Debt Recovery Mechanism of Msmes in India Under Insolvency and Bankruptcy Code, 2016

The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) was enacted to facilitate the development of MSMEs and ensure that such enterprises expeditiously recover their dues. Over the years, a continuous rise has been observed in the number of MSME disputes in India, primarily related to debt recovery. The Insolvency and Bankruptcy Code (‘IBC’), enacted in India in 2016, provides a comprehensive framework for resolving insolvency cases. Given the unique challenges that Micro, Small, and Medium Enterprises (‘MSMEs’) face during financial distress, the IBC includes specific provisions tailored for their insolvency resolution. MSMEs are the backbone of the Indian economy, playing a pivotal role in employment, production, economic growth, entrepreneurship, and financial inclusion. The MSME sector supports the livelihoods of nearly 110 million people and contributes 30% of India’s GDP. This article explores the complexities of the insolvency resolution process for MSMEs under the IBC, examines the challenges within the MSME-specific framework, and highlights key sections of the IBC, international practices, and their importance in enhancing the resolution process for this vital sector of the economy.