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Home >News >India >Most MSMEs fall outside bankruptcy code ambit

New Delhi: The vast number of micro, small and medium enterprises (MSMEs) in the country fall outside a brand-new scheme for their turnaround under the Insolvency and Bankruptcy Code (IBC) as these are not registered as companies, official data show.

According to figures from the ministry of statistics and programme implementation, there are over 63 million unincorporated non-farm MSMEs in the country, going by a 2015-16 survey.

These far outnumber the MSMEs which are registered as companies—around 780,000, or 60% of all active companies in the country—which will benefit from the pre-pack bankruptcy resolution scheme. These represent just above 1% of all the unincorporated MSMEs, implying that the informal sector businesses far outnumber the organized sector and will not be covered by the pre-pack bankruptcy resolution plan.

They, however, have access to other schemes meant to relieve the stress in this sector including the rehabilitation plans of the MSME ministry, the Reserve Bank of India (RBI) and the 3 trillion emergency credit line guarantee scheme rolled out last year.

Extending a bankruptcy resolution scheme under the IBC to unincorporated entities and proprietorships, however, is hugely challenging given the large number of such enterprises and the limited infrastructure including the number of National Company Law Tribunal (NCLT) benches, explained a government official, who spoke on condition of anonymity.

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