The New Manufacturing Norms (NMN) for Small and Medium Enterprises (SMEs) in India represent a significant shift in the approach towards defining and supporting the core principles of these enterprises, particularly in the manufacturing sector. By addressing key concerns around investment and expansion, and by encouraging exports, NMN aims to create a more conducive environment for SMEs to thrive, innovate, and contribute significantly to India’s economic development. The primary objective behind introducing New Manufacturing Norms for SMEs in India is to provide a more flexible and growth-oriented framework that encourages small and medium enterprises to expand their operations, invest in new technologies, and enter new markets without the fear of losing out on benefits provided to SMEs.
In order to be eligible to the benefits of this legislation a business unit shall have the following essential features :
ENTERPRISE.
The business unit must be an “Enterprise”. Enterprise means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (55 of 1951) or engaged in providing or rendering of any service or services;
Essential features of an Enterprise
1) Enterprise can be an industrial undertaking, a business concern, or any establishment involved in various activities.
2) Engagement in Manufacturing: The primary activity should involve the manufacturing or production of goods. Beyond manufacturing, an enterprise may also offer or render services.
3) Such industrial undertaking must be engaged in the manufacture or production of goods. “Goods” refers to every kind of movable property, excluding actionable claims and money. Immovable property does not fall under this category.
4) An industrial unit qualifies as a micro or small enterprise if it has filed a memorandum with the designated authority, as per specific regulatory requirements, and is known as a “Supplier.”
5) There must be a “Buyer” which means anyone who purchases goods or receives services from a supplier for consideration. Transactions without consideration are outside the scope of this Act.
6) Small enterprise A small enterprise is described as a registered or constituted company, co-operative society, trust, or body, engaged in selling goods produced by micro or small enterprises or in providing services offered by such enterprises.
MANUFACTURING
The NMN are applicable to only those MSME which are engaged in manufacturing. In excise law, manufacturing is defined as the substantive transformation of raw materials into a new, distinct product, identifiable by its new name, character, or use. For a process to qualify as manufacturing, it must be integral to producing the final product, contributing directly to its creation. Incidental processes or those that do not result in a commercially new product do not meet the criteria. Consequently, activities such as machinery maintenance, which do not directly contribute to the transformation of raw materials into the final product, and the scrap resulting from such activities, are not considered part of the manufacturing process and are thus excluded from the definition of manufacture.
TURNOVER
(i) Turnover, in the MSME context, encompasses the total value of invoices by an MSME unit during a reference period, reflecting the market sales of goods or services to third parties. It includes all duties and taxes except for GST and similar taxes directly linked to turnover. Charges like transport and packaging passed on to the customer, even if listed separately, are included. Deductions include rebates, discounts, and the value of returned packing, while excluding operating subsidies, financial income, and extraordinary income.
Example Calculation:
| Example | Rs. Crs. |
| Total Sales (Domestic + Export) | 60.00 |
| Less: Export Sales | 20.00 |
| Domestic sales (Including GST) | 40.00 |
| Less GST @ 18% | 6.10 |
| Domestic Sales (Excluding GST) | 33.90 |
| Total Turnover for SME | |
| 1) Local Turnover | 33.90 |
| 2) Export Turnover | 20.00 |
| 53.90 |
Based on this calculation, the unit could be classified as a Small Enterprise, assuming investment criteria align (not exceeding Rs. 10 crore).
(ii) Exports of goods or services or both, shall be excluded while calculating the turnover of any enterprise whether micro, small or medium, for the purposes of classification.
(iii) Information as regards turnover and exports turnover for an enterprise shall be linked to the Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN.
(iv) The turnover related figures of such enterprise which do not have PAN will be considered on self-declaration basis for a period up to 31st March, 2021 and thereafter, PAN and GSTIN shall be mandatory.
(v) Turnover is calculated before deducting expenses, exclusive of GST. An enterprise’s classification may change if it crosses the specified limits in either investment or turnover but not downgrade unless both criteria fall below current category limits. Furthermore, entities with the same PAN and GSTIN are considered a single enterprise for classification purposes.
