The Kanara Chamber of Commerce and Industry (KCCI) has appealed to the Union Finance Ministry to grant equal status to claims made by medium, small, and micro enterprises (MSME) against Limited Liability Companies (LLCs) when the National Company Law Tribunal (NCLT) recommends resolutions for these LLCs.

In a letter addressed to Union Finance Minister Nirmala Sitharaman on October 7, Chamber President Ananthesh V Prabhu expressed concerns about the bleak prospects for MSMEs in recovering their dues after engaging in business with LLCs that end up before the NCLT. Due to limited human resources and infrastructure, MSMEs find it challenging to conduct customer-credit analysis and suffer significant setbacks when an LLC undergoes resolution proceedings by the Tribunal. Resolution Professionals or the Committee of Creditors often categorise MSMEs as operational creditors, leaving them with minimal bargaining power.

Prabhu emphasised the urgent need to amend the Insolvency and Bankruptcy Code, 2016, to prioritise MSMEs in the asset distribution waterfall mechanism. He proposed including MSME claims in Clause (b) of subsection 1 of Section 53, treating them similarly to workmen?s dues. This amendment should apply to all cases currently pending before the NCLT or NCALT.

He underscored the precarious situation of MSMEs entangled in companies undergoing NCLT proceedings, asserting that without preference, these MSMEs might not survive the ordeal. Prabhu provided an illustrative example, citing the NCLT, Ahmedabad, where the Resolution plan of GAIL (India), to acquire JBF Petrochemicals, Mangalore SEZ, Mangaluru, resulted in only 5.7% of the Rs 44 crore owed by JBF to 60 MSME units being paid under the Resolution. This situation adversely affected various sectors, including civil, mechanical, electrical, instrumentation engineering, and the service sector, causing immense suffering for business owners, employees, and their families.

Source: The Hindu