Within the past few months, the Government has come up with several measures, aimed at protecting the interests of industries battling the COVID0-19 pandemic. These measures include suspension of fresh initiation of insolvency proceedings under the Insolvency and Bankruptcy Code (IBC), 2016, for a period of six months. It also includes suspension of any application for insolvency proceedings ever, for defaults that occur in the said period of 6 months.
Now, the Government has proposed a special resolution framework for about 5-6 lakh micro, small and medium enterprises (MSMEs), that could well pose an infrastructural problem, amid overburdened National Company Law Tribunals (NCLTs) which are already bursting at the seams.
The draft of the Special Insolvency Resolution Framework bill for MSMEs is likely to be tabled in this parliament session. It proposes a 90-day timeline instead of the existing 330-day timeline - for completion of the CIRP (Corporate Insolvency Resolution Process). It allows the promoters of a defaulting MSME to submit their resolution plans.

The overburdening NCLTs would be insufficient and inefficient to tackle with such a process. Unless the Government comes up with an exclusive infrastructure to deal with such cases, even big insolvencies and their resolution could get delayed, making resolutions and recoveries impossible for banks.
Many experts have the same opinion. Experts say that it will be an uphill task for the existing infrastructure to deal with the hurricane of cases, which can safely be expected due to the new MSME framework. The proposed framework for MSMEs should be designed in such a manner so that the involvement of NCLTs or adjudicating authority is minimal.
NCLTs have been functioning amid a flood of cases with limited logistics. There an acute lack of member judges, and delays in their appointments are another problem that is faced by them. There are only a dozen NCLT courts, many of which are hugely understaffed. Out of all those, the NCLT court of Mumbai and the Principal Bench in Delhi face the majority of the cases.

Even though steps have been taken to increase the number of benches, coupled with a few additional appointments of judges, the situation has only improved a little, and it is still not sufficient.
As per the latest Insolvency & Bankruptcy Board of India (IBBI) data, about 3,774 cases have been reported under the CIRP from the time of its inception, however, out of those cases, 2,170 cases are still pending in various NCLTs, which amounts to more than half the cases. The tribunals are not just set up for dealing with insolvency procedures, but they also have to dispose of matters related to schemes and operation and mismanagements.

The current need for the MSME sector is that the stakeholders address this issue as one of the most crucial aspects of the entire Insolvency regime. The measures that are taken should allow MSMEs to keep their business afloat, while also giving less burden to the already drowning NCLTs.

The MSME sector employs over 11 crore workers and contributes about 29 per cent of India’s GDP.
Right now, it is imperative that the regulatory measures are supported by necessary infrastructure, in addition to setting up an effective system for implementation of these measures. This is required to ensure timely and effective dispensation of justice.
The special resolution framework applies to MSMEs with a yearly turnover of up to Rs 250 crore, and Rs 50 crore investment in plant and machinery.