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CS Professional · Insolvency and Bankruptcy - Law and Practice · Bankruptcy for Individuals and Partnership Firms

A creditor is owed Rs 50,000 by an individual and wants to initiate the insolvency resolution process under Part III. Which statement correctly reflects the minimum default threshold in section 78?

Part III applies where the default is not less than Rs 1,000, and the Central Government may notify a higher minimum amount of default which cannot exceed Rs 1 lakh. It does not apply to any default regardless of size, nor is the ceiling unlimited.

  1. APart III applies only where default is at least Rs 1 crore
  2. BPart III applies where the default is not less than Rs 1,000, though the Central Government may notify a higher minimum not exceeding Rs 1 lakhCorrect
  3. CPart III applies to any default, however small
  4. DThe Central Government may raise the minimum to any amount it chooses

Explanation

Section 78 applies Part III where the amount of default is not less than one thousand rupees, with a proviso allowing the Central Government to notify a higher minimum that shall not exceed one lakh rupees. A Rs 50,000 default exceeds the base threshold and falls within the cap.

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