(vi) Treatment of Traded Goods:
Whether the value of the turnover of traded goods would be included in the calculation of Annual Turnover?
General Principle: The annual turnover for an MSME typically includes all revenue from operations, which would encompass revenue from the sale of manufactured goods as well as traded goods. Traded goods refer to items that a company buys and then sells without undergoing any transformation process within the company.
Barter System in the Context of MSME Payments
The MSME Act and the policies derived from it are primarily concerned with monetary transactions and do not explicitly address non-monetary transactions or barter exchanges. A barter transaction involves exchanging goods or services directly for other goods or services without using a medium of exchange, such as money.
Legal Framework: The MSME Act, and particularly the provisions related to the payments to MSMEs, emphasize monetary transactions. This focus supports easier valuation, documentation, and, if necessary, legal enforcement of payments due.
Valuation and Enforcement: One of the challenges with barter transactions is accurately valuing the goods or services exchanged. This could complicate compliance with the MSME Act’s provisions on delayed payments, which calculate interest on overdue monetary payments. In a barter scenario, determining the equivalent monetary value of exchanged goods or services—and consequently the interest due in case of delayed exchange—could be complex.
Documentation and Taxation: For both parties involved in a barter transaction, accurately documenting the transaction for tax purposes is essential. Goods and Services Tax (GST) in India applies to the supply of goods and services, including barter transactions, where they are treated as supplies and taxed accordingly. Therefore, both parties must evaluate the GST implications and ensure compliance.
Thus, while barter transactions are a valid form of trade, their integration into the framework of the MSME Act regarding payments is not straightforward due to the Act’s focus on monetary transactions. MSMEs engaged in or considering barter agreements should carefully document these transactions, assign them a clear monetary value for accounting and tax purposes, and be mindful of the legal and practical aspects of such arrangements, especially concerning the Act’s provisions on payments.
STREET VENDORS,
Street vendors, whether urban or rural, can register as retail traders on Udyam Registration (UR) portal. The benefits of Retail and Wholesale Trade MSMEs are to be restricted to priority sector lending only [OM 16/17/2020-P&G-Policy (E-19421), dated 9-8-2021, issued by Ministry of MSME, GOI].
CLASSIFICATION OF THE ENTERPRISES
1. Revised Investment Criteria
Under the traditional MSME definition, enterprises were classified based on the original cost of their plant and machinery. This approach often discouraged MSMEs from making further investments in upgrading or expanding their machinery due to the fear of crossing the defined investment thresholds and losing their MSME status, along with the benefits associated with it.
The NMN changes this by shifting the focus from the original cost to the net investment in plant and machinery or equipment. This net investment is calculated on the depreciated cost basis, i.e., after accounting for depreciation as per the Income Tax Returns (ITRs). This method recognizes the actual current value of the assets rather than their historical cost.
2. Depreciation and Investment Calculation
For the purpose of MSME classification under NMN, the investment limit considers the depreciated cost of plant and machinery or equipment. This depreciated value is determined by the rates of depreciation as per Income Tax Rules, which are generally higher than the rates used for commercial depreciation under the Companies Act, 2013.
This approach benefits MSMEs in two main ways:
a) It allows for a more accurate reflection of the enterprise’s current investment level.
b) It enables enterprises to make significant new investments in plant and machinery without the risk of losing their MSME status, as the depreciation effectively reduces the book value of their assets.
New Manufacturing Norms (NMN) and Adjustments in MSME Classification
The NMN has revised investment limits for MSME classification from original to net investment (depreciated cost basis), based on Income Tax Returns. This change, along with the exclusion of export turnover from turnover limits, encourages MSMEs to expand without the risk of losing their status due to exceeding thresholds.
Composite Criteria for Classification:
Micro Enterprises: Investment ≤ Rs. 1 crore and turnover ≤ Rs. 5 crore.
Small Enterprises: Investment ≤ Rs. 10 crore and turnover ≤ Rs. 50 crore.
