Student at University School of Law and Legal Studies, Guru Gobind Singh Indraprastha University, New Delhi
Economic Recovery vs. Marginalisation of Small Creditors There was a recent increase in the threshold limit for initiating insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) from ₹1 lakh to ₹1 crore. Now, in the Union Budget 2024-2025, the government has aimed at the establishment of additional tribunals to speed up the resolution process . To me, this reflects a complex and somewhat conflicting perspective wherein the government has adopted a dual approach to balance the need for economic recovery and investment against the potential marginalization of small operational creditors. On one hand, the government's decision to raise the threshold was positioned as a necessary measure to support businesses struggling in the wake of the COVID-19 pandemic. By increasing the minimum default amount, the government aimed to relieve the burden on the National Company Law Tribunal (NCLT) and prevent a flood of insolvency cases that could have destabilized the economy further. This move intended to allow companies, particularly small and medium enterprises (SMEs), to navigate financial difficulties without the immediate threat of insolvency proceedings, thereby fostering an environment conducive to investment and economic growth. However, this reform came at a cost, particularly for operational creditors—typically smaller suppliers and service providers—who may now find themselves without recourse in insolvency situations. The new threshold effectively excludes many operational creditors who often deal with debts significantly lower than ₹1 crore. Unlike financial creditors, operational creditors cannot aggregate claims to meet the threshold, which means that individual claims that fall below this limit will not be actionable in insolvency proceedings. This exclusion raises concerns about the fairness and balance that the IBC was originally designed to uphold. The vision of the Union Budget is commendable with respect to the IBC yet it happens to focus on the macro-scale aspect of benefiting larger corporations in order to boost economic growth and investments. The challenge lies in finding a balance that protects the interests of all stakeholders, ensuring that the reforms do not inadvertently create a more precarious environment for smaller businesses that are essential to the economy. As the government moves forward with these changes, it will be crucial to monitor their impact on both corporate health and the rights of creditors to ensure a fair and equitable insolvency framework. #UnionBudget2024 #IBC
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