The MSME (Micro, Small and Medium Enterprise) sector plays a major part in the economic development of India (Country). It employs millions, supports rural and urban sectors and significantly boosts the GDP of the Country. Despite their contributions, many MSMEs face delays in payments, funding difficulties and limited infrastructure. To boost these sectors the Government of India has launched the MSME Act, 2006 (“the Act”) to address these problems. The Act supports small businesses by providing them with legal rights, financial aid and tools to grow in a competitive environment.
Some basic features of the Act
1. Clear Categorization: The Act recognizes and distinguishes between Micro, small, medium enterprises based on their equipment, machinery or plant setup. This helps the government create specific programs for each group.
2. Registrations to be Voluntary: The registration under the Act isn’t compulsory, however, it offers various advantages. Registered MSME’s can benefit from various government subsidiaries, tax exemptions and government schemes. They also gain legal protection and easier access to loans.
3. Timely Payments: Late payments are a big challenge for small businesses. The Act ensures that the buyers pay within 45 days of receiving the goods/services. If they don’t pay, they must incur interest at three times the Reserve Bank of India rate.
4. East access to loans: The Act encourages banks to prioritise lending to MSMEs and supports innovating solutions.
5. Supporting Infrastructure: The Act focuses on development of business hubs, business parks and training centers to help businesses modernize and stay competitive.
6. Faster Dispute settlement: To reduce long legal battles, the Act requires every state to set up Micro and Small Enterprises Facilitation Councils. These councils address payment disputes and other grievances efficiently.
Impact from the enactment of the Act
1. Building Confidence: The act has given confidence, tools and support needed to grow the business. Payment protection and easy access to resources mean that entrepreneurs can focus on expanding their business without worrying about overdue payment and lack of funding.
2. Formalizing business: Many businesses earlier used to operate informally, the Act enforcement has led to businesses getting registered under the Act, and getting recognized by the Government, which helps them grow.
3. Simplified Dispute Handling: With the creation of Dispute resolution councils resolving payment related disputes has become faster and simpler.
4. Awareness regarding the Act is Limited: Many businesses are unaware of the benefits of the Act, including the appointment of Dispute resolution councils.
Applicability
The Ministry of Micro, Small and Medium Enterprises vide its Notification S.O. 1364 (E ) dated March 21, 2025 revised the limits for classification as a Micro, Small or Medium Enterprises.
1. Micro: For an enterprise to be considered as an micro enterprise, the investment in plant and machinery or equipment shall not exceed rupees two crore fifty lacs and the turnover of such enterprise shall not exceed ten crore rupees.
2. Small: For an enterprise to be considered as a small enterprise, the investment in plant and machinery or equipment shall not exceed twenty five crore and the turnover of such enterprise shall not exceed one hundred crore rupees.
3. Medium: For an enterprise to be considered as an medium enterprise, the investment in plant and machinery or equipment shall not exceed rupees one hundred and twenty crores and the turnover of such enterprise shall not exceed five hundred crore rupees.
These revised limits have led to more businesses taking an advantage of Government subsidies and better flow of development in these segments ultimately increasing the economic growth of the Country.
Applicability of filing the return with Ministry of Corporate Affairs (“MCA”)
Pursuant to order dated January 22, 2019 issued under section 405 of the Companies Act, 2013, all companies who get supplies of goods and services from micro, small and medium enterprises and whose payments to micro, small and medium enterprises exceed 45 days from the date of acceptance of order or from the date of deemed acceptance of the goods or services as per section 9 of the Act, shall submit a half yearly return to MCA in form MSME-1.
For the 1st half year April 01 to September 30, the due date for filing the return is October 30, and
For the 2nd half year October 01 to March 31, the due date for filing the return is April 30.
Various details are to be filled up in the form MSME for reporting the outstanding payment to MSME such as:
a. Name of MSME Supplier – Multiple repetition of the supplier shall lead to the excel file getting not validated. One row, one supplier.
b. PAN No. of the Supplier – One row, one Pan card number, multiple repletion of the supplier details shall lead to the excel file not getting validated.
c. Details of Payment made within 45 days – the number of payments if made through TReDs shall be reported or if the payment is not made through TReDS, the number of payments and amount paid through other modes shall be reported.
d. Details of Payment made after 45 days – the number of payments made after 45 days and the amount shall be reported.
e. Details of outstanding payments for 45 days or less – the details of the number of outstanding payments and the amount outstanding shall be reported to the same supplier.
f. Details of outstanding for more than 45 days – the number of outstanding payments beyond 45 days shall be reported.
g. Reason for delay in payment/ amount outstanding – the reasons for the delay in making the payment i.e. the reason for the outstanding shall be reported in this form.
Penalty for delay in Filing the form/payment:
Under Companies Act, 2013:
As per the Companies Act, 2013, if any company fails to comply with an order made under sub-section (1) or sub-section (3), or furnishes any information or statistics which is incorrect or incomplete in any material respect, the company and every officer of the company who is in default shall be liable to a penalty of twenty thousand rupees and in case of continuing failure, with a further penalty of one thousand rupees for each day after the first during which such failure continues, subject to a maximum of three lakh rupees.
Under the MSME Act, 2006
As per the Act and section 15, 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. As per section 16 of the Act, 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 rates at three times of the bank rate notified by Reserve Bank of India.
Conclusion
With the enactment of the MSME Act, 2006 and the curbing measures by the Ministry of Corporate Affairs, the implementation of the limits and the measures undertaken helps the MSME enterprises in faster collection of dues and the recognition for delay in claiming and setting up of the Councils for disbursement of the claims has led to the growth of the enterprises and the economic growth.
Author Bio
