Reporting of outstanding dues to Medium enterprises through form MSME-1!

Introduction:

With a view to enhance the cashflow management and financial growth of Micro, Small and Medium enterprises (MSMEs), section 15 of Micro Small and Medium Enterprises Development Act 2006 (MSMED Act 2006) mandates all the businesses who buy goods and services from MSMEs to make payment to such MSMEs within 45 days from date of acceptance or deemed acceptance.

If such business is a company incorporated under Companies Act, then there is a additional requirement to notify half yearly to Registrar of Companies (ROC) if it has dealt with any MSME and has not made payment within 45 days. In this article we shall deliberate upon this requirement and try to clear a general misunderstanding in this behalf.

Background:

On 2^nd November 2018, the Ministry of Micro Small and Medium Enterprises issued a notification under section 9 of MSMED Act 2006. As per this notification, whichever company receives supply of goods or services from micro or small enterprises and the payment to be made to such enterprises is outstanding for more than 45 days, then the company should inform to central government about such outstanding payment along with the reasons for the delay.

In continuation to this circular, MCA issued an order under section 405 of Companies Act 2013. This order dated 22^nd January 2019 prescribes that, all specified companies (that is, such companies who receive supplies from micro and small enterprises and fail to pay them within 45 days) should inform to ROC about the amount outstanding towards MSMEs in form MSME-1. This form has to be filed within 30 days from end of each half year.

Who are micro and small enterprises:

Section 7 of MSMED Act 2006 provides criteria for classifying enterprises in to micro small and medium enterprises. As per this section, if an enterprise is involved in manufacturing activity, then it is a micro enterprise if its investment in plant and equipment is less than 25 lakhs and if it is involved in service providing then it is micro enterprise if its investment in equipment is less Rs. then 10 lakhs.

Similarly, if an enterprise is involved in manufacturing activity, then it will be called small enterprise if its investment in plant and machinery is between Rs 25 lakhs and 5 crores. Whereas, if it is involved in the service industry, then it is small enterprise if its investment in equipment is between Rs.10 lakhs and 2 crores.

Applicability to which companies:

As per circular dated 2^nd November 2018, this information is to be filed by companies who receive supply of, both goods, and services from micro and small enterprises. That means, the applicability of filing this form is dependent upon the fact that who are the suppliers of that company and not on the legal status of the company.

Reporting about which MSMEs:

Section 15 of MSMED Act 2006 “Where any supplier, supplies any goods or renders any services to any buyer, the buyer shall make payment therefor 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”. Whereas both the above-mentioned circulars talk specifically about micro and small enterprises. Therefore, there arises a question that, whether the companies are required to disclose the amount outstanding to words medium enterprises as well or only that which is outstanding to words micro and small enterprises as mentioned in the circulars?

If we read section 15 of MSMED Act, it says that the buyer should pay the supplier within 45 days from date of acceptance or deemed acceptance. This section does not talk about reporting about delayed payments. Therefore, as far as making of payments within 45 days is concerned, that provision will be applicable to all enterprises including micro, small and medium. However, this is not the case with respect to reporting of delayed payments.

The requirement of reporting about the outstanding amount payable to micro and small enterprises comes from circulars dated 2^nd November 2018 and 22^nd January 2019. Both these circular/notifications specifically use words ‘micro and small enterprises.’ Which means that these circulars are not applicable to medium enterprises. Therefore, the companies are not required to report about the amount outstanding to medium enterprises.

Conclusion:

Recently, the MCA has shifted the form MSME-1 from v2 portal of MCA website to V3 portal and therefore, this e-form shall now be a web based form. other then that, the contents of the form are also modified so as to include therein additional details like payment made to MSMEs within period of 45 days etc. due to this change, more number of companies will have to file this form after end of each half year.

This article is written by Ms. Rutuja Umadikar – Research Associate – rutujaumadikar@mmjc,in!