A company can find itself staring at a corporate insolvency process even after it has paid down most of what it owed, simply because of how long these cases take to move through the system. Raja Udyog Private Limited, a snacks manufacturer, found itself in exactly that position before the NCLAT stepped in and set the insolvency admission aside.
Three financial creditors had lent Raja Udyog roughly Rs 2.25 crore during the Covid-19 period, and by the time they moved against the company they claimed around Rs 3.18 crore was outstanding, taking interest and other charges into account. They filed a Section 7 application before the Kolkata Bench of the NCLT seeking to trigger the corporate insolvency resolution process on that basis.
While the application was pending, Raja Udyog made payments of about Rs 2.25 crore to the creditors between June and July 2026, chipping away at the principal they had originally advanced. By the time the NCLT actually passed its order admitting the Section 7 application, the amount still outstanding had fallen to Rs 93,88,310, below the Rs 1 crore minimum default threshold that Section 4 of the Insolvency and Bankruptcy Code requires for a corporate insolvency application to proceed. The NCLT admitted the application anyway, and Loknath Prasad Gupta, a member of Raja Udyog's suspended board, appealed to the NCLAT.
The Appellate Tribunal set aside the NCLT's order. Its reasoning turned on timing: the Rs 1 crore threshold is not a box ticked once at the filing stage and then forgotten, it is a condition that still has to be satisfied at the point the adjudicating authority actually admits the application and sets the insolvency process in motion. Since the undisputed outstanding amount on that date had already dropped below Rs 1 crore because of the payments Raja Udyog had made in the intervening months, the NCLT had no jurisdiction left to admit the petition, whatever the position had been when the creditors first filed it.
Gupta's appeal did not dispute that the company had owed the creditors money at some point, or that it had defaulted on repayment as originally scheduled. The argument was narrower and, on the Tribunal's reading, decisive: admission is itself a jurisdictional act, and an adjudicating authority cannot perform that act validly once the factual premise for it, a default of at least Rs 1 crore, has ceased to exist by the time the order is actually passed. A tribunal moving slowly through its list, while a debtor keeps paying down the balance in the background, risks admitting a case on facts that no longer support admission at all.
The order sits alongside a string of recent NCLAT rulings scrutinising the Rs 1 crore threshold with the same care, including a separate case earlier in the year involving Vikram Solar, where the Tribunal likewise found that a reduced balance defeated an insolvency admission. Debtors facing Section 7 or Section 9 applications where the claimed amount is close to the statutory floor have an obvious incentive to keep paying down the debt for exactly this reason, and this ruling confirms that such payments, made before the adjudicating authority passes its order, can still defeat an admission that would otherwise have gone through.
Creditors, in turn, now have a clear reason to push for faster hearings once a Section 7 or Section 9 application is filed, rather than letting it sit on the Tribunal's list while the debtor chips away at the principal. A claim that comfortably clears the Rs 1 crore threshold on the day of filing offers no protection if the respondent keeps paying and the matter is not actually admitted until the balance has slipped underneath that line. For corporate debtors in financial distress, the lesson cuts the other way: even partial payments made while an insolvency application is pending are not futile gestures, since this ruling shows they can still be enough to defeat the application outright if they bring the outstanding sum below the statutory minimum before the order admitting the case is passed.