PremiumNew Delhi: A vast number of micro, small and medium enterprises (MSMEs) in the country fall outside the newly rolled out special scheme for turning around small businesses under the Insolvency and Bankruptcy Code (IBC) as these are not registered as companies, official data show.
According to figures from the ministry of statistics and programme implementation, there are over 6.3 crore unincorporated non-form MSMEs in the country, going by a 2015-16 survey.
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These far outnumber the MSMEs which are registered as companies—around 7.8 lakh or 60% of all active companies in the country—which will benefit from the pre-pack bankruptcy resolution scheme. These represent just above 1% of all the unincorporated MSMEs, implying that the informal sector businesses far outnumber the organised sector and will not be covered by the pre-pack bankruptcy resolution plan.
They, however, have access to other schemes meant to relieve the stress in this sector, including the rehabilitation plans of the MSME ministry, RBI, and the ₹3 trillion emergency credit guarantee scheme rolled out last year.
Extending a bankruptcy resolution scheme under the IBC to unincorporated entities and proprietorships, however, is hugely challenging given the large number of such enterprises and the limited infrastructure including the number of National Company Law Tribunal (NCLT) benches, explained a government official, who spoke on condition of anonymity.
At present NCLT has more than a dozen benches across the country. Besides, extending IBC provisions to unincorporated entities will require a large number of professionals to handle cases. Also, the schemes available in other countries for such entities may not entirely work in the Indian context given the differences in nature and scale of business.
MSMEs are mostly into manufacturing, services and trade, and are roughly equally distributed in urban and rural areas.
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