Getty ImagesIn order to bring some relief to the cash strapped MSME sector amid the Coronavirus pandemic, Finance Minister Nirmala Sitharaman on Tuesday raised the threshold of default to Rs 1 crore from the existing Rs 1 lakh to prevent triggering of insolvency proceedings against MSMEs. “This gets implemented straightaway,” the FM said.
The Minister also said that they will be watchful of the present situation and will consider suspending Section 7, 9 and 10 of the Insolvency and Bankruptcy Code (IBC) if the situation persists. “This can stop companies from being forced into insolvency proceedings in such force majeure causes of default,” she categorically stated.
Previously, a default of Rs 1 lakh alone was enough to initiate Corporate Insolvency Resolution Process (CIRP) against the said defaulters.
Hailing the move, KR Sekar, Partner, Deloitte said that at a time when Covid-19 has been choking businesses, it is a good move by the Finance Minister that the threshold of default has been extended. “The move preventing insolvency proceedings against MSMEs will help thousands of small firms that are spread across the length and breadth of the country,” he said.
It has been a particularly hard pressed time for the many SMEs and small businesses across the country who have been reeling under the impact of the Covid-19, facing severe losses and shutdowns in uncertain times that loom large for their ilk.
Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small & Medium Enterprises (FISME) said that the effect of this move would be two pronged. "While on the one hand it would reduce the number of frivolous cases in IBC/NCLT, on the other hand it raises the bar to exclude the majority of MSMEs who could use IBC as a threat to seek payment of their dues."
With this announcement, SMEs will not have to immediately stare at insolvency from actions taken by a bank or any other creditor.
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