Charu Mathur: Right sir. Sir, how do you see this legislation is helping operational creditors and unsecured creditors? Is it beneficial to them or they are still in the same position?

U K Chaudhary: See, my take on the issue is that as far as the secured creditors are concerned, they are certainly benefited. They are certainly benefited in the process that liquidation comes at the last writ. And the first effort of most of the issues is that how to solve those debt issues in the corporate insolvency process. So it certainly helps the bankers, who are mostly the secured creditors. It also helps them that when ultimately, in some cases where it is not possible to have the corporate insolvency resolution process being very successful. This helps them ultimately in liquidation that either they can opt for keeping themselves out of the liquidation under Section 52 of the IB Code or fall into what we call the Waterfall Management—of distribution of assets of the bankrupt for the liquidated company in the processes under Section 53. So, secured creditors certainly are taken care of. What I personally believe, which also was the thinking at one point of time of the National Company Law Appellate Tribunal was that in the whole process, the operational creditors are getting a rough shot.

Charu Mathur: And sir, your take on the threshold limit like it’s only one lakh rupees default and you take company for liquidation. It is a very perceivable threat to the company for winding-up.

U K Chaudhary: In fact, in the last effort of the Government to make a modification and amendment in the Insolvency and Bankruptcy Code was that we were all expecting that even the threshold limit will be increased from one lakh to at least minimum one crore, but this has not happened in the wisdom of the Government. But I still feel that it’s a very small limit to send even a large corporation into the insolvency process; which means that completely extinguishing the current management of the company, handing it over to a complete unknown management professional who may not know how to really operate such a big institution. Therefore, I still feel that there is a case that the threshold should be increased at least to some reasonable amount of rupees one crore or so.

Charu Mathur: So, then sir, the remedy for the operational creditor would remain to file a civil suit, in that case, where the amount is…

U K Chaudhary: See, according to me, even the operational creditor at least more than about 75 per cent still will be covered, because one crore is not a very big amount these days. Even the small service providers or even a small supplier of the goods—certainly the value of his goods supplied to a big corporation runs into more than a few crores of rupees. Therefore, if it is increased to one crore of rupees, not that many operational creditors really will be pushed out. Even a small flat in an NCR region, itself will be more than a crore of rupees.So, I don’tthink the increase from one lakh to one crore will impact many operational creditors or even many financial creditors.

Charu Mathur: Right sir and even the Company Laws, when it was there for 1956, they kept the winding-up limit as Rs 500 default. So...

U K Chaudhary: Correct! But there is a small difference between the winding-up jurisdictions in the erstwhile regime and, if you see, the financial creditors under Section 7. In Section 7 of the IB Code, you not necessarily file for the default in the payment of your dues, you can even file if the money is not paid off the other financial creditors also. Now again, there is a provision also that you need not to alone go for filing the petition, you can join with other persons to make a joint petition. Therefore, there is enough scope that even if it is increased from one lakh to one crore and it is not possible for the two financial creditors to come into the category of fifty each, they can combine and file a joint petition.

Charu Mathur: Right sir! Like even the consumer forum has been doing that for the flat owner, so probably under the...

U K Chaudhary: For quite some time now.

Charu Mathur: For quite some time now. 

U K Chaudhary: So this can be a practice in the financial creditors. And I don't think that the operational creditors in any way have more restrictions than the financial creditors. Because when the operational creditors invoke this jurisdiction, they have to pass a number of barriers like they have to pass a barrier of Section 8 by giving a proper notice that there not be a pre-existing dispute,. therefore the filing of the suit and other remedy is not completely barred. So even if suppose there is a dispute, in any case, you have to go to the civil court for deciding that kind of..., you can’t trigger the CIR process under Sections 8 and 9. Therefore, I do not see that increase from one lakh to one crore will really, very adversely impact either the financial creditors or the operational creditors.