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'Include MSME dues under IBC in CIRP costs'
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SME Times News Bureau | 05 Jan, 2020
The recovery of money owed to the micro, small and medium enterprises
(MSMEs) by corporate debtors should be brought in the ambit of corporate
insolvency resolution process (CIRP) costs, said the Federation of
Indian Micro and Small & Medium Enterprises (FISME) in its
pre-budget presantation to the Finance Minister.
The FISME said
as operational creditors, the MSMEs were not able to recover dues and
the protection to that under the the MSMEs Development (MSMED) Act had
been undermined.
"The current recovery process under the IBC is
one-sided. The MSMEs are classified as operational creditors. They get
nothing if their buyer undergoes CIRP. This is against the letter and
spirit of the MSMED Act, which guarantees recovery of the dues along
with interest," it said.
According to the FISME assessment,
25,000 MSMEs are affected and 75,000 more are likely to be affected. If a
solution is found to repay their dues, the burden on the financial
creditors would be minimal and decline to 1.18-1.33 per cent, it said,
citing the June 30, 2019 IBBI data.
"After discussions with
stakeholders, we propose that the payments due to MSMEs from corporate
debtors before and during the CIRP process be included in the
'insolvency resolution process costs' as provided for under section
5(13) of the IBC read with regulation 31 of the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate
Persons) Regulations, 2016," it said.
As per the FISME,
recoveries of the financial creditors will remain unaffected as the dues
of MSMEs would be treated as part of the insolvency process cost, while
at the same time it would ensure substantial recoveries of dues for
micro and small enterprises.
On the insolvency process of MSMEs
under the IBC, it said partnership or proprietorship firms were excluded
from its ambit and around 97 per cent MSMEs fell in that category,
thereby not allowing their bankruptcy and insolvency proceedings in the
NCLT.
"The IBC 2016 is a comprehensive legislation and provides
for a framework for resolution of insolvency and bankruptcy for all
types of entities. But the 'rules' have been framed for body
corporates/companies only."
"Thus, partnership/proprietorship
firms and individuals are excluded. As 97 per cent of MSMEs are
partnership/proprietorship firms and even when they are registered as
companies, because of involvement of their personal guarantees, the IBC
Rules don't provide them any relief," the FISME said.
It has urged formation of a committee for framing rules for insolvency proceedings of partnership and proprietorship firms.
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