Introduction:
In a bid to support and protect micro and small enterprise suppliers, the government of India has introduced measures to enforce timely payments by buyers. One such measure is the filing of Form MSME-1, as per the Companies (Furnishing of information about the payment to micro and small enterprise suppliers) Order 2019. This legal provision, issued under the authority of the Companies Act, 2013, and the MSME Development Act, 2006, aims to ensure that companies fulfill their payment obligations to micro and small vendors. Let’s delve into the details of this provision, its applicability, and implications for businesses.
Understanding the Legal Provision:
According to Orders 2 and 3 of the Companies (Furnishing of information about the payment to micro and small enterprise suppliers) Order 2019, companies are required to file Form MSME-1 if they default on payment or make delayed payments to their micro and small enterprise suppliers. This provision falls under the jurisdiction of Section 405 of the Companies Act, 2013, and Section 15 of the MSME Development Act, 2006.
Applicability of Form MSME-1:
Form MSME-1 applies to all companies registered under the Companies Act, 2013. The requirement is applicable to both public and private companies, including one-person companies (OPCs), limited liability partnerships (LLPs), and small companies. Thus, any entity that falls within the definition of a company under the Companies Act, 2013, must comply with the filing obligations.
Filing Requirements and Timeline:
All companies that default or make delayed payments to their micro and small enterprise suppliers are obligated to file Form MSME-1. This form serves as an intimation to the Registrar of Companies regarding the payment default. However, medium enterprises are exempted from this requirement.
Companies must file Form MSME-1 on a half-yearly basis. The due dates for filing the form are as follows:
1. For the period from April to September, the form must be filed by 31st October.
2. For the period from October to March, the form must be filed by 30th April.
Penalties for Non-Compliance:
Non-compliance with the provisions of the Companies Act and the orders pertaining to filing Form MSME-1 can lead to penalties and punishments as specified under Section 405(4) of the Companies Act, 2013. Therefore, it is crucial for companies to adhere to the prescribed timelines and fulfill their payment obligations to micro and small enterprise suppliers.
Significance of Form MSME-1:
The introduction of Form MSME-1 underscores the government’s commitment to promoting a healthy business ecosystem that supports the growth and sustainability of micro and small enterprises. By ensuring timely payments to these suppliers, companies contribute to their financial stability and encourage their continued participation in the market. The form serves as a mechanism for monitoring and reporting payment defaults, promoting transparency, and deterring unfair payment practices.
Apart from the above compliance, there are few more compliance w.r.t. MSME in Companies Act 2013 which can be taken care of.
1. Disclosure in the Board’s Report: As per Section 22 of the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006, companies are required to disclose in their Board’s report the details of any outstanding payments to MSME suppliers at the end of each financial year. This includes information regarding the amount due and the reasons for the delay in payment.
2. Delayed Payment Interest: If a company fails to make payment to an MSME supplier within the stipulated timeframe as per the MSMED Act, the company is liable to pay compound interest at a specified rate. The interest rate is three times the bank rate notified by the Reserve Bank of India or any other rate prescribed by the government.
3. MSME Exemption: Companies falling under the definition of small companies as per the Companies Act, 2013, are exempted from certain compliance requirements. Small companies are generally classified based on their capital, turnover, and other criteria prescribed by law. This exemption can provide relief from certain statutory requirements, including financial statement disclosures and conducting annual general meetings.
4. MSME Registration: Companies are encouraged to register themselves on the official portal of the MSME Development Organization to avail benefits and incentives provided to MSMEs by the government. While this registration is not mandated by the Companies Act, it can be advantageous for companies to access various schemes, subsidies, and support specifically available to MSMEs.
Conclusion:
The inclusion of Form MSME-1 as a mandatory filing requirement for companies reflects the government’s focus on promoting a fair and inclusive business environment. By mandating the disclosure of payment defaults or delays to micro and small enterprise suppliers, this provision encourages timely payments and enhances accountability. It is essential for companies, including public and private companies, OPCs, LLPs, and small companies, to comply with the filing requirements and timelines to avoid penalties and contribute to the growth and sustainability of the micro and small enterprise sector.
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