Medium Enterprises: Investment ≤ Rs. 50 crore and turnover ≤ Rs. 250 crore.
The NMN has not only revised upwards the investment limits substantially but also changed the method of computing investment limits from original cost basis to net investment i.e. depreciated cost basis. The investment limit in NMN is in terms of “Net investment in plant and machinery or equipment”. It is not the original investment or cost of plant and machinery or equipment but the depreciated cost of plant and machinery or equipment with reference to ITRs filed. Only for new enterprises without prior ITRs filed, the net investment will be the original cost or purchase invoice value of plant and machinery or equipment. A noteworthy point is depreciated value as per ITRs is reckoned by charging rates of depreciation as per Income Tax Rules which rates are higher than the commercial rates of depreciation given in Schedule II of the Companies Act, 2013 for instance. The net investment or depreciated cost as per ITR will be lower than the depreciated cost as per audited books of account/balance sheet for companies. This will ensure that much larger number of enterprises get included in definition of MSME and there is no disincentive to invest for fear of losing MSME status due to investment limit being exceeded.
(ii) All units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise.
Calculation of investment in plant and machinery or equipment
(i) The calculation of investment in plant and machinery or equipment will be linked to the Income Tax Return (ITR) of the previous years filed under the Income Tax Act, 1961.
(ii) In case of a new enterprise, where no prior ITR is available, the investment will be based on self-declaration of the promoter of the enterprise and such relaxation shall end after the 31st March of the financial year in which it files its first ITR.
(iii) The expression ‘’plant and machinery or equipment’’ of the enterprise, shall have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961 and shall include all tangible assets (other than land and building, furniture and fittings).
(iv) The purchase (invoice) value of a plant and machinery or equipment, whether purchased first hand or second hand, shall be taken into account excluding Goods and Services Tax (GST), on self-disclosure basis, if the enterprise is a new one without any ITR.
(v) The cost of certain items specified in the Explanation I to sub-section (1) of section 7 of the Act shall be excluded from the calculation of the amount of investment in plant and machinery.
CEILING LIMIT CROSSED
(i) If an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover, it will cease to exist in that category and be placed in the next higher category but no enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover.
(ii) In case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent re-classification, an enterprise will maintain its prevailing status till expiry of one year from the close of the year of registration. In case of reverse-graduation of an enterprise, whether as a result of re-classification or due to actual changes in investment in plant and machinery or equipment or turnover or both, and whether the enterprise is registered under the Act or not, the enterprise will continue in its present category till the closure of the financial year and it will be given the benefit of the changed status only with effect from 1st April of the financial year following the year in which such change took place. Other aspects relating to registration of enterprises, grievance redressal, etc. are mentioned in the Gazette Notification S.O. 2119 (E) dated June 26, 2020 .
Continuation of Non-tax Benefits in case of upward change
S.O. 4926(E) the 18th October, 2022
“(5) In case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent re-classification, an enterprise shall continue to avail of all nontax benefits of the category (micro or small or medium) it was in before the re-classification, for a period of three years from the date of such upward change.”.
This provision is designed to support and encourage the growth of enterprises by offering a safety net when they scale up their operations. Let’s break down the key components of this provision for a clearer understanding:
1. Upward Change in Investment or Turnover:
The provision kicks in when there’s an increase in the investment in plant and machinery or equipment, or when there’s an increase in the company’s turnover, or both. These changes could potentially re-classify a business from its current category (micro, small, or medium) to a higher category based on predefined thresholds for investment and turnover.
2. Consequent Re-classification:
When the thresholds for investment or turnover are crossed, an enterprise might move up from one category to another, say from micro to small, or from small to medium. This re-classification is usually accompanied by changes in the benefits or obligations for the enterprise.
3. Continuation of Non-tax Benefits:
The provision states that even after an enterprise has been re-classified to a higher category due to its growth, it will continue to enjoy the non-tax benefits of its previous category (before re-classification) for a period of three years from the date of such upward change.
4. Non-tax Benefits:
Non-tax benefits could include various forms of government support that are not related to tax, such as eligibility for certain subsidies, grants, marketing support, technical support, or preferential procurement policies.
