INTRODUCTION
India’s corporate framework underwent a paradigm shift by prioritising resolution over liquidation through Insolvency and Bankruptcy Code, 2016. Micro, Small and Medium Enterprises (MSMEs), constitutes the paramount part of India’s economy though it faces lack of institutional and financial resilience to navigate through the prolonged insolvency proceedings. To address this structural imbalance Pre-Packaged Insolvency Resolution Process (PPIRP) was introduced in 2021. An attempt was made through the introduction of PPIRP to regulate the insolvency proceedings through hybrid, debtor-led, creditor-approved and time-bound mechanism. Intent was to design the restructuring mechanism in India in such a way it suits well to it’s unique MSMEs ecosystem.

India’s adoption of this PPIRP model was limited to MSMEs. Now this very design choice raises the question as to How this restricted application of PPRIP will enhance the credibility by acting as a safeguard against abuse or if the potential of this PPRIP model is undermined by excluding the larger corporates where restructuring stakes are quite high?

RATIONALE FOR MSME EXEMPTION
Historically, Corporate Insolvency Resolution Process (CIRP) was considered as a transformative and revolutionary model but with time its potential was undermined. Creditors weaponised CIRP merely as a recovery mechanism, compromising its rescue-oriented spirit, even promoters used this as a loophole to sought re-entry into their companies at a discounted valuation, prolonged litigation resulted in the depreciation of asset value which in turn defeated the CIRP’s time bound manner of resolving the matters. Now, by introducing PPIRP and limiting it to MSMEs we can say that policymakers are trying to create a low stake experimental sandbox. MSMEs, unlike large corporations, typically involves smaller debt exposure, localised creditor market and more systemic implications. The restrictive application of PPIRP serves two purposes ostensibly: Firstly, to limit the possible misuse in a sector where its impact can be easily controlled and secondly, to analyse as to how can the Indian Insolvency Framework can accommodate a model which reverses the CIRP principle by allowing the debtors to maintain management control with creditor approval. Thus, this MSME restriction can be viewed as a policy trade-off, balancing the need for caution and prudence against the possibility of curbing potential growth.

HOW IS CREDIBILITY ENHANCED BY RESTRICTION?
The decision to confine PPRIP framework exclusively to MSMEs can be considered as a deliberate move to preserve the credibility of India’s Insolvency ecosystem. By restricting pre-packs to a limited sector of the economy, policymakers tried to protect this newly induced system for the same weaknesses that plagued the CIRP. The main intent behind this act was to regain the credibility in insolvency frameworks in India which was once compromised at the outset. The minimal systemic risk justifies the careful stance taken by the policymakers. MSMEs defaults are common, they seldom trigger the widespread upheaval caused by the major corporate failures. If in a case the application of PPIRP model in MSMEs fails it would not result in the destabilization of credit market or undermine institutional faith in Insolvency and Bankruptcy Code, 2016. Thus, we say that this strategy adopted by the policymakers served like a containment strategy which means any setbacks will remain confined to a domain where repercussions are primarily limited. PPIRP framework places creditor in control rather than assigning authority to the creditors which marks a fundamental shift from the CIRP model followed earlier. Therefore, MSMEs acts as a practical testing ground, allowing the policymakers to observe the outcomes which in turn would help in the institutionalization of PPIRP through actual results rather than mere speculative theories.

EXCLUSION OF LARGE CORPORATES WEAKENS REFORM
Now let us consider the other side of the coin under which the restrictive application of PPIRP to MSMEs has left the most critical restructuring spaces such as steel, infrastructure, power and telecom still confined to the rigid inefficiencies of CIRP. India’s insolvency regime has suffered major setbacks in these high value cases, where complex capital structure and systemic exposure is often involved. The strict deadlines set out in Section 12 of Insolvency and Bankruptcy Code, 2016 are frequently missed in such large-scale disputes due to the proliferated litigation and rising creditor disputes. In such a situation, the PPIRP framework where debtor is in control in addition to robust creditor supervision might have safeguarded the value by embracing continuous management with the help of a defined restructuring framework. By excluding larger corporation’s policymakers have missed the opportunity to apply this focused value preservation scheme to the sectors which are in dire need of it. It is observed that the opportunity for value preservation is critical in such high value sector. Unlike MSMEs where the impact is more localized, the consequences in high value sector are systemic which affects employment, trust of investors, supply chain disruption and the stability of banking system. With the help of PPIRP corporations can negotiate restructuring more quickly with financial creditors which will save them from both value loss and systemic risk. The generic presumption that the large corporates are more prone to misuse may ignore the potential for stronger, layered safeguards. Large corporations are already

