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Promoters of Micro, Small and Medium Enterprises can Submit Resolution Plan


The Code’s aims and objectives expressly state that it was enacted for the purpose of, among other things, consolidating laws relating to the reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner in order to maximize the value of such persons’ assets. A Resolution plan under Section 5(26) of the Code is identified as the ‘way-out’ for insolvent entities subject to the Code for this purpose. Keeping in mind the Code’s objectives as well as the state of emerging judicial jurisprudence, The Insolvency Law Committee, was established by the Ministry of Corporate Affairs (MCA) with the mission of giving recommendations for the Code’s improved functioning. The Insolvency Law Committee’s Report was delivered with various proposals to protect the interests of MSME (s). The committee recognized the importance of protecting MSME(s) because they are the backbone of the Indian economy, and the goal is not to force them out of business and jeopardize the livelihoods of their employees. The committee decided that corporate debtors that are MSME(s) should be granted exemptions by allowing a promoter who is not a willful defaulter or covered by any other specified disqualification as stated under Section 29A to bid for an MSME’s Resolution Plan. The recommendation for MSME exemption under Section 29-A called for the addition of a new section to the Code, Section 240A, that specifically exempted resolution applicants from Section 29-A’s scope and allowed them to submit Resolution Plans for MSME(s) undergoing Corporate Insolvency Resolution Process (CIRP).

Legal Framework

Despite the fact that Section 240A only exempts persons specified under clauses (c) and (h) of Section 29A, MSME promoters may try to take advantage of the aforementioned changes brought about by the insertion of Section 240A in the Code by seeking blanket protection against all prohibitions mentioned in Section 29-A. Several other types of people are unable to submit a resolution plan under Section 29A, regardless of whether the corporate entity is an MSME or not. The NCLAT and the Supreme Court have stated that Section 29-A reflects a key goal of the Code, which is to ensure that unsavory characters are barred from submitting resolution plans, preventing them from being involved in the administration of distressed corporate debtors.

The following individuals are barred and ineligible to be a Resolution Applicant for any Corporate Debtor, including MSME(s) under Section 29A: Any person who has been declared insolvent, according to subsection (a).

Any person who is a willful defaulter in terms of the RBI Guidelines issued under the Banking Regulation Act, 1949[7], according to clause (b). Any individual who has been convicted of an offence punishable by imprisonment for two years or more under specified Acts; or for seven years or more under any law currently in force, according to clause (d).  Any individual who is disqualified to function as a director under the Companies Act, 2013 is subject to section (e).

Similarly, under paragraph (f), any individual who is forbidden from trading in securities or accessing the securities market by the Securities and Exchange Board of India. If a person was in the management, control, or promoter of a Corporate Debtor in which a preferential deal, undervalued transaction, extortionate credit transaction, or fraudulent transaction occurred, and an order was made by the Adjudicating Authority under the Code, subsection (g) applies. If any person falls under the jurisdiction of a linked person, clause (j) applies.

As a result, in order to be eligible to submit a resolution plan, a person must meet the resolution professional’s criteria, which must be approved by the committee of creditors, and must not be subject to any of the disqualifications listed in section 29A, unless the legislation expressly states otherwise. The Code is a helpful piece of legislation that helps the corporate debtor get back on its feet, rather than just a collection tool for creditors. The corporate debtor’s interests have been separated from those of the company’s promoters or management. Thus, despite the exemption(s) given under Section 240A prohibitions continue to apply to individuals, including promoters. [1]

Relaxations for MSMEs

The President’s signature of the IBC Amendment Ordinance 2018 has resulted in significant improvements for homebuyers and small businesses. MSMEs, according to a government statement, are the backbone of the Indian economy, employing more people than the agriculture sector. Recognizing the importance of the MSME sector in terms of job creation and economic growth, the Ordinance gives the government the authority to grant them a specific exemption from the Code. The immediate benefit is that it does not prevent the promoter from bidding for his company that is going through the Corporate Insolvency Resolution Process (CIRP), as long as he is not a willful defaulter and there are no other disqualifications that aren’t related to default. It also gives the Central Government the authority to grant additional exemptions or adjustments to the MSME Sector if necessary in the public interest. The IBBI’s proposed MSMEs resolution process has been forwarded to the Ministry of Corporate Affairs, which will make the final decision. The regulator has also advised that the promoter and founder be allowed to stay on as directors even after the resolution procedure has begun. The concept of a “debtor in saddle” differs from current practice, which calls for the National Company Law Tribunal (NCLT) to appoint a resolution specialist to oversee the company’s business during the resolution process. To make critical choices, the resolution professional collaborates with a committee of creditors. Under the planned MSMEs system, the creditors’ committee will collaborate with the promoter or founder. Unlike the suspension of IBC provisions for up to 12 months in the case of large enterprises, the IBBI proposes that MSME owners or promoters be allowed to initiate voluntary insolvency resolution proceedings. The move is intended to ensure that small enterprises, which are considered as the most vulnerable during a crisis, are not subjected to undue stress.[2]


The latest changes and suggestions have undoubtedly brought about a substantial revolution in the Indian insolvency regime by establishing an alternative insolvency resolution procedure for MSME, which will most likely be extended to other firms in the future. In comparison to the previous CIRP process, the PRIRP method is more effective, less time-consuming, and less expensive due to its hybrid nature. However, despite being a well-thought-out and well-implemented strategy, it is encumbered with excessive legislative responsibilities that must be reconsidered in order for the PRIRP process to be as productive as possible.


[1] Bar and Bench, The Viewpoint, (12July,2021, 3:00 P.M.)

[2] The Times of India, MSME promoters may get first right to prepare revamp plan, (14 July,2021, 11:00 A.M.)


Written By: Mansi Rathi



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