The National Company Law Appellate Tribunal (“NCLAT“) Bench on April 16, 2022 in the matter of Rajesh Kedia v. Phoenix ARC Pvt. Ltd. while adjudicating an appeal has held that the quantum of debt is not be considered at the stage of admission of a petition under Section 7 of IBC.

In this matter, UTI advanced financial assistance to Ajanta Paper and General Products Ltd. (“Corporate Debtor“) in the form of subscription of 5 Lakh Secured Redeemable Non-Convertible Debentures of face value of Rs. 100/- each, along with interest and charges payable under the financial facility. In 2002, UTI had issued a recall notice for default of debentures claiming a sum of Rs. 8,35,74,382/- and subsequently, the personal guarantees of the Corporate Debtor were also invoked. In 2003, UTI had filed an original application before the Debt Recovery Tribunal for recovery of its dues. Thereafter, UTI accepted a proposal in 2014 to settle the claims at an amount of Rs. 3,30,00,00,000/-. However, UTI assigned its debt to Phoenix ARC Pvt. Ltd. (“Financial Creditor“). The Financial Creditor issued a Demand Notice in 2016 to the Corporate Debtor. In 2018, the Financial Creditor filed a petition under Section 7 of IBC before the NCLT, Mumbai Bench, seeking initiation of Corporate Insolvency Resolution Process (“CIRP“) against the Corporate Debtor. NCLT, Mumbai Bench initiated CIRP against the Corporate Debtor. One of the suspended directors of the Corporate Debtor filed an appeal against the NCLT order before the NCLAT under Section 61 of the IBC.

The NCLAT Bench observed that the primary issue before them was whether the Adjudicating Authority was justified in admitting the Section 7 Application against the Appellant or not.

The Bench placed reliance on the Supreme Court judgment in M/s. Innoventive Industries Ltd. v. ICICI & Anr., (2018) 1 SCC 407, wherein while observing the definition of ‘Claim’, it was held that even if right of payment is disputed, the IBC gets triggered the moment, the default exceeds the threshold amount.

The NCLAT bench upheld the NCLT order and held that it is not within the domain of the Adjudicating Authority to decide the ‘amount of debt’ at the stage of admission of an application under Section 7 of IBC. The only requirement for admitting a petition under Section 7 of IBC is that the minimum outstanding debt should be more than the threshold amount provided for under the IBC.