TThe classification of an asset as a Non-Performing Asset or NPA is done in accordance with the guidelines issued by the Reserve Bank of India under the Banking Regulation Act 1949 or any specific guidelines of a financial sector regulator issued under some other law for a temporary duration.
At least one year has lapsed from the date of commencement of the corporate till the date of such classification of the insolvency resolution process of the corporate debtor.
When a person pays all the overdue amount along with interest and any other charges if applicable, he is eligible to submit a resolution plan. It is important that the payment should be made before submitting the resolution plan.
Nothing applies to the resolution applicant if he is a financial entity and not the corporate debtor.
The directors or promoters of the company are not eligible to submit a resolution plan when the debtor is classified as NPA and more than 12 months have been passed after the classification.
In the latest amendment, there is an exemption given for the clause c and h of section 29A of this code. It says that the code is inapplicable to the resolution applicant as far as the insolvency resolution process is concerned; regardless of it is micro. Small or medium enterprise.
The proposed Micro, Small and Medium Enterprises Development (Amendment) Bill, 2015 classifies the enterprises based on their annual turnover. It says that
- An enterprise is called Micro Enterprise if the turnover is not more than 5 Crores.
- An enterprise is called Small Enterprise if the turnover is more than 5 Crores but doesn’t go beyond 75 Crores.
- An enterprise is called Medium Enterprise if the turnover is more than 75 Crores but doesn’t go beyond 250 Crores.
Since the amendment hasn’t been approved by the Lok Sabha yet, as of now the extant classification and definition of the enterprise under the MSMED Act 2006 must be referred.
Experts say that for an enterprise that is engaged in the work of rendering or providing services, the classification based on cost is as follows:
- If the investment is less than 10 Lakh rupees for buying equipment, then it is called Micro Enterprise.
- If the investment is greater than 10 Lakh rupees but not exceeding 2 Crore rupees for buying equipment, then it is called Small Enterprise.
- If the investment is greater than 2 Crore rupees but not exceeding 5 Crore rupees for buying equipment, then it is called Medium Enterprise.