NCLT Mumbai Denies Insolvency Plea Citing Failure To Meet Mandatory One Crore Default Threshold

The National Company Law Tribunal, Mumbai, has dismissed a high-stakes insolvency petition, sharpening the boundaries regarding the aggregation of corporate debts. In a recent ruling by members Nilesh Sharma and Sameer Kakar, the tribunal clarified that financial creditors cannot club defaults across distinct legal entities, even if those entities operate within the same corporate group, to reach the statutory minimum threshold prescribed under the Insolvency and Bankruptcy Code (IBC), 2016.

The Dispute and Financial Claims

The case arose from a petition filed by Mr. R. Srikant Ayyer against Neogreen Agriculture Limited Liability Partnership (LLP). The applicant sought the initiation of the Corporate Insolvency Resolution Process (CIRP) over an alleged default of over ₹1.02 crore. This figure was constructed by combining two separate investments: an alleged debt of ₹20 lakh in the respondent, Neogreen Agriculture LLP, and an investment of ₹30 lakh in an associate entity, Neogreen Ventures Limited.

The applicant argued that because the entities shared common directors and functions, they should be treated as a single economic unit. However, the tribunal’s scrutiny revealed that the financial liability specifically attributable to the respondent was merely ₹40,93,970—far below the mandatory ₹1 crore threshold established under Section 4 of the IBC.

Legal Analysis and Judicial Reasoning

The tribunal scrutinized whether the applicant could legally bundle these debts. Under the framework of the IBC, while the law allows for multiple financial creditors to join forces against a single corporate debtor to meet threshold requirements, it offers no such latitude for combining defaults owed by different corporate debtors.

The NCLT observed that the applicant failed to provide evidence of any guarantee deed, contractual undertaking, or agreement wherein Neogreen Agriculture LLP explicitly assumed liability for the debts of Neogreen Ventures Limited. Without such a formal document, the tribunal held that the distinct identities of the two firms must be respected.

Key Observations

The Tribunal's order was categorical in its disapproval of the strategy employed by the applicant:

  • "The provisions do not permit clubbing the outstanding dues payable by two or more corporate debtors for the purpose of meeting the threshold and thereby initiating CIRP in respect of anyone or both of the Corporate Debtors."
  • "The Applicant has failed to produce any document to establish that the corporate debtor herein is liable to make payment of the dues of its group company pursuant to any guarantee deed or any other agreement/undertaking."
  • "It is therefore safe to conclude that the present Section 7 Application has been filed by the Applicant artificially inflating the alleged debt and default through inclusion of another corporate entity’s dues."

Final Ruling and Implications

Deeming the application an attempt to "artificially inflate" the default to bypass statutory requirements, the tribunal concluded that the petition was not maintainable. The NCLT dismissed the insolvency plea, noting that such a practice reflects an improper use of the insolvency process as a mere recovery tool rather than a means for corporate resolution.

While the petition was rejected, the tribunal noted that the applicant retains the right to pursue other remedies available under civil law to recover the outstanding dues. This decision serves as a significant precedent for ensuring that the IBC remains a specialized resolution mechanism, prevented from being flooded by claims that do not strictly satisfy the jurisdictional threshold of ₹1 crore.