Aligning Legislative Intent with Institutional Practice: Reassessing India’s Pre-Pack Insolvency Framework for MSMEs

The Insolvency and Bankruptcy Code, 2016 (“the Code”), introduced the Corporate Insolvency Resolution Process (“CIRP”), which transformed the Indian insolvency landscape by significantly increasing the number of structured resolutions and enhancing stakeholder value while reducing the reliance on liquidation as the primary means of addressing financial distress. Although CIRP was a major success, the Indian Insolvency regime primarily focused on the corporates, thereby excluding Micro, Small and Medium Enterprises (“MSMEs”), which form a significant percentage of the markets of India, out of the purview of the benefits brought in by resolution. To address this gap, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021, enacted the Pre-packaged Insolvency Resolution Process (“PPIRP”). However, its implementation has been met with substantial underuse, as the Insolvency and Bankruptcy Board of India (“IBBI”) reported that only fifteen PPIRPs have been filed. This research critically examines whether the design and procedural architecture of India’s PPIRP framework align with its legislative intent and functional objectives.

Adopting a qualitative doctrinal and empirical legal methodology, the paper is structured in three parts: First, through a case law analysis of all 13 PPIRP proceedings filed, this study is to investigate the procedural timelines, stakeholder behaviour, resolution outcomes and key judicial interventions under sections 54A-54H of the Code. Second, the paper conducts a comparative legal analysis of analogous pre-packaged insolvency mechanisms in foreign jurisdictions, particularly UK’s pre-pack administration under the Insolvency Act 1986, USA’s Pre-packaged reorganization under chapter 11 and the Pre-package insolvency framework of Singapore under the Insolvency, Restructuring and Dissolution Act (“IRDA”) 2018, to assess the divergences in creditor assent threshold, the plan formulation mechanisms, and regulatory functions of the authorities. This comparative analysis is utilised to gain actionable insights on the bottlenecks faced by the current PPIRP framework of India.

Finally, by further utilising these actionable insights, a normative legal approach is followed to prescribe legal reforms that conform to an Indian context. These recommendations are posited as innovative legal solutions, with potential relevance to global insolvency reform initiatives. This study contributes to emerging Indian insolvency jurisprudence by identifying empirical lacunae, exposing comparative inefficiencies, and advancing doctrinal reforms, thus offering a holistic evaluation of PPIRP as a special resolution mechanism for MSMEs.