Amidst the challenging market scenario in India, the Micro, Small and Medium Enterprises (MSME) Sector has been playing a vital role in achieving the growth of the nation. This sector has been contributing around 30 percent in the GDP of the nation and provides employment to the millions of people. The MSME sector also shows the entrepreneurship spirit of India. Despite the importance of the MSME in the economic growth, the sector has been facing with the various challenges since the last decade like non-availability of adequate finance, skilled labor, efficient technology and infrastructure.
As the work-cycle of an establishment largely depends on 5Msi.e.:
However, the access to finance is the major roadblock of this sector and funds blocked due to delayed payments in the market leads to another threat to the growth of this sector. If the supply of finance is blocked then further work cycle also gets stopped. To counter these challenges, the government has developed key strategies and policies. The government of India has also enacted the Micro, Small and Medium Development (MSMED) Act, 2006 which contains provisions for the safeguard and development of Micro, Small and Medium Enterprises (MSMEs) and for recovery of payments to MSME in due time.
The Micro, Small and Medium Enterprises (MSMEs) are defined in India under the MSMED Act, 2006 on the parameters of capital investment in plants, machinery, and equipment.
Definition of Micro, Small and Medium Enterprises as per the MSMED, Act 2006:
(i) Micro Enterprise: where the investment in plant and machinery does not exceed Rs.25.00 Lakh;
(ii) Small Enterprise: where the investment in plant and machinery is more than Rs.25.00 Lakh but does not exceed Rs.5.00 Crores;
(iii) Medium Enterprise: where the investment in plant and machinery is more than Rs.5.00 Crores but does not exceed Rs.10.00 Crores;
In the case of the Enterprises engaged in providing or rendering of Services (Service Sector): (I) A micro enterprise, where the investment in equipment does not exceed Rs.10.00 Lakh;
(ii) A small enterprise, where the investment in equipment is more than Rs.10.00 Lakh but does not exceed Rs.2.00 Crore;
(iii) A medium enterprise, where the investment in equipment is more than Rs.2.00 Crore but does not exceed Rs.5.00 Crore.
Section 15 to 24 of Micro Small and Medium Enterprises Development Act, 2006 (MSMED) contain remedial provisions in case of delayed payments.
Section 20 of the Act provides for the establishment of Micro and Small Enterprises Facilitation Council (MSEFC) for settlement of disputes on getting reference/filings on delayed payments to MSMEs.
Section 21 provides for a composition of Micro and Small Enterprises Facilitation Council (MSEFC) which consist of not less than three but not more than five members to be appointed from amongst the following categories
(I) Director of Industries, by whatever name called, or any other officer not below the rank of such Director, in the Department of the State Government having administrative control of the Small-scale industries (SSI) or, as the case
maybe, Micro, Small and Medium Enterprises (MSME); and
(ii) One or more office-bearers or representatives of Associations of Micro or Small Industry or Enterprises in the State; and
(iii) One or more representatives of banks and financial institutions lending to Micro or Small Enterprises; or
(iv) One or more persons having special knowledge in the field of industry, finance, law, trade or commerce. Under the provisions of the above sections the remedy for the delayed payment for MSMEs is:
According to Section 15 of the Act, the buyer has to make payment of goods or services to a supplier on or before the date mentioned in the agreement between the buyer and supplier. Further, in any case, a buyer cannot delay the payment due to MSME beyond 45 days from the date of acceptance or the day of deemed acceptance.
But if the buyer does not make payment of goods supplied to MSME within 45 days of the acceptance of goods or services rendered, then the buyer is liable to pay compound interest with monthly rests to the supplier on the amount at the three times of the Current Bank Rate as notified by the RBI. (Section 16)
Any party i.e. buyer and supplier both for the resolution of any dispute arising out of due payment may make a reference before the Micro and Small Enterprises Facilitation Council (MSEFC)
A supplier of goods and services i.e. MSME unit can also file an online application against the buyer through MSME Samadhaan Portal to get decided by the MSFC of his State/Union Territory. But to apply through this portal the applicant should have a valid Udyog Aadhar Number (UAM).
On receiving an application, the council may initiate conciliation proceedings either itself or through some other institution. Any reference made under this section shall be decided within 90 days in any case.
An application by a buyer for setting aside the order or the Micro and Small Enterprises Facilitation Council (MSEFC) can be entertained only after depositing of 75% of the amount of the Award made by the Council.
If any of the MSME units having a problem of recovery of payment, it may initiate action in accordance with the steps mentioned above to get the process in a speedy manner.
Although MSMED Act, 2006 already contains provisions for timely payment for goods and services along with interest on delayed payment, yet the penalties are so
small that no one is taking the provisions of the Act, Seriously.
There is a need of strict penal provisions and provisions so that a good business sense is being developed in India.
Section 8 of the Act provides for form of memorandum, the procedure of its filing and the time period to file memorandum of Micro, Small and Medium Enterprises with such authority as may be specified by the Central and State Government by notification.
Section 22 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 amount 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.
Penal Provisions under the MSMED, Act 2006
Section 27 provides penalties if any person contravenes Section 8, 22 & 26 of the MSMED, Act 2006 as under:
In the case of the first conviction, with fine which may extend to Rs.1000/- and
In the case of second or subsequent conviction, with fine which shall not be less than Rs.1000/- but may extend to Rs.10000/-.