As the due date of filing MSME Form I is approaching, the question arises what happens if a company does not file the e-Form on or before the due date?
Let us first understand the requirements as per the Companies Act, 2013.
The Central Government vide notification number S.O. 5622(E), dated the 2nd November 2018 has directed that 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 shall submit a half yearly return to the Ministry of Corporate Affairs stating the amount of payment due and the reasons of the delay.
And on 22nd January 2019 vide notification number S.O. 368(E), exercising the powers conferred by section 405 of the Companies Act, 2013, the Central Government issued an Order directing every specified company shall file in MSME Form I details of all outstanding dues to Micro or Small enterprises suppliers by 31st October for the period from April to September and by 30th April for the period from October to March.
Section 405 of the Companies Act, 2013 which gives the Central Government the power to require any class of companies to furnish information by issuing an Order on this behalf also states the consequences of non-compliance of the Order.
As per Section 405(4) If any company fails to comply with an order made, 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.
In the recent case of Blissful Garments Private Limited situated at Ottappalam, Kerala, the ROC passed an adjudication order bearing No. ROC/K/PC-03/Blissful/01/2023 dated 29th December 2023 imposing a penalty on the Company and the Managing Directors for non-filing of MSME Form I.
The facts of the case are interesting, the ROC received a complaint from a company named Tulip Elastics Private Limited situated in Nodia, Uttar Pradesh stating that the Company a registered MSME in the business of manufacturing metalized yarn and gimped yarn had supplied goods to Blissful Garments Private Limited and raised invoices. Blissful Garments Private Limited was under an obligation to file form MSME Form I indicating the amount outstanding to the company along with the number of days of delay which it has failed to do.
On receiving the complaint and after registering it, ROC issued a show cause notice to Blissful Garments Private Limited explaining within 15 days why action should not be initiated against them.
In its reply, Blissful Garments Private Limited admitted that Tulip Elastics Private Limited was one of its suppliers and they had a business deal of Rs. 18,58,500/- during the period October 2020 to December 2020 and that they had also issued a cheque of Rs. 18,56,689/- dated 23.11.2020 and made payments of Rs. 1,33,875/- on November 2020 and Rs. 8,50,000/- on September 2021. However, the complainant has initiated a proceeding before the Hon’ble Judicial Magistrate Court of Hyderabad. It also stated that Blissful Garments Private Limited is ready to settle the due amount outside of court if the complainant is willing to withdraw the Judicial Proceeding.
Here, the observations of ROC were that except for narrating the details, Blissful Garments Private Limited did not offer any explanation as to why the said e-form has not been filed. Therefore though there may be judicial proceedings, since the company has admitted the transaction, nothing prevented the company from filing MSME Form I indicating the admitted amount that is due and the reasons for the delay in payment. Therefore it is concluded that the Company and the Managing Director in default are liable for penalty as per Section 405(4) of the Companies Act, 2013.
ROC has levied a penalty on the Company and the Managing Director of Rs. 16,09,000/- in total. In this case, since the defaulting company was a small company at the time of default the penalty imposed by ROC was lesser as per Section 446B which is half of the penalty specified in the provisions subject to a maximum of Rs. 2,00,000/- and Rs. 1,00,000/- in case of a company and an officer in default respectively. Furthermore, the ROC has also ordered that the penalty so imposed on the Managing Director has to be paid from his personal sources/ income.
After taking into consideration the above case, one can evaluate that non-filing of MSME Form I can result in a huge cost in the form of a penalty where the filing of the form does not even require payment of any fees.
So be vigilant and make sure to file MSME Form I by 30th April 2024 for the half year starting from October to March. And since this is a half-yearly compliance, one also has to file the same by 31st October for the period starting from April to September.
The link to MCA notification number S.O. 5622(E) is https://taxguru.in/corporate-law/companies-comply-trade-receivables-discounting-system-platform.html
The link to MCA notification number S.O. 368(E) is https://taxguru.in/company-law/companies-furnishing-information-payment-micro-small-enterprise-suppliers-order-2019.html
If you want to go through the case discussed, here is the link to the same https://taxguru.in/company-law/msme-1-form-non-compliance-mca-imposes-rs-16-09-lakh-penalty.html
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