PART II
INSOLVENCY RESOLUTION AND LIQUIDATION FOR CORPORATE PERSONS
CHAPTER I - PRELIMINARY
Section 4 of the Insolvency and Bankruptcy Code 2016: Application of Part II
Section 4 determines the monetary threshold for the application of Part II of the Insolvency and Bankruptcy Code, 2016 to insolvency and liquidation matters involving corporate debtors. Although the bare provision originally referred to a minimum default of Rs 1 lakh, the Central Government increased the general threshold to Rs 1 crore with effect from 24 March 2020.
Current Law Under Section 4
Section 4 - Application of this Part.
Part II applies to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of default meets the threshold prescribed under Section 4.
The section originally fixed that amount at Rs 1 lakh and empowered the Central Government to specify a higher amount, not exceeding Rs 1 crore. Exercising that power, the Central Government, by Notification S.O. 1205(E) dated 24 March 2020, specified Rs 1 crore as the minimum amount of default for the purposes of Section 4.
A second proviso, inserted in 2021, separately empowers the Central Government to specify a higher minimum amount of default, not exceeding Rs 1 crore, for matters relating to the pre-packaged insolvency resolution process under Chapter III-A.
The current consolidated Code and subordinate legal framework should be checked through the India Code portal and the Insolvency and Bankruptcy Board of India legal framework.
Rs 1 Crore Minimum Default Threshold
The operative general threshold under Section 4 is Rs 1 crore. Notification S.O. 1205(E) dated 24 March 2020 was issued by the Ministry of Corporate Affairs under the first proviso to Section 4 and specified Rs 1 crore as the minimum amount of default for the purposes of that section.
The threshold concerns the amount of default, not merely the total amount of a debt or claim. Consequently, the statutory meaning of default and the amount that had become due and payable are central when determining whether Section 4 is satisfied.
Current adjudicatory orders continue to apply Rs 1 crore as the statutory minimum default under Section 4 for ordinary Part II proceedings. The threshold ordinarily has to be satisfied when the insolvency application is filed.
Relevant Definitions for Section 4
| Provision | Term | Meaning |
|---|---|---|
| Section 3(7) | Corporate person | A company, limited liability partnership or another person incorporated with limited liability under law, subject to the statutory exclusion of a financial service provider. |
| Section 3(8) | Corporate debtor | A corporate person who owes a debt to any person. |
| Section 3(11) | Debt | A liability or obligation in respect of a claim which is due from any person and includes financial debt and operational debt. |
| Section 3(12) | Default | Non-payment of debt when the whole or any part or instalment has become due and payable and is not paid by the debtor or corporate debtor, as the case may be. |
These general definitions are contained in Section 3 of the IBC. Part II also contains additional definitions in Section 5.
Pre-Packaged Insolvency Resolution Process
The Insolvency and Bankruptcy Code (Amendment) Act, 2021 inserted Chapter III-A to provide a pre-packaged insolvency resolution process for eligible corporate debtors classified as micro, small or medium enterprises, subject to the conditions prescribed by the Code.
The 2021 amendment also inserted the second proviso to Section 4. It authorises the Central Government to prescribe, by notification, a separate minimum amount of default of a higher value, up to Rs 1 crore, for matters relating to the pre-packaged insolvency resolution process under Chapter III-A.
Practical Effect of Section 4
Section 4 operates as the monetary gateway to Part II. Before proceeding under the corporate insolvency provisions, it is necessary to identify the corporate debtor, establish the debt and default, calculate the amount of default that is due and payable, and determine whether the applicable statutory threshold is met.
Section 4 should then be read with the provision under which the proceeding is proposed. These include Section 7 for financial creditors, Section 9 for operational creditors, and Section 10 for corporate applicants.
Position After the 2026 IBC Amendment
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 introduced substantial amendments to the Code, including changes affecting initiation and conduct of corporate insolvency proceedings. It did not alter the Section 4 general threshold of Rs 1 crore specified by the Central Government. Accordingly, the Rs 1 crore minimum default continues to be the operative general threshold under Section 4 as on 30 September 2026.