World Bank endorses FISME's demand for amending insolvency regime for MSMEs
World Bank endorses FISME's demand for amending insolvency regime for MSMEsNew Delhi, Oct 17 (KNN) The latest World Bank report 'India Development Update' (October 2013) has blamed archaic personal bankruptcy laws in India for dysfunctional rehabilitation of sick or failed units in the Micro ,Small and Medium Enterprises (MSME) sector.
India’s premier MSME body, Federation of Indian Micro and Small & Medium Enterprises (FISME) has been consistently demanding complete overhaul of insolvency regime for MSMEs in India. According to the latest RBI estimates (2013), around 2.5 lakh MSME units are suffering from sickness involving the funds to the tune of over Rs 12,800 crore.
Now the World Bank report seems to have endorsed FISME’s views. The report highlights, “smaller enterprises in India are overwhelmingly single proprietorships or partnerships, subject to largely outdated personal bankruptcy laws – Provisional Insolvency Act (1920), Presidency Towns Insolvency Act (1908), and Sick Industrial Companies Act (1965) – that make it virtually impossible for entrepreneurs to restructure and work towards solvency.”
It further notes that “several criminal statutes apply to events that typically occur during periods of financial stress, such as late payments of statutory liabilities. As a result, entrepreneurs do not have access to adequate stay, discharge, and rehabilitation mechanisms, and liquidation proceedings can take two to ten years.”
In a submission to the Inter-ministerial Committee set-up by the Cabinet Secretary for growth of MSMEs recently, FISME had proposed a two pronged approach to address the issues of rehabilitation or closure. While MSMEs (registered or unregistered) could be provided instant relief by amending MSMED Act- a central statute with state subordinate legislation. FISME has also proposed a draft amendment for the MSMED Act.
For the larger population of economic actors or individuals, the Provisional Insolvency Act (1920) and the Presidency Towns Insolvency Act (1908), need to be amended in each state. Provisions of the two Acts cover both the non-agrarian and agrarian sectors. The Centre can help catalyze change at the state level, working with interested Chief Ministers, their respective law reform commissions and recognized legal experts to draft a model law that can be adopted by each state. (KNN/AB)