Section 4 of IBC, 2016: Application of Part II and Minimum Default Threshold
Section 4 determines when Part II of the Insolvency and Bankruptcy Code, 2016 applies to insolvency resolution and liquidation of corporate debtors. The general minimum amount of default is Rs. 1 crore, effective from 24 March 2020.
1. Section 4 - Statutory provision and meaning
Section 4(1), Application of this Part: Part II applies to matters concerning insolvency and liquidation of corporate debtors where the minimum default is one crore rupees.
First proviso: Authorises the Central Government to specify, by notification, a higher minimum default amount, subject to the statutory ceiling of one crore rupees.
Second proviso: Authorises a separately notified minimum default amount for the pre-packaged insolvency resolution process under Chapter III-A, subject to the same statutory ceiling.
This is an explanatory restatement of the operative provision. For exact statutory wording and amendments, consult the official India Code text.
2. Minimum amount of default under Section 4
| Period or process | Minimum default | Legal basis |
|---|---|---|
| Original Part II threshold before 24 March 2020 | Rs. 1 lakh | Original Section 4 |
| General corporate insolvency applications from 24 March 2020 | Rs. 1 crore | Notification S.O. 1205(E), 24 March 2020 |
| Pre-packaged insolvency resolution process (PPIRP) for eligible MSME corporate debtors | Rs. 10 lakh | Separate notification dated 9 April 2021 under Section 4 |
The threshold concerns the amount of default, not merely the existence of a debt. Meeting the monetary threshold does not, by itself, establish every condition necessary for admission of an insolvency application.
3. Important legal definitions
Default - Section 3(12)
A default arises when a debt becomes due and payable, in whole or in part, and is not paid by the debtor or corporate debtor, as applicable.
Corporate debtor - Section 3(8)
A corporate debtor is a corporate person who owes a debt to any person.
Corporate person - Section 3(7)
Includes a company under the Companies Act, 2013, a limited liability partnership under the Limited Liability Partnership Act, 2008, and other incorporated limited-liability persons specified in the provision, but excludes financial service providers.
Financial creditor and operational creditor - Sections 5(7) and 5(20)
A financial creditor is a person to whom a financial debt is owed; an operational creditor is a person to whom an operational debt is owed, including persons to whom such debts are legally assigned or transferred.
4. How Section 4 operates with other IBC provisions
- Section 6: Identifies persons who may initiate corporate insolvency resolution when a corporate debtor commits a default.
- Section 7: Governs applications by financial creditors, subject to applicable requirements and special thresholds.
- Sections 8 and 9: Govern demand notices and applications by operational creditors, including the treatment of pre-existing disputes.
- Section 10: Governs applications by eligible corporate applicants.
- Chapter III-A: Provides the separate pre-packaged insolvency framework for eligible MSME corporate debtors.
Applications for corporate insolvency resolution are generally made before the National Company Law Tribunal (NCLT), the adjudicating authority under Section 60.
5. Practical implications and exceptions
For a fresh general corporate insolvency application, a default below Rs. 1 crore ordinarily does not meet the Section 4 threshold. Creditors may need to consider other legally available recovery mechanisms, depending on the nature of their claim.
The 2020 threshold change should not be assumed to operate retrospectively against applications already filed before its commencement. The filing date, applicable statutory provisions and judicial decisions matter. Other filing requirements, including limitation, evidence of default and any relevant statutory restrictions, must also be examined.
Section 10A separately bars initiation of CIRP for defaults arising during its specified COVID-19 suspension period, namely 25 March 2020 through 24 March 2021. That restriction is distinct from the monetary threshold under Section 4.
6. Official legislation and regulatory references
- India Code - Insolvency and Bankruptcy Code, 2016
- Official IBC statutory text (PDF)
- IBBI notifications - including Section 4 notifications of 24 March 2020 and 9 April 2021
- Insolvency and Bankruptcy Board of India - legal framework and updates
- Read more: The Insolvency and Bankruptcy Code, 2016
7. Frequently asked questions
What is the minimum default amount under Section 4 of IBC?
The general threshold is Rs. 1 crore, effective from 24 March 2020. The PPIRP framework has a separately notified Rs. 10 lakh threshold.
Can a creditor initiate CIRP for a default of Rs. 50 lakh?
Ordinarily, a fresh general CIRP application does not meet the Rs. 1 crore minimum. Separate regimes and other statutory conditions should be considered where applicable.
Does crossing Rs. 1 crore automatically result in insolvency?
No. An eligible applicant must establish the statutory conditions for admission, including default and other requirements under the applicable provision.
Editorial note: This article is general legal information, not case-specific advice. Verify notifications and amendments applicable on the relevant filing date.