IBC Section 4: Application of Part II and Threshold Limit

Section 4 of Insolvency and Bankruptcy Code, 2016: Application of Part II and Threshold Limit

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

(1) This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees:

Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees:

Central Government Notification: Vide S.O. 1205(E) dated 24 March 2020, the Central Government specified one crore rupees (₹1,00,00,000) as the minimum amount of default for initiation of CIRP under Part II of the Code.

Statutory Defined Terms in this Section: (Click any term for official legal definition)

Default Sec 3(12) Corporate Debtor Sec 3(8) Section 7 CIRP Sec 7 Section 9 CIRP Sec 9

Legal Commentary & Landmark Judgments: Section 4

Section 4 establishes the minimum statutory monetary threshold of default required to initiate the Corporate Insolvency Resolution Process under Part II of the Code, currently set at one crore rupees.

Baseline Statutory Threshold: Part II applies to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees.
Central Government Escalation Power: Empowers the Central Government to specify, by notification, a higher minimum amount of default of up to one crore rupees.
Notification of March 24, 2020: By S.O. 1205(E) dated 24.03.2020, the Central Government elevated the threshold of default to one crore rupees (Rs 1,00,00,000) to prevent small MSMEs from being dragged into insolvency.

Key Landmark Precedents:

Ramesh Kymal v. Siemens Gamesa Renewable Power (2021) 3 SCC 224: The Supreme Court held that the retrospective application of threshold amendments must be scrutinized strictly; applications filed prior to the notification date are judged by the pre-existing statutory threshold.
Manish Kumar v. Union of India (2021) 5 SCC 1: The Supreme Court upheld the constitutional validity of minimum default thresholds and home-buyer threshold limits, affirming that the legislature possesses broad economic wisdom to filter out unviable insolvency filings.

Courtroom Practice & Strategic Litigation Guidance:

Before filing Section 7 or Section 9 petitions, ensure that the cumulative defaulted amount strictly equals or exceeds Rs 1,00,00,000 (Rupees One Crore). Applications below Rs 1 crore are not maintainable before NCLT and must be pursued before civil courts or MSME Samadhaan.