Dear Sir,

Sub : Request for modification in Applicability of Revised Threshold Limit

under IBC Code 2016.

Ref: Ministry Of Corporate Affairs – Notification – Dated 24th March, 2020

S.O. 1205(E)

First of all, I would like to thank GOI for a thoughtful initiative for supporting
MSME Industries, as seen in a press release on 24th March 2020 under Corporate
Affairs which was addressed to nation as under;

“Due to the emerging financial distress faced by most companies on account of the
large-scale economic distress caused by COVID 19, it has been decided to raise the
threshold of default under section 4 of the IBC 2016 to Rs 1 crore (from the existing
threshold limit of Rupee 1 lakh). This will by and large prevent triggering of
insolvency proceedings against MSMEs. If the current situation continues beyond
30th of April 2020, we may consider suspending section 7, 9 and 10 of the IBC 2016
for a period of 6 months so as to stop companies at large from being forced into
insolvency proceedings in such force majeure causes of default.
Ref: https://pib.gov.in/PressReleasePage.aspx?PRID=1607942

Giving effect to above commitment, a notification bearing number F. No.

30/09/2020-Insolveny published in the Gazette of India on 24th March 2020 was
issued and the same is reproduced as under;

S.O. 1205(E).—In exercise of the powers conferred by the proviso to section 4 of

the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central Government
hereby specifies one crore rupees as the minimum amount of default for the
purposes of the said section. (Ref: the Gazette of India, published on 24th March
2020 (CG-DL-E-24032020-218898)

By the said notification, it has increased the limit of minimum amount of Default
from Rs. 1 lakh to Rs. 1.00 crore, irrespective whether this default is towards its
Financial Debt or Operational Debt for initiating action under IBC code 2016.

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As this step was taken due to limited functioning of the MSME Sector on account
of pan-India lockdown and to avoid large-scale insolvencies as a result of financial
distress to such small companies and MSMEs.

We appreciate and welcome the efforts of the Government for protecting

micro, small and medium industry which was the need of the hour to fight
COVID 19.

However, We would like to bring in your kind attention that, this general increase
in the Default amount limit to Rs. 1 Crores is not only making difficult for Small
/ MSME suppliers to receive their dues on time from corporate debtors / buyers,
as since their dues from these corporate debtors are mostly less then new
Threshold Limit which is now increased to Rs. 1 Crores but also took away the
basic rights of these small suppliers to bring discipline, accountability and
corporate governance in management of defaulting corporate debtors, which was
basic indent for the Insolvency and Bankruptcy Code, 2016

These small / MSME suppliers are Operational Creditors for defaulting

corporate debtors, but they cannot take any action against these corporate
debtors since their dues are mostly less then Rs. 1 Crores (New Threshold
Limit).

As a MSME supplier, they generally do not have receivable from any single party
more than Rs. 10-25 lakhs and due to this, these small / MSME suppliers became
powerless to take corrective and legitimate action against these defaulting corporate
debtors under the Insolvency and Bankruptcy Code 2016, since their outstanding
amount are generally less than Rs 1 crores only from any single party.

Due to this new notification, issued on 24th March 2020, corporates debtors are
taking undue advantage and delaying their due payments to the MSME and small
suppliers, since fear of proceedings against them under Insolvency and Bankruptcy
Code 2016 is no more, since their outstanding are generally less then Rs 1 Crores.

Now these corporate debtors are also misusing this new notification, because the
outstanding liability towards these small and MSME are generally less than Rs.1
crore (New Threshold Limit), so they delay / dispute their payments, since these
Small & MSME suppliers are now not eligible to take any action under IBC
Act 2016 against such defaulting corporate debtors and its management, due
to new Threshold Limit i.e. Rs 1 Crores.

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In facts they are taking benefit of this new notification, whereby these corporates
debtors see to it that total liability towards any MSME / Small supplier does not
cross to the Rs. 1 Crores, so no such suppliers will able / eligible for taking any
action against them under Insolvency and Bankruptcy Code 2016, which is
strongest legislative process initiated by GOI against defaulting and
indiscipline managements of corporates.

This new notification is totally ruining away with right of small suppliers to take
disciplinary action against such defaulting corporate debtors.

This situation also leads to cash-flow problem for such small & MSME supplier to
service their day-to-day business requirement as well as to meet obligation of their
Financial Creditors, which are time bounded. Which finally triggered IBC / Legal
Action from their financial creditors against the such small corporate suppliers.

All these corporate debtors are also well aware of the facts that any other alternative
legal course will not be affordable, workable as well as viable for small suppliers,
since they do not have sufficient setup, infrastructure and capacity to hold the
receivables as well as financial ability to process and hold the litigation against such
corporates.

Being a Micro, Small & Medium Enterprises, with limited capital and funds, these
small entities are always dependent controlled and influenced, under the corporates
to supply their good & services as well as timely recovery from them.

This Insolvency and Bankruptcy Code 2016 with original default limit of amount
of Rs 1 lakhs was the only solution was available with Small / MSME suppliers to
bring discipline, accountability and corporate governance in management of
defaulting big buyers / debtors, but now due to this new aforesaid Notification, this
solution is also taken away and now these small and MSME suppliers are door to
door for their recovery of their due amount.

If the Increased Threshold Limit (Rs. 1 Crores) would have restricted to only
Financial Creditors, then the new notification would have not only prevented
triggering of insolvency proceedings against MSMEs but also improve their
recovery from corporate buyer.

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Initially when threshold default limit was Rs.1 lakh, the MSME / Small suppliers
were having rights to take immediate action against defaulting supplier and its
management to protect their own interest. Due to this general enhancement of said
Default limit to Rs. 1.00 Crore, their rights of initiation of action under Insolvency
and Bankruptcy Code 2016 against the defaulting management of Corporate
Debtors is fully ruined away.

In view of the above facts, It is a humble submission before your good offices to take
such appropriate majors and action to protect the interest of MSME at large by way
of;

The limit of Rs. 1.00 crore of default (as per the notification issued on 24 th
March 2020) shall be applied towards default made by a corporate debtor
towards their Financial Debt Only and not to the Operational Debt. Effect of
this clarification / amendment shall be from original date of notification i.e.
24th March 2020.

Best Regards

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