Summary table of relevant provisions regarding definition and payment to MSME
Ref:
(i) The MSMED Act 2006 (came into force on 2nd October, 2006)
(ii) The Central Government Notification number S.O 5622 (E) dated 18th Nov 2018
(iii) The MCA Order Jan 2019 – The Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order, 2019 dated 22nd January 2019
(iv) The Central Government Notification number S.O. 1702 (E) dated 1st June 2020
(v) The Central Government Notification number S.O. 2119 (E) dated 26th June 2020
| Sr. No. | Relevant section/Notification | Extract of relevant provisions | Remarks |
| 1 | Sec 2(b) of MSMED Act 2006 | “Appointed Date means the day following immediately after the expiry of period of 15 days from the day of acceptance or the day of deemed acceptance of goods or services by a buyer from a supplier ;
Explanation:- (i) “the day of acceptance” means- (a) the day of the actual delivery of goods or the rendering of services; (b) where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier; (ii) the day of deemed acceptance means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services; |
The definition of appointed day and acceptance is given in the Act.
Appointed Date is 15 days from the date of acceptance of goods or deemed acceptance of goods. |
| 2 | Sec 7 of the MSMED Act 2006 read with Central Govt. notification number S.O. 1702 (E) dated 1st June 2020 | Criteria for classification of micro, small and medium enterprises-
(i) a micro enterprise -where the investment in Plant and Machinery or Equipment does not exceed one crore rupees and turnover does not exceed five crore rupees; (ii) a small enterprise – where the investment in Plant and Machinery or Equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees; (iii) a medium enterprise – where the investment in Plant and Machinery or Equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees. |
The Central Government notified revised criteria for classification of micro, small and medium enterprises, applicable from 1st July 2020. |
| 3 | Sec 8 MSMED Act 2006 read with Central Govt. notification number S.O. 2119 (E) dated 26th June 2020 | Memorandum of Micro, Small and Medium Enterprises, also known as Udyam Registration.
(i) Any person who intends to establish a micro, small or medium enterprise may file Udyam Registration online in the Udyam Registration portal, based on self-declaration with no requirement to upload documents, papers, certificates or proof. (ii) On registration, an enterprise (referred to as Udyam in the Udyam Registration portal) will be assigned a permanent identity number to be known as Udyam Registration Number. (iii) An e-certificate, namely, Udyam Registration Certificate shall be issued on completion of the registration process. |
Obtaining Udyam registration is mandatory to enjoy the status of Micro, Small and Medium Enterprises.
The notification further mandates all existing enterprises registered with EM–Part-II or UAM or with any other organisation under the Ministry of Micro, Small and Medium Enterprises to register again on Udyam Registration Portal on or after 1st day of July 2020. |
| 4 | Sec 15 of MSMED Act | Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefore on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day.
Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance. |
Liability of buyer to make payment within 45 days.
Payment to be made on the date agreed or before the appointed date; in no case later than 45 days from acceptance or deemed acceptance. |
| 5 | Sec 16 and 17 of MSMED Act | sec (16) Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.
sec (17) For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16 |
Payment of interest on delayed payment from appointed day/ agreed day at three times of the bank rate notified by the RBI.
Buyer shall be liable to pay interest as specified in Sec 16 |
| 6 | Sec 22 and 23 of MSMED Act | sec (22) 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. sec (23) Notwithstanding anything contained in the Income-tax Act, 1961 (43 of 1961), the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act, shall not, for the purposes of computation of income under the Income-tax Act, 1961, be allowed as deduction. |
Requirement to specify unpaid amount with interest in the annual statements of accounts.
Interest not to be allowed as deduction from income under IT Act, 1961 |
| 7 | The MSME Notification dated 18th Nov 2018 | 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; |
Specified companies defined. They need to submit half yearly returns to MCA if delay in payment to MSME exceeds 45 days .
Delay beyond 45 days from acceptance or deemed acceptance, and the reason for same is to be reported. |
| 8 | The MCA Order Jan 2019 | (i) Every specified company shall file in MSME Form I details of all outstanding dues to Micro or small enterprises suppliers existing on the date of notification of this order within thirty days from the date of publication of this notification.
(ii) Every specified company shall file a return as per MSME Form I annexed to this Order, by 31st October for the period from April to September and by 30th April for the period from October to March. |
MSME Form I was introduced for outstanding dues to MSME. Due date for filing return is 31st Oct and 30th April. |
Author Bio
Do outstanding dues on account of disputes also need to be reported in MSME -1 ?
In case there is acceptance of services/good, any delay beyond 45days from 4acceptance or deemed acceptance, and the reason for same, is to be reported.
In case of Dispute regarding good provided/services rendered, the 45days timeline will be counted from the date of actual acceptance. However, the objection, if any, needs to be raised within 15 days from the day of the delivery of goods or the rendering of services.
Hi, Delay beyond 45 days from acceptance or deemed acceptance, and the reason for same is to be reported.
However, in case of dispute, time timeline of 45 days shall be counted from the date of acceptance of goods/services. Please note that any objection w.r.t good and services have to raised within 15 days from from the day of the delivery of goods or the rendering of services otherwise it will be deemed accepted.
Further, after acceptance of goods if there are delay in payment of principal amount and/or interest, an MSME having Udyog Aadhar can apply to MSEFC for settlement of payment related disputes. Every reference made to MSEFC shall be decided within a period of ninety days from the date of making such a reference.
Hence, the reporting in form MSME 1 and disclosure in financial statements is the obligation of the buyer. They payment of interest on delayed payments is also the obligation of the buyer. However, the supplier MSME can approach MSEFC in case of any dispute.
Thank you !