On 24 March 2020, MCA notification S.O. 1205(E) raised the Section 4 default threshold under the Insolvency and Bankruptcy Code from ₹1 lakh to ₹1 crore. The change was framed as a COVID measure. It has never been rolled back. For the vast majority of Indian SME receivables, that move closed the NCLT door — overnight.
Operational creditors with a default below ₹1 crore can no longer file under Section 9 of the IBC. The CIRP route — moratorium, resolution professional, the leverage of insolvency — is unavailable. What replaces it is the slower, harder, mechanism-specific civil and criminal toolkit that existed before IBC ever did.
1. Commercial Suit under the Commercial Courts Act 2015
Any commercial dispute of specified value ≥ ₹3 Lakhs is routed to the commercial court track. Faster than ordinary civil: case management timelines of six months, summary judgment available, and mandatory pre-institution mediation under Section 12A. Realistic timeline — 18 to 36 months for contested trial; 4 to 9 months if settled in pre-institution mediation.
2. Section 138 of the Negotiable Instruments Act
Available only when there is a bounced cheque. Criminal liability of the drawer creates strong settlement leverage. The 30-day demand notice plus 15-day grace plus 30-day filing window adds up to a hard 75-day clock from dishonour. In our experience over 90% of Section 138 matters settle before trial.
3. Arbitration under the Arbitration & Conciliation Act 1996
Only available where the contract has an arbitration clause. Cost-effective for claims ₹25 Lakhs and above. Awards typically within 12 to 18 months; institutional arbitration through MCIA or DIAC is usually faster than ad hoc proceedings.
4. Mediation under the Mediation Act 2023
The newest statutory option. Settlement agreements arrived at through institutional mediation are enforceable as decrees. Pre-institution mediation is already mandatory before any commercial suit, so most matters now pass through this gate anyway. Cheapest, fastest path — when the counterparty is solvent and willing to engage.
Sub-1Cr mechanisms — timeline / cost / settlement odds
Commercial suit
Section 138 NI Act
Arbitration (institutional)
Mediation Act 2023
Median values from funded matters 2023-2026 for claims ₹15-90 Lakhs. Mediation values assume institutional mediation under the Mediation Act 2023; arbitration assumes existing contractual clause.
| Situation | Best first path |
|---|---|
| Bounced cheque exists | Section 138 (file in parallel with civil) |
| Contract has arbitration clause | Arbitration |
| No cheque, no clause, B2B | Commercial suit (mediation gate first) |
| Counterparty willing to engage | Mediation |
| Counterparty already in CIRP | Operational creditor claim in existing CIRP |
Aggregation between unrelated counterparties is not permitted under IBC. But aggregating multiple defaults from the same counterparty is. If one entity owes you ₹40L + ₹35L + ₹30L across different invoices — that's ₹1.05 Crore, and Section 9 is back in play. Document the aggregation carefully; it is increasingly used and almost as routinely challenged.
Businesses that recover below the IBC threshold are the ones that pick the right mechanism early and don't waste six months trying to bluff their way to NCLT. The hardest cost is not legal fees. It is the year you lose deciding.