Ministry of Micro, Small & Medium Enterprises
Notification issued for MSME enterprises to continue to avail of all non-tax benefits of the category it was in before the re-classification, for a period of three years from the date of such upward change
The Ministry of MSME vide S.O. 4926 (E) dated 18.10.2022 has notified that in case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent re-classification, an enterprise shall continue to avail of all non-tax benefits of the category it was in before the re-classification, for a period of three years from the date of such upward change.
In India, non-tax benefits for SMEs are typically offered by the Indian government or state governments themselves, often influenced by global best practices and recommendations from international organizations like the OECD. These benefits might include:
1. Access to Finance: Special loan schemes, credit guarantees, and funds dedicated to supporting SMEs.
2. Market Access: Programs to facilitate SME participation in domestic and international trade fairs, e-commerce platforms, and government procurement.
3. Capacity Building: Training programs, mentorship, and consultancy services to enhance managerial, technical, and operational capabilities.
4. Infrastructure: Development of industrial parks and clusters with shared facilities and services to reduce operational costs.
5. Innovation and Technology Upgradation: Grants, subsidies, and support for research and development (R&D) activities, technology adoption, and digitalization.
6. Regulatory Easing: Simplified procedures and regulations for starting and running a business, including faster clearances and reduced compliance burdens.
Purpose of the Provision:
Encourages Growth: Enterprises might hesitate to expand if doing so would immediately place them in a higher category with fewer benefits. This provision encourages growth by ensuring that enterprises do not lose their existing benefits immediately upon scaling up.
Smooth Transition: It offers a transitional period for enterprises to adjust to their new category. During these three years, enterprises can plan and align their strategies to comply with the regulations and obligations of the higher category.
Supports Sustainability: By providing a cushion of three years, the policy supports the sustainable growth of enterprises, ensuring they do not face sudden withdrawal of benefits which could impact their operations or financial health.
Thus, this provision is a policy tool designed to foster the growth of enterprises by providing them with a grace period to enjoy the benefits of their original category, even after they grow beyond the thresholds of that category, thereby ensuring a smooth and sustainable transition.
RECOVERY MECHANISM
Remedies available to the supplier for recovery of payment
Under section 15 of the Act, a buyer must pay a supplier for goods or services by the agreed date in writing or, lacking such an agreement, by the appointed day, which is defined as 16 days after acceptance or deemed acceptance of the goods or services. Any written agreement for payment must not allow for a period longer than 45 days from acceptance.
The concept of the “appointed day” is designed to provide clarity and fairness in the payment process, ensuring that suppliers, particularly MSEs, have a clear understanding of when payments are due and when interest on overdue payments begins to accrue. This system helps to protect the financial interests of MSEs by encouraging timely payments and providing a mechanism for compensation in cases of delayed payments.
| Case-1 Direct Acceptance | |
| Date of Delivery | 01-01-2024 |
| Date of acceptance | 01-01-2024 |
| Appointed Day (15 days after the day of acceptance) | 17-01-2024 |
| Case-2 Acceptance after Objection | |
| Date of Delivery | 01-01-2024 |
| Date of Objection(a) | 05-01-2024 |
| Date of Removal of Objection | 10-01-2024 |
| Date of Acceptance | 10-01-2024 |
| Appointed Day (b) | 26-01-2024 |
| a) If Objections made within 15 days from the day of the delivery, the day of acceptance will be the date on which such objection is removed by the supplier;
b) Appointed day =15 days after the day of acceptance |
|
| Case-3: Deemed Acceptance | |
| Date of Delivery | 01-01-2024 |
| Date of Objection (within 15 days) | No Objection |
| Date of Deemed Acceptance | 01-01-2024 |
| Appointed Day (15 days after the day of deemed acceptance) | 17-01-2024 |
Section 16. Payment & Rate of Interest
This section specifies the consequences for a buyer who fails to make payment to a supplier for goods or services provided, as mandated under section 15. When a buyer does not comply with the agreed payment terms, they are subject to a financial penalty in the form of compound interest. This interest is calculated at a rate three times the bank rate as notified by the Reserve Bank of India (RBI), applied to the overdue amount, and compounded monthly from the due date until payment is made. The purpose of this clause is to incentivize timely payments and compensate suppliers for the delay.
