MUMBAI: The proposed special resolution framework for about five-six lakh micro, small and medium enterprises (MSMEs) companies could well pose an infrastructure problem amid overburdened National Company Law Tribunals which are already bursting at the seams.
Unless the government comes up with an exclusive infrastructure to deal with these cases, even those bigger ones could get delayed making resolutions and recoveries impossible for banks.
“It will be an uphill task for existing infrastructure to deal with the flood of cases, expected due to MSME framework,” said Ashish Pyasi, Associate Partner at law firm Dhir & Dhir Associates. The proposed framework for MSME should be designed in such a way so that the involvement of NCLT’s or adjudicating authority is minimal.”
NCLTs have been functioning amid a flood of cases and limited logistics. Lack of member judges, delay in their appointments are among those. There are only a dozen NCLT courts, many of them are hugely understaffed. Out of all those, Mumbai and the Principal bench in Delhi face the majority of the cases.
Although an increase in the number of benches coupled with a few additional appointments of judges improved the scene, it is still not sufficient.
As per latest Insolvency & Bankruptcy Board of India (IBBI) data, about 3,774 cases were reported under the Corporate Insolvency Resolution Process (CIRP) from the time of inception and out of those cases 2,170 cases are still pending in various NCLTs. The tribunals also have to dispose of matters related to schemes and operation and mismanagements.
“The need of the hour for the MSME sector is that the stakeholders will need to address this issue as one of the most crucial aspects of the entire Insolvency regime,” said Priyanka Sinha, partner at law firm A&P Partner. The measures should allow MSMEs to keep their business afloat.”
MSMEs employ over 11 crore workers contributing about 29 percent of India’s GDP.
The draft Special insolvency resolution framework bill for MSMEs is likely to be tabled in this parliament session. It recommends a 90-day timeline instead of the existing 330 days – for completion of the process. It permits promoters of a defaulting MSME to submit resolution plans.
“It is imperative that the regulatory measures are supported by the necessary infrastructure and an effective system for implementation of these measures,” said Zerick Dastur, founder of the law firm Zerick Dastur Advocates & Solicitors. This is required in order to ensure timely and effective dispensation of justice.”
In the past few months, the government has announced several measures, aimed at protecting the interest of industries battling the pandemic. Those include suspension of fresh initiation of insolvency proceedings under the IBC for a period of six months.
The framework applies on MSMEs with up to Rs 250 crore yearly turnover and Rs 50 crore investment in plant and machinery.