MSMEs suffered because of increase in NCLT pecuniary jurisdiction: Former Tribunal President MM Kumar

Micro, Small and Medium Enterprises (MSMEs) suffered a setback when the pecuniary jurisdiction for National Company Law Tribunals (NCLTs) to entertain matters was raised from ₹1 lakh to ₹1 crore, former NCLT President Justice (retired) MM Kumar observed recently.

Justice Kumar said that the MSME sector, which contributes about fifty per cent to the Gross Domestic Product (GDP), should be protected.

“Dr. Abhishek Manu Singhvi said at an event that raising [of NCLT's pecuniary jurisdiction from one lakh to one crore] is done to reduce litigation...This is no answer, from the point of view of MSME. MSME is such an important sector. There is a dispute, arbitration, long process. In this duration, the MSME dies. This litigation they can’t survive," he added.

He also highlighted the importance of ensuring interactions between NCLTs and the Insolvency and Bankruptcy Board of India (IBBI).

He pointed out that in cases where Resolution Professionals (RPs) are not pre-decided, they would have to be nominated. For this purpose, a list of RPs can be maintained, he suggested.

The former High Court Chief Justice and President of the NCLT was speaking at a conference on the Insolvency and Bankruptcy Code, 2016 (IBC) held on September 21 (Saturday) in New Delhi.

A host of dignitaries gathered to discuss the latest developments, challenges and issues plaguing the IBC. The panelists at the inaugural session also shared resounding concerns about MSMEs. 

Senior Advocate Dr UK Chaudhary, who serves as the President of the NCLT Bar Association, said, 

“If you want to save MSMEs that contribute so much to the GDP, don’t destroy them.”

He raised concerns as to whether there was unfair distribution of funds by the Committee of Creditors (CoC) under the IBC, which prioritises repayment of debts to financial creditors over operational creditors. He noted that since operational creditors cannot enter the CoC, financial creditors become more powerful. 

He explained that though financial creditors such as banks bring money to the companies, operational creditors are more important to run the company since they supply goods and services to the company. Thus, operational creditors must be given some power under IBC, he said.

Dr Chaudhary added that lobbying should be undertaken by stakeholders to initiate an amendment to the IBC. This could be through debates and discussions, open letters to the government and newspaper publications, he suggested.

Judicial Member at NCLT, Chandigarh PSN Prasad revealed that case disposal at NCLTs has increased, and for the first time, pendency has gone down. He added that the notion of timely adjudication not being possible is only an apprehension. Delays can be tackled if lawyers and members put their minds to it, he opined.

“If the whole legal profession and judges decide to play one-day cricket, time schedule can be implemented,” he said.

He highlighted that several legislative reforms under the IBC are underway. This includes two reforms announced by the Central government as part of the Budget of 2024: (i) the establishment of an integrated technology platform to facilitate improved outcomes and (ii) the strengthening of tribunals and appellate tribunals.

He suggested some solutions for reducing delays in the resolution process, such as the optimum use of technology and increasing the tenure of judicial members.

Ashok Kumar Bhardwaj, a judicial member of NCLT Delhi, noted that the delays are partly due to the addition of unnecessary parties and the filing of several applications. He also suggested that lawyers should be brief in their submissions.