Vol 19 (2022) - Issue 1

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Pre-packaged Insolvency Resolution Regime: A Fresh Chapter in Indian Insolvency Law for MSMEs

Synopsis
The insolvency resolution framework in India was revamped in 2016 with the enactment of Insolvency and Bankruptcy Code, 2016 (the "Code"). Prior to this, there existed multiple statutes in parallel to one another, endeavouring to achieve the objective of the recovery of bad loans. For example, the Presidency-Towns Insolvency Act 1909, the Provincial Insolvency Act 1920, the Recovery of Debt due to Banks and Financial Institutions and Bankruptcy Act 1993, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 all worked in tandem to achieve such an objective.
In order to streamline the existing insolvency resolution framework, and to incorporate speed as the essence of the revamped framework, a Committee was set up under the Chairmanship of Dr T.K Viswanathan. The Committee submitted the "BLRC Report" in November, 2015 and the Code was consequently built upon the foundations laid down by this report.
The Code, in its original form, did not provide for any special dispensation or relaxation for the Micro, Small and Medium Enterprises (the "MSMEs"). In India, MSMEs are governed under the Micro, Small and Medium Enterprises Development Act 2006. As per the 73rd round of the National Sample Survey, conducted by the National Sample Survey Office during the year 2015-2016, there were approximately 63 million unncorporated non-agriculture MSMEs in India, engaged in different economic activities and providing employment for roughly 110 million persons.
The Ministry of MSMEs has set a target to increase the contribution of MSMEs to roughly 50% of India’s GDP by the year 2025. This is in line with the Government’s vision of the USD 5 Trillion economy. The sheer numbers spoken about here highlight the fact that the MSMEs form the bedrock of the Indian economy and are crucial contributors to employment, production, economic growth, innovation, entrepreneurship and financial inclusion. Hence, it is all the more important that an ecosystem which is conducive for the growth of MSMEs is fostered. Specifically, this includes an efficient, easy and effective insolvency resolution framework.
In light of the above, this paper highlights the development of the insolvency resolution framework for MSMEs in India with specific emphasis on the recently introduced "Pre-packaged Insolvency Resolution Process for MSMEs".