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The Kanara Chamber of Commerce and Industry (KCCI) has urged the Union Finance Ministry to treat claims by medium, small and micro enterprises (MSME) against Limited Liability Companies on a par with workmen’s dues when National Company Law Tribunal recommends LLCs’ resolution.
In a letter to Union Finance Minister Nirmala Sitharaman on October 7, Chamber President Ananthesh V. Prabhu said there would be little hope for MSMEs to realize dues after doing business with LLCs that end up before NCLT. They lack human resources and infrastructure to conduct customer-credit analysis and would be hit hard when an LLC goes for Resolution by the Tribunal. The Resolution Professional or the Committee of Creditors would treat MSMEs as operational creditors thereby offering little leverage to them.
Amend Insolvency Code
Therefore, Mr. Prabhu said, the Insolvency and Bankruptcy Code, 2016, needs to be amended urgently so that MSMEs receive preference in the waterfall mechanism of asset distribution. The consensus was that MSMEs claim should be treated similarly to the workmen’s dues by being included in Clause (b) of subsection 1 of Section 53. All cases currently pending before the NCLT or NCALT should be eligible for these benefits.
He noted that MSMEs caught in the web of companies that have gone to NCLT might not survive if they were not given preference. “As a chamber that regularly hosts cases referred for arbitration or settlement pursuant to the MSMED Act of 2006, we can attest to the strain that SMEs are under.”
classic example
Citing a classic example, Mr. Prabhu said the NCLT, Ahmedabad, had approved the Resolution plan of GAIL (India) Ltd., to acquire M/s JBF Petrochemicals, Mangalore SEZ, Mangaluru. Only 5.7% of the ₹44 crore owed by JBF to 60 MSME units, whose product and services used to build the petrochemical complex, were paid under the Resolution.
Civil, mechanical, electrical and instrumentation engineering, and the service sector have all been negatively impacted by the crisis. To say that business owners, employees, and their families had suffered by this would be an understatement, he said.
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