What is the Limit for Bankruptcy in India?
India’s bankruptcy and insolvency laws have undergone significant reform since the introduction of the Insolvency and Bankruptcy Code (IBC), 2016. The Code aims to provide a unified, efficient framework for resolving insolvency for both corporate entities and individuals. A key aspect of this framework is the monetary threshold that determines when insolvency proceedings can be initiated.
Corporate Insolvency Threshold
For companies and limited liability partnerships (LLPs), the IBC stipulates a clear limit:
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Minimum Default Amount: As per Section 4 of the IBC, insolvency proceedings can be initiated only if the corporate debtor has defaulted on a payment of at least ₹1 crore (10 million rupees). This threshold was increased from the earlier limit of ₹1 lakh in March 2020, primarily to prevent the system from being overwhelmed by small-value cases.
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Who Can File: Both financial creditors (such as banks) and operational creditors (such as suppliers or employees) can file for insolvency, but each must independently meet the ₹1 crore threshold. For joint applications by multiple operational creditors, each creditor must individually satisfy the ₹1 crore default limit for the application to be admitted.
Personal Bankruptcy and Partnership Firms
The IBC also provides for insolvency resolution for individuals and partnership firms, though these provisions are not fully operationalized across the country as of 2025. The key points are:
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Threshold Limit: The eligibility threshold for initiating personal insolvency under the IBC is ₹1,000. This was raised from the earlier regime’s ₹500 limit and can be increased by the government up to ₹1 lakh.
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Fresh Start Process: For low-income individuals, the IBC introduces a “Fresh Start Process” for those with gross annual income below ₹60,000, assets under ₹20,000, and qualifying debts less than ₹35,000. This process aims to provide relief for small debtors by reducing the costs and complexity of insolvency proceedings.
Special Provisions for MSMEs
Micro, Small, and Medium Enterprises (MSMEs) have additional options under the IBC:
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Pre-packaged Insolvency: MSMEs can pursue a pre-packaged insolvency resolution process (PPIRP), which is a faster and more flexible alternative to the standard corporate insolvency process. The eligibility for MSMEs is linked to investment limits, with a cap of ₹125 crores for plant, machinery, and equipment (excluding land and buildings).
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Exemptions: MSMEs benefit from certain exemptions under Section 29A of the IBC, allowing promoters to submit resolution plans even if their accounts are classified as non-performing assets or if they have provided guarantees that have been invoked.
Time Limits and Practical Realities
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Resolution Timeframe: The IBC mandates that the Corporate Insolvency Resolution Process (CIRP) should be completed within 330 days (including extensions and legal proceedings). However, the Supreme Court has clarified that this timeline is advisory, not mandatory, and the average time for resolution remains around 679 days due to judicial delays and litigation.
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Liquidation: If the CIRP fails to resolve the insolvency within the stipulated period, liquidation proceedings can be initiated.
Enforcement and Practical Considerations
Why Was the Corporate Threshold Raised?
The increase of the corporate insolvency threshold from ₹1 lakh to ₹1 crore in March 2020 was a significant policy decision. This change was primarily made to:
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Protect Small Businesses: Prevent smaller companies and MSMEs from being dragged into insolvency over minor defaults, especially during economic disruptions like the COVID-19 pandemic.
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Reduce NCLT Burden: Help the National Company Law Tribunal (NCLT) focus on larger, more complex insolvency cases, making the process more efficient.
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Encourage Out-of-Court Settlements: With a higher threshold, creditors and debtors are more likely to negotiate and settle smaller disputes outside the formal insolvency process.
How Are Bankruptcy Limits Enforced?
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Verification of Default: Before admitting an insolvency application, the NCLT verifies whether the default amount meets the prescribed threshold. Creditors must provide documentary evidence of the default, such as loan agreements, invoices, or bank statements.
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Rejection of Inadequate Claims: If the default is less than ₹1 crore for corporate debtors, the application is summarily rejected. For individuals and partnerships, applications below ₹1,000 are not entertained.
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Multiple Creditors: If several creditors file a joint application, each must independently satisfy the threshold for their claim to be considered.
Summary Table
| Category | Threshold Limit | Who Can File | Notes |
|---|---|---|---|
| Corporate Debtors | ₹1 crore | Financial/Operational | Each creditor must meet the limit individually |
| Individuals/Partnerships | ₹1,000 (can be raised to ₹1 lakh) | Creditors or Debtors | Not fully operational; “Fresh Start” for small debtors |
| MSMEs (Pre-pack) | Investment up to ₹125 crore | MSME Promoters/Creditors | Special exemptions, faster process |
Conclusion
The current limit for initiating bankruptcy proceedings in India is ₹1 crore for companies and LLPs, and ₹1,000 for individuals and partnership firms, with the latter subject to further government notifications. MSMEs have access to special pre-packaged insolvency processes with their own eligibility criteria. While the IBC has streamlined insolvency resolution, practical challenges like delays and judicial intervention persist, impacting the effectiveness of the regime
