The Insolvency and Bankruptcy Board of India (IBBI) has admitted around 3,200 cases so far, but the small scale vendors affected by the insolvency resolution process could be at least 25,000, estimates the Federation of Indian Micro and Small & Medium Enterprises (FISME), the apex association of small scale industries.
The dues of 25,000 MSMEs could be stuck in companies that are under the Corporate Insolvency Resolution Process (CIRP) and another 75,000 could be affected soon, FISME warns.
"These suppliers to corporates form the cream of the MSME sector. Dent on their survival will have huge social and economic consequences," FISME representatives say.
In a memorandum to Prime Minister Narendra Modi on December 27, FISME complained that under the existing CIRP rules, MSME suppliers are treated as Operational Creditors and in the current scheme of things their dues are at the bottom of priority. "FISME's research bears out there are 25,000 companies that are already affected and 75,000 more are likely to be affected. Our estimates say that MSME dues are less than 1.5 per cent of asset value under CIRP and could be clubbed as part of the cost of CIRP," the organisation stated.
FISME also suggested that the government may set up a fund similar to the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), a trust launched by the Ministry of Micro, Small and Medium Enterprises) whereby MSMEs could subscribe for the insurance product and will be paid back in case the company goes in CIRP/ NCLT.
The association said if the government is willing to consider this market-based solution, details could soon be worked out for development of such an institution.
The memorandum also proposed a separate insolvency and bankruptcy mechanism for failed entrepreneurs and small firms. "Over 97 per cent of MSMEs are proprietorship/ partnership firms and IBC currently have notified rules for only companies. Ministry of Corporate Affairs may set up a Committee to frame IBC rules for 'firms' allowing orderly closure and restructuring of distressed firms," the association said.