The insolvency threshold under the IBC is the floor amount of unpaid debt that must exist before a company can be dragged into insolvency proceedings. Today that floor is Rs 1 crore: if a corporate debtor’s default is less than Rs 1 crore, no creditor can file an application to begin the corporate insolvency resolution process. This single number decides whether a dispute stays an ordinary recovery matter or escalates into a process that can end with a company being restructured or liquidated.
If you are a supplier chasing an unpaid invoice, a lender holding a defaulted loan, or a business owner worried about a creditor’s threat to “take you to the NCLT”, this threshold is the first thing to understand. Below, we explain where the Rs 1 crore figure comes from, how it changed, what counts towards it, and what it practically means for both sides.
What the Insolvency Threshold Means
The Insolvency and Bankruptcy Code, 2016 (the IBC) created a unified process for resolving the insolvency of companies, partnerships and individuals. For companies and limited liability partnerships, the relevant mechanism is the Corporate Insolvency Resolution Process (CIRP) before the National Company Law Tribunal (NCLT).
A creditor cannot simply approach the NCLT the moment a rupee goes unpaid. The Code sets a minimum amount of default that must be crossed before the tribunal will even entertain an application. This is the insolvency threshold. It exists to keep the tribunals from being clogged with small claims that are better suited to ordinary civil recovery, and to reserve the powerful insolvency machinery for genuinely serious defaults.
The threshold is set out in Section 4 of the IBC. (Section numbers can be amended over time, so always confirm the current text on the official source before acting.)
The Rs 1 Crore Minimum Default: Where It Comes From
When the IBC first came into force, the minimum default was Rs 1 lakh. Section 4 allowed the Central Government to raise this floor by notification, up to a ceiling of Rs 1 crore.
In March 2020, the Central Government issued a notification increasing the minimum default to Rs 1 crore. The change was made in the difficult economic climate of that period, with the stated aim of protecting smaller companies — particularly micro, small and medium enterprises (MSMEs) — from being pushed into insolvency over relatively modest sums.
The practical effect is significant:
- Before March 2020: a default of Rs 1 lakh or more could trigger a CIRP application.
- From March 2020 onwards: the default must be Rs 1 crore or more.
This was a hundred-fold jump. A great many claims that could once have been pursued through the NCLT now fall below the line and must be recovered through other means.
Why the threshold was raised
The increase was driven by two connected concerns. First, the insolvency forum was never meant to be a debt-collection counter; raising the floor channels small disputes back to civil courts and other recovery routes. Second, smaller businesses faced the prospect of insolvency proceedings over comparatively small defaults, which could be disproportionate and ruinous. Setting the bar at Rs 1 crore aimed to strike a balance.
How the Threshold Applies to Different Creditors
The Rs 1 crore threshold applies whether the applicant is a financial creditor, an operational creditor, or the corporate debtor itself. The route differs, but the floor is the same.
| Who is filing | Provision typically used | Threshold | Common examples |
|---|---|---|---|
| Financial creditor | Section 7 IBC | Rs 1 crore minimum default | Banks, NBFCs, debenture holders, lenders |
| Operational creditor | Sections 8 & 9 IBC | Rs 1 crore minimum default | Suppliers, vendors, service providers, employees |
| Corporate debtor (self) | Section 10 IBC | Rs 1 crore minimum default | A company seeking its own resolution |
For an operational creditor (for example, a supplier with unpaid invoices), there is an additional step: a demand notice must be served under Section 8, and the debtor gets a window to either pay or point to a genuine pre-existing dispute. Only if the unpaid operational debt is Rs 1 crore or more, and remains unpaid without a bona fide dispute, can the creditor move under Section 9.
For a financial creditor, the application is made under Section 7, supported by records of the debt and default. Again, the default must meet the Rs 1 crore floor.
What Counts Towards the Rs 1 Crore
A frequent question is what exactly goes into the Rs 1 crore calculation. As a general principle:
- The threshold is measured against the amount of default — the debt that has become due and payable and has not been paid.
