Parliamentary Panel seeks priority clearance of MSME dues during resolution process; suggests this step

By: |
March 5, 2020 4:20 PM

Ease of Doing Business for MSMEs: The committee said suppliers cannot be burdened with overly restrictive conditions for smoothening of IBC process.

The proposed amendment was to include small businesses payments from corporate debtors before and during the CIRP.

Ease of Doing Business for MSMEs: Parliament”s Standing Committee on Finance in its report tabled in Parliament said that MSMEs’ dues should be paid on priority in the event of the resolution process. The committee on Wednesday in its report on the Insolvency and Bankruptcy (Second Amendment) Bill, 2019, said certain amendments in the bill may lead to over-regulation of suppliers particularly MSMEs and hence, it must be avoided, IANS reported. The committee said delegated legislation through rules set-up by Insolvency and Bankruptcy Board of India (IBBI) should be adhered to address the needs and concerns of stakeholders.

Stressing on dues clearance for MSMEs, which are operational creditors not included in the Committee of Creditors (CoC), the report said payments should be made on priority basis before entering the liquidation stage. Hence, “Clause 5(b) (2A) should accordingly be deleted,” it said. The added that suppliers cannot be burdened with overly restrictive conditions for smoothening of IBC process and probable revival. The report said market forces should determine whether a supplier decides to supply to a corporate debtor, given the limited availability of resources and capacity with each supplier, which should be allocated keeping economic interest in mind instead of just to keep the corporate debtor alive.

Also read: MSMEs tap into digital lending for credit access as this small business lender hits key milestone

MSME industry body Federation of Indian Micro and Small & Medium Enterprises (FISME) in its budget recommendations had asked for amendment in the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 as the recovery process under the Insolvency and Bankruptcy Code (IBC) is “extremely one-sided,” FISME had said in its recommendations. This is because MSMEs being classified as operational creditors doesn’t get anything in the case of their buyers undergoing CIRP. “This is against the letter and spirit of MSMED Act which guarantees the recovery of the dues along with interest,” it had said. The proposed amendment was to include small businesses payments from corporate debtors before and during the CIRP under ‘insolvency resolution process costs’ as provided for under section 5 (13) of IBC read with regulation 31 of the IBBI regulations.

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