Calculation of Interest: Interest is calculated on the overdue amount (₹100000) from the due date (February 1st, assuming payment was due on January 31st) until the payment is made. If the buyer makes the payment three months late (on April 30):
| Rate of Interest= 3 times the Bank Rate=5.15% i.e.(15.45%) | |||
| Default Months | Invoice | Interest | Total |
| 1st Month | 100000 | 1288 | 101288 |
| 2nd Month | 101288 | 1304 | 102592 |
| 3rd Month | 102592 | 1321 | 103913 |
| Total Interest | 3913 | ||
Thus, this provision aims to ensure that suppliers, especially micro and small enterprises, are not financially burdened by late payments. By imposing a significant financial penalty on delinquent buyers, the law incentivizes prompt payment, thereby helping to maintain the cash flow and financial health of suppliers. The use of a high-interest rate, compounded monthly, serves as a deterrent against late payment practices and provides a mechanism for suppliers to recoup some costs associated with payment delays.
Section 17. Recovery of amount due.
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.
Section 18. Reference to Micro and small Enterprises Facilitation Council.
1. Obligation to Pay: This part mandates that a buyer must pay the supplier for the goods or services provided. It establishes a clear expectation of payment, which is the foundation of commercial transactions.
2. Payment Terms: The timing of the payment is based on the terms agreed upon in writing between the buyer and the supplier. This allows for flexibility and negotiation specific to each transaction.
3. Default Payment Term: In the absence of a written agreement specifying the payment date, the payment must be made before the “appointed day.” The appointed day refers to the payment terms as defined by the MSME Act which specify a maximum period of 45 days within which all payments must be made if not otherwise agreed.
4. Maximum Payment Period: Importantly, even if a payment term is agreed upon, it cannot exceed forty-five days from the day of acceptance or the day of deemed acceptance of the goods or services. This clause is critical as it caps the maximum credit period a buyer can demand, protecting suppliers from excessively long payment delays.
Example:
Suppose one SME supplier makes supplies to a BUYER, on 1st January 2024. Upon delivery, Buyer conducts a quality check and officially accepts the goods on 5th January 2024
1) Case 1: Written Agreement Present – If Suppose the supplier and the buyer had agreed in writing that payment would be made within 30 days of acceptance. The buyer would be obligated to make payment by 4th February 2024.
2) Case 2: No Written Agreement – If there was no written agreement specifying the payment date, the payment would need to be made before the appointed day, which, for the sake of this example, let’s assume is 45 days. Thus, buyer must make payment by 19th February 2024 (45 days from acceptance).
3) Case 3: Exceeding Maximum Period Agreement – If supplier and the buyer had agreed in writing that the payment would be made within 60 days of acceptance, this agreement would violate Section 15’s provision that no agreed period can exceed 45 days from the day of acceptance. Therefore, despite the agreement, the payment would legally need to be made by February 19th.
Thus, Section 15 protects MSEs, by ensuring they receive payments within a reasonable timeframe, thus safeguarding their financial stability. It strikes a balance between allowing flexibility in commercial transactions and preventing abuse by imposing a maximum allowable credit period. This provision is an essential aspect of the legal framework supporting the interests of smaller businesses against potential delays and financial challenges caused by late payments.
The Micro and Small Enterprises Facilitation Council (Council)
The Council acts as a crucial support system for MSEs, providing a streamlined, cost-effective, and timely mechanism for dispute resolution. By incorporating both conciliation and arbitration processes and having jurisdiction over disputes nationwide, the Council ensures that MSEs have access to justice and can resolve payment disputes with buyers efficiently, without being bogged down by the traditional court system. This system not only supports the financial stability of MSEs but also encourages fair business practices and contractual compliance among larger businesses.