- It is the default, not the total business relationship or the entire outstanding ledger of unrelated dealings, that matters.
- Whether interest, penalties and other components can be added to reach the figure has been the subject of tribunal and appellate rulings, and depends on the facts and the underlying contract or instrument.
Because the question of what may be aggregated to cross Rs 1 crore turns on case-specific facts and evolving case law, this is exactly the kind of point on which you should take advice rather than rely on a general article. The specifics — including how courts have treated part-payments, disputed components and the date on which default is reckoned — are matters to verify against current rulings.
The Threshold Is a Gateway, Not the Whole Test
Crossing Rs 1 crore is necessary, but it is not sufficient. Even where the default exceeds the threshold, an application can still fail. For instance:
- An operational creditor’s application can be rejected if the debtor demonstrates a genuine pre-existing dispute about the debt.
- The application must be complete, properly documented, and within the relevant period of limitation.
- The tribunal examines whether a default has actually occurred and whether the debt is real and payable.
In other words, the threshold opens the door; the merits decide whether you walk through it. Treating the IBC as a shortcut to recover an ordinary disputed debt is a common and costly mistake.
What This Means in Practice
For creditors: If your default is comfortably above Rs 1 crore and is undisputed, the IBC can be a powerful lever — the mere admission of a petition often concentrates a debtor’s mind. But if your claim is below Rs 1 crore, or is genuinely disputed, the NCLT is not your forum, and you should consider ordinary civil recovery, a summary suit, arbitration (if your contract provides for it), or other remedies. For the alternatives, see our guides to a money recovery suit and the faster summary suit under Order 37 CPC.
For corporate debtors: A threat to file an insolvency petition over a sub-Rs 1 crore claim, or over a genuinely disputed invoice, is often not maintainable. Understanding the threshold can prevent panic — and prevent over-paying to settle a claim that could never have entered the NCLT in the first place. Where the default is real and large, early professional advice on resolution options is far better than waiting for a petition.
For everyone: The threshold is set by government notification and can be changed again. Always confirm the figure that applies on the date of your default before acting on it. To understand how our team advises businesses on debt, contracts and disputes, see our corporate and commercial law practice page.
Frequently Asked Questions
What is the minimum default to file insolvency against a company under the IBC?
The minimum default is Rs 1 crore. A creditor cannot initiate the corporate insolvency resolution process before the NCLT unless the corporate debtor’s default is Rs 1 crore or more.
Was the threshold always Rs 1 crore?
No. When the IBC came into force, the minimum default was Rs 1 lakh. It was raised to Rs 1 crore by a Central Government notification in March 2020.
Does the Rs 1 crore threshold apply to both banks and suppliers?
Yes. The threshold applies to financial creditors (such as banks, under Section 7), operational creditors (such as suppliers, under Sections 8 and 9), and to a company filing for its own resolution (Section 10).
My customer owes me Rs 60 lakh. Can I file insolvency against them?
Generally no. A default below Rs 1 crore does not meet the IBC threshold. You would usually need to pursue other recovery options such as a civil suit, a summary suit, or arbitration if your contract allows it.
Can I add interest and penalties to cross the Rs 1 crore figure?
It depends on the facts, the contract and the applicable case law. Whether interest and other components can be aggregated to reach the threshold has been examined by tribunals and appellate forums, so this should be assessed on your specific documents.
Does crossing Rs 1 crore guarantee that my petition will be admitted?
No. Meeting the threshold only allows you to file. The tribunal still examines whether there is a genuine default, whether the claim is within limitation, and (for operational creditors) whether there is a pre-existing dispute.
Could the Rs 1 crore threshold change in the future?
Yes. The threshold is fixed by Central Government notification and can be revised. Always verify the figure applicable on the date of the relevant default.
This article is for general informational purposes only and does not constitute legal advice. Laws change and every situation is different; please consult a qualified advocate about your specific matter.