obligated to face heightened scrutiny to operate in a particular ecosystem. With the adoption of this framework the standards of accountability can be harnessed with the help of graduated safeguards like auditor certification of financial health, independent resolution professional reviews, creditor consent thresholds and closer judicial supervision. Therefore, we can say that by constricting the application of PPIRP to MSMEs, policymakers though played carefully by protecting its credibility but also crippled its potential.

COMPARATIVE ANALYSIS OF PRE-PACK INSOLVENCY FRAMEWORKS: UK, US, AND SINGAPORE
United Kingdom follows pre-pack model under which negotiation for the sale of business/assets begins even before the administrator’s appointment. It was adopted as recurring concerns were raised regarding the connected party sales and transparency as result of which UK introduced a mandatory independent evaluator for certain connected party disposals to restore creditor confidence without outlawing pre-packs. United States on the other hand introduces “Prepackaged” chapter 11 cases which typically includes the product of intensive pre-filing negotiation with major creditors followed by a quick court process which also included a provision for pre-voted plans. US model is the best example of formulating rules to bind dissenters and the built-in judicial review mechanism that is viable for both large and complex corporate restructurings. Singapore model is the combination of commercial flexibility with judicial gatekeeping allowing pre-packs to be used for mid to large restructurings with robust supervision system. It permits the companies to negotiate the package with major creditors and then seek the approval of the court. India’s PPRIP is starkly different as it is codified keeping in mind the debtor- led, creditor approved prepack and confines it to MSMEs as a statutory experiment. UK, US and Singapore have deployed pre-packs for large, systemically important reorganisations with additional safeguards while India has chosen exclusion as its primary safeguard. UK permitting larger firms to pair speed with independent verification or enhanced judicial scrutiny in case of Singapore courts threshold addresses the very risks that motivated the India’s MSMEs only restriction which considers opacity, promoters’ opportunism and creditor distrust. We can say that the India’s MSMEs centric design is understandable as it prioritizes immediate credibility, but on the other hand credibility which is secured by exclusion is fragile as it will not automatically translate when pre-packs are applied to larger and more complex firms.

PATH FORWARD: PHASED INCLUSION OR PERMANENT EXCLUSION?
Future of PPIRP raises a key question as to whether confine its application only to MSMEs a controlled experiment or extend it to larger corporates as well where inefficiencies are most acute.

Now two pathways exist for this as discussed above in the article i.e. phased inclusion which means allowing bigger firms to access PPIRP under stringent safeguards which includes independent RP vetting, dual audit validation, mandatory disclosure norms or pre-clearance from National Company Law Tribunal or Permanent Exclusion of larger corporations from the ambit of PPIRP which means that it will act as the MSMEs specific tool, which in turn will also strengthen the CIRP for corporates through hybrid mechanisms like pre-negotiated plans filed within CIRP, front-loaded creditor discussions and accelerated carve outs for pre-cleared deals. In case of phased inclusion credibility is not reframed as an exclusion but as a safeguard driven inclusion, which will help in aligning India with global practices at the same time managing local risk of promoter opportunism. On the other hand, conversely, permanent exclusion will ensure that the credibility is preserved with incrementally improving efficiency in high value cases. A sequenced approach may offer the best of both worlds like using CIRP for shorter term while at the same time piloting for phased PPIRP inclusion for large corporates gradually which will help in evolving India’s insolvency ecosystem from a mere experiment to a globally aligned and widely acknowledge adaptive system.