 20 July 2026, the company made payments totaling ₹2.25 crore to the three creditors. This left only ₹93,88,310 outstanding on the very day the NCLT passed the impugned order admitting the insolvency application.

Arguments on Appeal

Before the NCLAT, senior counsel for the appellant argued that the NCLT had acted hastily. They pointed out that the parties were actively negotiating a settlement and that the NCLT should have allowed more time. Critically, they submitted that since ₹2.25 crore had already been paid by 20 July 2026, the remaining debt of ₹93.88 lakh was below the ₹1 crore threshold required for initiating the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the IBC.

The respondents, who had received the payments, admitted the settlement and confirmed that the entire debt had been satisfied. A joint affidavit filed on 31 July 2026, along with a memorandum of settlement, recorded that a consolidated sum of ₹3.18 crore was accepted as full and final discharge of all liabilities.

Key Observations by the NCLAT

The tribunal scrutinised the payment records and the settlement documents. It noted:

“Thus, from the facts admitted to the parties, it is evident that on the day when the impugned order has been passed by Ld. Adjudicating Authority, only Rs. 93,88,310/- were due on the corporate debtor, which were admittedly below the threshold of rupees 1 crore and therefore the impugned order passed by the Learned Adjudicating Authority may not withstand the test of law and is liable to be set aside.”

The NCLAT also observed that the creditors should have informed the NCLT of the significant payments received before the admission order was pronounced. Had they done so, the order might not have been passed.

Decision and Implications

Allowing the appeal, the NCLAT set aside the NCLT's order dated 20 July 2026. The corporate debtor was directed to bear the CIRP costs, if any. No order was made as to costs.

The ruling reaffirms a fundamental principle: an insolvency petition cannot be admitted if the debt due on the date of admission falls below the prescribed threshold. It also highlights the importance of transparency by financial creditors regarding payments received during the pendency of proceedings.