Section 18 provides outlines & the role and processes of the Micro and Small Enterprises (MSE) Facilitation Council in resolving disputes between micro and small enterprises (suppliers) and their buyers. This is an essential mechanism aimed at supporting MSEs by providing an efficient and cost-effective dispute resolution system. Let’s break down each subsection for a clearer understanding:
(1) Initiation of Dispute Resolution
This clause allows any party involved in a dispute over payments due under section 17 (which details the payments due to micro and small enterprises for goods and services provided) to make a reference to the MSE Facilitation Council. This provision is crucial as it provides a direct route for resolving disputes, bypassing traditional legal proceedings which can be time-consuming and costly.
(2) Conciliation Process
Upon receiving a dispute, the Council may either conduct conciliation itself or refer the dispute to an alternative dispute resolution (ADR) institution. This step aligns with sections 65 to 81 of the Arbitration and Conciliation Act, 1996, ensuring that the conciliation process follows established legal procedures for alternative dispute resolution.
(3) Arbitration Process
If conciliation fails, the Council can take the dispute to arbitration itself or refer it to an ADR institution for arbitration. The arbitration process will then be governed by the Arbitration and Conciliation Act, 1996, ensuring a legally recognized and enforceable resolution.
(4) Jurisdiction
This clause empowers the MSE Facilitation Council or any ADR center it uses to act as an arbitrator or conciliator in disputes involving a supplier in its jurisdiction and a buyer located anywhere in India. This nationwide jurisdiction is significant, as it allows disputes to be resolved even if the parties are in different states.
(5) Time Frame for Resolution
Every dispute referred to the Council must be decided within 90 days from the date of referral. This provision ensures a timely resolution, which is critical for MSEs that may not have the resources to endure prolonged disputes.
Section 23. Interest not to be allowed as deduction from income.
This section has an overriding effect and provides that 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.
The provision states that any interest payable or paid by a buyer, under the guidelines of the mentioned Act, cannot be deducted for the purpose of calculating income under the Income-tax Act, 1961.
The disallowance under section 23 of MSMED Act is irreversible and absolute and will not be allowed anytime thereafter even if paid later on within any time frame.
Needless to say that Section 15 of MSMED Act is applicable to “Supplier & Buyers” only and will apply only if the supplier is registered meaning of Section 2(n) of MSMED Act. Any change in the status of the supplier will be applicable only prospectively and will not cover the transactions already occurred before the change of status.
Section 43B(h) of the Income Tax Act refers to Section 15 of the MSMED Act,2006 and casts a duty on the buyer to make payment within the prescribed time. This is a statutory provision and it can’t be overridden by any mutual agreement between the supplier and the buyer extending the maximum period of payment beyond 45 days. .
Section 43B(h) clearly provides that the sum payable to SME has to be paid within 15 days of the appointed date for being eligible to deduction. The exception of the same being paid before the date of filing of return of income u/s 139(1) does not apply to the any sum payable to SMEs.
The tax component i.e. GST of the purchase price does not attract this disallowance because the method of accounting generally followed by the business entities is Exclusive Method under which GST is treated as part of the assets and liabilities and not as part of the profit & loss account.
Section 43B of the Income Tax Act, 1961, mandates that certain expenses are deductible for tax purposes only in the year they are actually paid, regardless of the accounting method. This applies to specific expenses and is designed to ensure that tax deductions align with actual cash outflows. The section impacts various payments, including those to Micro, Small, and Medium Enterprises (MSMEs), emphasizing timely payments and imposing interest on overdue payments. While interest on loans can generally be deducted under Section 37(1) if it serves the business, the specific treatment of interest payments to MSMEs aligns with general deduction principles, with penal interest for late payments to MSMEs likely not deductible due to its nature as a penalty rather than a business expense.
Objections by buyers to withhold payment to suppliers under the MSMED Act and Section 43B(h) must be specifically about the goods or services provided, not issues like GST input tax credit non-compliance by the supplier. Such non-compliance does not justify withholding payment, except for the GST component. Regarding CARO 2020, Section 43B(h) does not make payments to MSE suppliers a part of statutory dues that companies must report on under Clause 3(vii), as these are contractual obligations with a statutory payment timeline, not dues payable to statutory authorities.
