Kanara Chamber of Commerce and Industry (KCCI) urged the Union Finance Minister, Nirmala Sitharaman, to give preference to MSMEs (micro, small and medium enterprises) while distributing assets of companies referred under IBC.

In a letter to the Finance Minister, the KCCI President, M Ganesh Kamath, stressed the need to amend the Insolvency and Bankruptcy Code, 2016, giving preference to MSMEs in the waterfall mechanism of distribution of assets.

He said when MSMEs do business with some limited liability companies that are later referred to the NCLT (National Company Law Tribunal), MSMEs stand no chance of recovering their dues.

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This is because MSMEs do not have the resources or expertise to analyse their customers' creditworthiness. MSMEs believe such entities would honour their commitment and have the capability of meeting their financial obligations. In such a situation, MSMEs have little bargaining power in dealing with corporate customers, he said.

In the interest of MSMEs, there is an imperative need for the Insolvency and Bankruptcy Code, 2016, to be amended by giving preference to MSMEs in the waterfall mechanism of distribution of assets, he said, adding, “It is generally felt that MSMEs should be included in clause (b) of sub-section 1 of Section 53 and brought on par with the workmen’s due. These benefits should be available for all the pending cases before the NCLT and NCLAT.”

Unless this is done, the survival of MSMEs, which are caught in the web of companies that have gone to NCLT, is challenging. KCCI has first-hand experience of the stress MSMEs undergo as it deals with several cases that come for arbitration, he added.

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