Supreme Court Rules MSME Promoters Can Now Submit Resolution Plans Under IBC

Supreme Court Rules MSME Promoters Can Now Submit Resolution Plans Under IBC

In a landmark ruling, the Supreme Court has clarified the applicability of Sections 29A and 240A of the Insolvency and Bankruptcy Code (IBC), providing significant relief to Micro, Small, and Medium Enterprises (MSMEs) facing insolvency.
 
The court emphasised that the critical date for assessing eligibility under Section 240A is the date of the submission of the resolution plan, not the commencement of the Corporate Insolvency Resolution Process (CIRP).
 
This judgment overturns a prior ruling by the National Company Law Appellate Tribunal (NCLAT), which restricted MSME promoters from submitting resolution plans if their MSME certification was obtained post-CIRP commencement.
 
The Supreme Court's decision underscores the need to enable MSME promoters to retain control and facilitate the revival of viable businesses.
 
The 2018 Insolvency Law Committee highlighted the importance of protecting MSMEs from stringent measures under Section 29A. The committee recommended allowing non-wilful defaulter promoters to reclaim their businesses, thus promoting an environment conducive to survival and revival.
 
Their rationale emphasises the need to preserve viable enterprises that contribute significantly to employment and economic stability.
 
The recent Supreme Court judgment in Hari Babu Thota serves as a critical interpretation of these provisions. The court ruled that the date for assessing eligibility under Section 240A should be the date of submission of the resolution plan, allowing MSME promoters to participate actively in the insolvency resolution process even if the MSME certification was obtained after the CIRP commenced.
 
By affirming this stance, the Supreme Court reinforces the legislative intent behind the IBC—to foster corporate revival rather than liquidation—ensuring that MSMEs have a fighting chance to navigate financial distress.
 
In conclusion, the Supreme Court’s ruling enhances the provisions of the IBC, striking a balance between maintaining the integrity of the insolvency process and providing essential protections for MSMEs. This decision highlights the importance of enabling original promoters to play a role in the recovery of their businesses, ultimately supporting the broader goals of economic resilience and growth in India.
 
Source: KNN

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