In summary, such a provision is designed to adjust the tax implications of certain interest payments, directly affecting how buyers can report income and expenses for tax purposes. The specific impact and rationale can vary depending on the broader context of the act it’s part of, and the economic or policy objectives it aims to support.
Section 24. Overriding effect.
This section provides that the provisions of sections 15 to 23 of the Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
However, the relationship between the MSMED Act (Micro, Small and Medium Enterprises Development Act, 2006) and the Insolvency and Bankruptcy Code (IBC), 2016, involves specific contexts where one may have precedence over the other, depending on the circumstances of the financial distress or insolvency.
The Insolvency and Bankruptcy Code, 2016, is a comprehensive legislation enacted to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner. The primary aim is to maximize the value of assets of such persons, to promote entrepreneurship, availability of credit, and balance the interests of all the stakeholders.
While the MSMED Act, 2006, is designed to support and promote micro, small, and medium enterprises through various measures including facilitating their growth and addressing issues related to delayed payments to such enterprises.
In cases of insolvency or bankruptcy, the IBC 2016 generally takes precedence, as it provides a legal framework for the resolution of insolvency and bankruptcy matters. However, it does not specifically override the provisions of the MSMED Act regarding the protection and facilitation measures for MSMEs. For example, the MSMED Act’s provisions on delayed payments to MSMEs remain relevant and can be pursued alongside or independently of insolvency proceedings under the IBC.
It’s crucial to understand that while the IBC provides a framework for resolving insolvency and bankruptcy issues, it does not negate the rights and protections afforded to MSMEs under the MSMED Act. The resolution process under the IBC would consider the claims of MSMEs, among others, but within the context and procedures laid out by the IBC.
In specific scenarios, there could be legal interpretations or court judgments that address conflicts between the two acts, focusing on ensuring fairness and balance between the rights of MSME creditors and the objectives of the insolvency resolution process under the IBC.
The relationship between the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, and the Arbitration and Conciliation Act, 1996, in India is defined by their respective domains of application and specific provisions that may seem to intersect, particularly regarding dispute resolution.
The MSMED Act, 2006, was enacted to promote, facilitate, and develop the competitiveness of micro, small, and medium enterprises. Among its provisions, it includes a mechanism for the resolution of disputes with buyers through conciliation and arbitration (Section 18). According to this, any party to a dispute may make a reference to the Micro and Small Enterprises Facilitation Council (MSEFC), which may conduct conciliation or arbitration proceedings as per the Arbitration and Conciliation Act, 1996.
The Arbitration and Conciliation Act, 1996, is a comprehensive statute that applies to all arbitration in India and significantly influences the conduct of arbitration proceedings. It outlines the general legal framework for arbitration and conciliation, aiming to ensure fair and efficient resolution of disputes without unnecessary delay.
Both the Acts are designed to work in harmony for the specific context of MSMEs. The MSMED Act identifies a specific mechanism for MSMEs to resolve disputes, which involves arbitration as governed by the Arbitration and Conciliation Act. This suggests a complementary relationship rather than a conflicting one.
However, the unique provision under the MSMED Act for the facilitation of dispute resolution for MSMEs indicates that, in disputes involving MSMEs under the framework of the MSMED Act, the provisions for arbitration and conciliation under this Act would take precedence, but they would still operate within the broad procedural framework provided by the Arbitration and Conciliation Act.
In summary, for disputes involving MSMEs, the MSMED Act provides a specialized mechanism for dispute resolution, which leverages the arbitration procedures outlined in the Arbitration and Conciliation Act. The two acts are not in conflict but are designed to be applied together to ensure that disputes involving MSMEs are resolved efficiently and effectively.
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Disclaimer: This article is meant only for general purpose academic use and not for any professional use by the readers. Sans recourse all liabilities, direct or vicarious, for any errors of omissions and commissions in the article.
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