The Moving Target: Does an IBC petition fail on subsequent part-payment?

A recurring question that has vexed corporate debtors and creditors alike under the Insolvency and Bankruptcy Code, 2016 ("IBC") is about the sanctity of the filing date. What happens if a corporate debtor, after an insolvency petition has been filed but before the National Company Law Tribunal ("NCLT") can decide on it, makes a part-payment that brings the outstanding debt below the magical ₹1 crore threshold? Does the petition, which was perfectly valid when filed, suddenly become non-maintainable? The National Company Law Appellate Tribunal ("NCLAT") recently provided a decisive answer in the case of Devika Resources (P) Ltd. v. MAA Manasha Devi Alloys (P) Ltd., 2025 SCC OnLine NCLAT 901.

The Facts

The Appellant, an operational creditor, was owed a sum of ₹1,16,25,583. After a demand notice went unheeded, they filed an application under Section 9 of the IBC to initiate the Corporate Insolvency Resolution Process ("CIRP"). The debt amount was clearly above the ₹1 crore threshold at the time of filing of the Section 9 petition.

However, while the proceedings were pending before the NCLT, the corporate debtor made a suo motu payment of ₹20 lakhs into the creditor's account. This reduced the outstanding debt to a figure below ₹1 crore. The NCLT, taking note of this subsequent payment, dismissed the Section 9 application, holding that the threshold was no longer met at the time of admission. The creditor appealed to the NCLAT.

Findings of the NCLAT

The core issue before the NCLAT was whether the threshold of ₹1 crore should be assessed at the time of filing the application, or at the time of its admission. The debtor contended that the threshold must be met on the date of admission, as the objective of the Code is resolution, not recovery. If the debt has fallen below the minimum requirement, the insolvency process should not be triggered.

Per contra, the creditor argued that the validity of a petition must be judged based on the facts as they exist on the date of its presentation. Any subsequent events, like a part-payment made without the creditor's consent, cannot invalidate a petition that was validly filed.

The NCLAT sided with the creditor. It held the threshold has to be seen at the time of filing of the application and not at the time of its admission. In reaching this conclusion, the NCLAT relied on the following judgments of the Supreme Court:

1. Rajahmundry Electric Supply Corporation Ltd. v. A. Nageshwara Rao: This vintage Supreme Court case, though under the old Companies Act, established the principle that "the validity of a petition must be judged on the facts as they were at the time of its presentation". The Court held that a petition that was valid when filed cannot cease to be maintainable due to subsequent events, absent a specific statutory provision to that effect.

2. Manish Kumar v. Union of India: This is a more recent and landmark Supreme Court judgment concerning threshold requirements for homebuyers under the IBC. The judgment reaffirms the Rajahmundry principle and holds: "There can be no doubt that the requirement of a threshold under the impugned proviso, in Section 7(1), must be fulfilled as on the date of the filing of the application".

The NCLAT found that since the appellant's application had crossed the ₹1 crore threshold on the date it was filed, the subsequent unilateral payment by the debtor could not render it non-maintainable.

What emerges it that a validly-filed petition cannot be torpedoed by the debtor by making a subsequent payment solely to duck below the statutory threshold.

The Road Ahead

The NCLAT's decision in Devika Resources prevents corporate debtors from gaming the system by making last-minute, tactical payments to defeat legitimate insolvency petitions. This ensures that the initiation of CIRP remains a predictable and stable process, governed by the state of affairs at the time of filing, not by a moving target. However, the decision is under challenge before the Supreme Court in Civil Appeal No. 11355/2025, in which the Supreme Court was pleased to stay the proceedings pending before the NCLT. This piece will be updated as and when the Civil Appeal is decided.