Empowering MSMEs: Specialized Insolvency Frameworks For Resilience And Growth

A. Introduction

Micro, Small, and Medium Enterprises (“MSMEs”) are the bedrock of India’s economic ecosystem, contributing 30% to the national GDP, over 45% to India’s exports and employing over 24 crore individuals, according to the Annual Report 2024–25 of the Ministry of MSME. Recognizing the vital role MSMEs play in the economy and the unique difficulties they face during financial stress, the Insolvency and Bankruptcy Code, 2016 (“IBC”), has incorporated a specialized insolvency framework for MSMEs.

Under Section 240A of IBC, inserted by the IBC (Second Amendment) Act, 2018, MSMEs are exempted from disqualifications under Section 29A(c) and (h) of IBC, enabling promoters, even if classified as NPAs or personal guarantors, to remain eligible resolution applicants. This carve-out ensures value preservation in family-led and promoter-dependent enterprises, often considered as the hallmark of Indian MSMEs. This ambit was widened by the Hon’ble Supreme Court in Hari Babu Thota, In