Treatment of MSME Insolvency under IBC


Status as on: 08.09.2022


Micro, small and medium enterprises (MSMEs) are a significant part of the global economy- and there are large numbers of MSMEs in the world, it’s the fastest growing enterprises that help the economy in its development. The foundation of the economy and are the key drivers of employment, production, economic growth, entrepreneurship, and financial inclusion. The MSME sector is the critical source of livelihood for nearly 110 million people in the country and a total of 30% of India’s GDP. The pandemic hits our life so far, which makes our lives vulnerable, most important reason for this is first, difficulty in accessing finance in the right quantity, at the right time; second, attracting and retaining a qualified workforce, and third, penetrating regional, national and international markets.

COVID-19 was unexpected, for which the sector was ill-prepared and affected the whole economy which makes the condition miserable. Moreover, MSMEs in India have relatively suffered the most during the present times of pandemic and the problem of delayed payment remains one of the biggest challenges to these MSMEs.


It’s the most fast-growing form of the enterprise, which provide employment and opportunities at comparatively lower capital costs than large industries as well as through industrialization of rural and backward areas, the main focus of this enterprise is to maintain a healthy economy, and also help to resolve the crucial problem of Our country or any developing country like INDIA, by providing the Employment.


The IBC becomes relevant to MSMEs mostly when they are operational creditors to large debtors. There are cases where MSME can also be a financial creditor. The IBC provides a comprehensive framework for the resolution of insolvency and bankruptcy of corporate persons, LLP, individuals, partnership firms, and sole proprietorship firms in a time-bound manner for maximization of the value of the assets.

Section 29A of the Code provides for the person’s ineligibility to be a resolution applicant(s) and thus, forms an important criterion of eligibility to submit a resolution plan. The Second Amendment introduced section 240A, which provides certain relaxations to MSMEs with respect to the applicability of the restrictive provision of section 29A


In pursuit to create a vibrant MSME sector, the Ministry of MSME, Government of India has taken a multi-pronged strategy. The focus is not merely on the issues related to the commencement and growth of MSMEs but also on ensuring that they sustain their business. Consequently, MSMEs formed a very prominent part of the announcements made under the Atmanirbhar Bharat Abhiyaan. Under this scheme, the MSME sector has not only been given substantial allocation but has also been accorded priority in the implementation of the measures to revive the economy.


The ongoing pandemic has led the Government of India to restructure, reset and revamp the present insolvency law to boost the Indian economic growth prospect. The COVID-19 crisis has caused distress and failure in the MSME sector. The insolvency law since its enactment in 2016 has been amended several times in order to protect the interest of MSMEs as well as the future and growth of the Country.


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