MSMED Act 2006 - Payment Recovery for Micro & Small Enterprises

MSMED Act 2006 - Payment Recovery for Micro & Small Enterprises

A. The Micro, Small and Medium Enterprises Development (MSMED) Act 2006

MSMED Act 2006 is a special enactment with the object to facilitate the promotion, development and also to enhance the competitiveness of micro, small and medium enterprises and for matters connected therewith and incidental thereto. It contains special provisions (Section 15- 24) for safeguarding the payments to Suppliers who are Micro and Small Enterprises (MSEs), as defined under the Act.

Please click here to download the MSMED Act 2006.

B. Classification of Enterprises

Presently, the classification of various enterprises under the Section 7 of the Act are as follows:

S. No. Type of Enterprise Manufacturing Industry (Investment in Plant and Machinery)
1          Micro                      Does not exceed Rs. 25 Lakh
2          Small                      Exceeds Rs. 25 Lakh but does not exceed Rs. 5 Crore
3          Medium                  Exceeds Rs. 5 Crore but does not exceed Rs. 10 Crore

S. No. Type of Enterprise Service Industry (Investment in Equipments)

1          Micro                     Does not exceed Rs. 10 Lakh

2          Small                     Exceeds Rs. 10 Lakh but does not exceed Rs. 2 Crore

3          Medium                 Exceeds Rs. 2 Crore but does not exceed Rs. 5 Crore

The government of India had introduced the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2018 in Lok Sabha to amend the Micro, Small and Medium Enterprises Development Act, 2006 and classify micro, small and medium enterprises (MSMEs) by way of a uniform classification for all MSMEs on the basis of their annual turnover and by significantly increasing the limit for various categories. However, the bill is yet to become an Act, so the above classification remains applicable.

Please click here to track the MSMED (Amendment) Bill 2018

C. Online Udyog Aadhar Registration

Every running unit satisfying the definition of micro, small and medium enterprises should obtain the Udyog Aadhar Number. The earlier EM-I has been abolished. The process is simple and online. There is no registration fees. 

Please click here for online Udyog Aadhar Registration through official site maintained by the Ministry of Micro, Small and Medium Enterprises, Govt of India.

D. Provisions Related to Delayed Payment to Micro and Small Enterprise (MSEs)

1. Supplier under MSMED Act 2006 refers to any micro and small enterprises only who are supplying goods / services. Therefore, Medium Enterprises would not be covered. (Section 2(n)).

2. If the buyer makes no objection to supplier in writing within 15 days of receipt of goods / services, within fifteen days from the day of the delivery of goods or the rendering of services, it would be treated as day of deemed acceptance. (Section 2(b)(ii))

2. The buyer is liable to make payment on or before the date agreed on between him and the supplier in writing or, in case of no agreement, before the appointed day. The agreement between seller and buyer shall not exceed more than 45 days.·(Section 15)

3. If the buyer fails to make payment of the amount to the supplier, he shall be liable to pay compound interest with monthly rests to the supplier on the amount from the appointed day or, on the date agreed on, at three times of the Bank Rate notified by Reserve Bank.·(Section 16 -17)       

4. In case of dispute with regard to any amount due, a reference shall be made to the Micro and Small Enterprises Facilitation Council, constituted by the respective State Government. In case the conciliation fails, the matter is referred to arbitration under the provisions of Arbitration and Conciliation Act 1996. Notwithstanding anything contained in any other law for the time being in force, the Micro and Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an Arbitrator or Conciliator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India. Every reference to be decided within a period of 90 days from the date of making such a reference. (Section 18)

5. No application for setting aside any decree, award or other order shall be entertained by any court unless the appellant (not being a supplier) has deposited with it seventy-five per cent of the amount in terms of the decree, award or, as the case may be. (Section 19)

6. The Sections 15-23 of MSMED Act shall have an overriding effect, notwithstanding anything inconsistent therewith contained in any law. (Section 24)

E. Filing of Case / Claim Against Delayed Payment

The filing of case / claim against delayed payments can  be done online through the official website for Delayed Payment Monitoring System maintained by the Ministry of Micro, Small and Medium Enterprises, Govt of India. Subsequently, the supplier may be required to furnish claim in hard copy on prescribed form (if any) along with supporting documents and to deposit statutory fee as applicable. The claimant must check for applicable rules in their respective states. 

Please click here for online case filing for Enterprises / MSE Units 

F. Traders not covered under MSMED Act 2006

The govt of India vide its office memorandum dated 27.06.2017 notified a few categories / activities (NIC Codes) which will not be covered under MSMED Act 2006 for registration of Udyog Aadhar Number. Whole Sale and Retail Trade remain not covered. The relevant excluded categories relating to Wholesale and Retail Trade are as follows :

NIC  Category
Code

45      Wholesale and Retail Trade and Repair of Motor Vehicles and Motor Cycles

46      Wholesale Trade except of Motor Vehicles and Motor Cycles

47      Retail Trade except of Motor Vehicles and Motor Cycles

Please click here to download the memorandum dated 27.06.2017

G. Statutory Compliance on the part of the Buyer

1. Section 22 of MSMED Act 2006

Requirement to specify unpaid amount with interest in the annual statement of accounts.

Where any buyer is required to get his annual accounts audited under any law for the time being in force, such buyer shall furnish the following additional information in his annual statement of accounts, namely:-

(i) the principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier as at the end of each accounting year;

(ii) the amount of interest paid by the buyer in terms of section 16, along with the amounts of the payment made to the supplier beyond the appointed day during each accounting year;

(iii) the amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under this Act;

(iv) the amount of interest accrued and remaining unpaid at the end of each accounting year; and

(v) the amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under section 23. 

2. Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order, 2019

Comes into effect w.e.f 22.01.2019 and therefore first return is to be filed on or before 21.02.2019

All companies, who get supplies of goods or services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed forty five days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of section 9 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006) (hereafter referred to as “Specified Companies”), shall submit a half yearly return to the Ministry of Corporate Affairs stating the following:

(a) the amount of payment due; and

(b) the reasons of the delay; 

By exercise of power under section 405 of the Companies Act, 2013, the Central Government, has made it mandatory for “Specified Companies” to furnish above information under said section of the Act.

Please click here to download the notification for Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order, 2019

H. Important Judgements

1. Deposit of 75% of Award Mandatory for considering any appeal / application
Case: Goodyear India Limited Vs Norton Intech Rubbers(P) Ltd
Court: Supreme Court of India
Case No: SLP (C) 16919-16920/2011
Citation: (2012) 6 SCC 345
Acts: MSMED Act 2006 (Section 19)
Held: In terms of Section 19 of MSMED Act 2006, the Court has no discretion to either waive or reduce the amount of 75% of award as a predeposit for filing of application/appeal. However, court has discretion to allow predeposit to be made in instalments, if required.

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