The Rs 1 Crore Rule: Minimum Default for Insolvency in India

The first question in almost every insolvency enquiry we receive is about money: is the debt big enough? Under Section 4 of the Insolvency and Bankruptcy Code, an insolvency case against a company can be started only if the default is at least Rs 1 crore. Below that, the NCLT will not admit the application, however clear the debt.

The rule sounds simple, but questions follow quickly. Does interest count? Can several unpaid invoices be added together? Can two suppliers combine their claims? What about defaults from before the threshold was raised? And if the debt is smaller, what can a creditor do instead? This guide answers those questions in plain terms. It reflects the law as amended up to 26 May 2026.

The rule at a glance

Why the threshold is Rs 1 crore

When the Code came into force in 2016, the minimum default was Rs 1 lakh. That made it easy for small creditors to use insolvency as a recovery threat, and tribunals were flooded with applications over modest unpaid bills. On 24 March 2020, as the COVID-19 lockdown began, the central government used its power under the proviso to Section 4 to raise the threshold to Rs 1 crore. The aim was to protect small and medium businesses from being pushed into insolvency during the pandemic and to keep the NCLT focused on larger cases.

A question soon arose: did the new threshold apply to defaults that happened before 24 March 2020, if the application was filed after? Tribunals have generally applied the threshold in force on the date the application is filed. The Supreme Court in Manish Kumar v Union of India (2021) upheld amendments that changed thresholds for pending homebuyer applications, recognising Parliament's power to set such limits. In practice, if you file today, you need a default of at least Rs 1 crore.

The same period also brought Section 10A, which bars insolvency applications for defaults that occurred between 25 March 2020 and 24 March 2021. Those defaults can never be the basis of an application, even after the period ended, though creditors can still recover through other routes.

What counts towards Rs 1 crore

Principal and interest. For a loan, the default includes principal instalments and interest that have fallen due and not been paid. For a trade debt, it is the invoice amounts due. Interest on delayed payment counts if the contract provides for it. Where interest is claimed only because the invoice says so, without a signed agreement, tribunals have differed, and some have refused to count it. A careful creditor builds the threshold from undisputed principal wherever possible.

Several invoices or loans. Defaults to the same creditor under several invoices or loans can be added together. A supplier with twenty unpaid invoices of Rs 6 lakh each has a default of Rs 1.2 crore.

Several creditors. For financial creditors, the Explanation to Section 7(1) allows an application for a default to any financial creditor, and financial creditors can file jointly. Homebuyers file as a class. For operational creditors, joint applications are more contested, and each operational creditor usually files on its own claim. Take advice before relying on combining claims.

Disputed amounts. For operational creditors, any part of the debt that was genuinely disputed before the demand notice may be excluded, and if the undisputed part falls below Rs 1 crore, the application fails. Build the claim on what the buyer has acknowledged.

Amounts already paid. Part payments reduce the default. Check the ledger at the date of filing.

How to check whether your claim meets the threshold

Thresholds under the IBC

If your debt is below Rs 1 crore

A smaller debt is not a lost cause. A commercial suit for a commercial dispute of Rs 3 lakh or more goes to the commercial courts, after mandatory pre-institution mediation unless urgent interim relief is sought. Where the debt is backed by a written contract or a bill of exchange, a summary suit under Order XXXVII of the Civil Procedure Code can be faster, because the defendant needs leave to defend. Registered micro and small suppliers can refer delayed payments to the Micro and Small Enterprises Facilitation Council, which can award interest at three times the bank rate, and an award can be challenged only after depositing 75% of the amount. Contracts with arbitration clauses go to arbitration. Bounced cheques can lead to a complaint under Section 138 of the Negotiable Instruments Act.

A formal legal notice is often the first step in each of these, and a well-documented notice sometimes brings payment on its own.

Before you rely on the Rs 1 crore figure

The threshold and settlement value

The Rs 1 crore threshold also affects negotiation. A solvent company facing a well-founded Section 9 application often pays rather than risk admission, because once admitted, it loses control. A company that knows the claim is barely above the line, or depends on disputed interest, may fight. For creditors, building the claim on undisputed principal well above Rs 1 crore gives far more leverage than a claim that scrapes past the threshold. For debtors, a careful check of the creditor's figures, invoice by invoice, is often the most effective defence.

Key rulings on the threshold and default

Defaults by group companies and guarantors

The default must be by the company you are proceeding against. A debt owed by a sister company does not count, unless the company you are pursuing has guaranteed it and the guarantee has been invoked, in which case the corporate guarantee itself becomes a financial debt of the guarantor company. Lenders often use this to proceed against a group's asset-rich company that guaranteed a loan to a weaker affiliate. Check the guarantee deed, the invocation letter and the date of invocation, because these decide when the guarantor company itself defaulted and whether the claim is within limitation.