Central Government has brought into effect the Notification of MSME Return to be filed as per Ministry of Corporate Affairs Notification dated 22nd January 2019 issued in exercise of powers of the Central Government under section 405 of the Companies Act, 2013 referred above requiring filing of Returns by ‘Specified Companies’.
1. If Micro and Small Enterprises Supplier agreed to provide credit period more than 45 days, say 90 days i.e. if Buyer makes payment to Micro and Small Supplier beyond 45 days, No interest shall be paid to supplier, same is agreed by Supplier, Supplier also considered said outstanding Amount as Performing Asset in his books will the buyer have to report said outstanding in MSME I return still?
Answer: YES, THE SAME WILL HAVE TO BE REPORTED.
2. What about if defects with respect to goods or services, comes to knowledge of buyer beyond 15 days?
Answer: The MSME Act, 2006 does not preclude any other means to secure defects found post 15 days E.g. Contract/PO providing Security for facilitation of replacement, set-off mechanism in subsequent POs etc.
BUT PAYMENT TERMS AND CONSEQUENCE OF INCLUSION OF NON-PAYMENT IN THE RETURN ARE MANDATORY AS THE ACT PROVIDES 15 DAYS FOR DEEMED ACCEPTANCE.
In General corporate Practice, every company has set out their Terms and conditions of Payment policy for supplier, which is also mentioned in Purchase Order, does not align with terms and condidtion as described by MSMED Act.
In that circumstances, whether we can prevail to our PO policy rather to align with law, If we follow as fact stated, what could be the probable Treatment to company in subjected law.
Answer: The MSME Act provisions contain a ‘non obstante´ provision [Section 24] that would override any other law including The Contract Act, and any provisions to the contrary in Terms and Conditions of PO or Contract between an MSME Supplier and Buyer would be overridden. Penalty for non-compliance with filing of relevant details in the Return would be as per Section 405(4) supplied herein below.
1. The said Notification is issued under Section 405 of The Companies Act, 2013. The provision is appended herewith for perusal [Emphasis underlined]:
2. Power of Central Government to direct companies to furnish information or statistics.—(1) The Central Government may, by order, require companies generally, or any class of companies, or any company, to furnish such information or statistics with regard to their or its constitution or working, and within such time, as may be specified in the order.
(2) Every order under sub-section (1) shall be published in the Official Gazette and may be addressed to companies generally or to any class of companies, in such manner, as the Central Government may think fit and the date of such publication shall be deemed to be the date on which requirement for information or statistics is made on such companies or class of companies, as the case may be.
(3) For the purpose of satisfying itself that any information or statistics furnished by a company or companies in pursuance of any order under sub-section (1) is correct and complete, the Central Government may by order require such company or companies to produce such records or documents in its possession or allow inspection thereof by such officer or furnish such further information as that Government may consider necessary.
[(4) 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.]
(5) Where a foreign company carries on business in India, all references to a company in this section shall be deemed to include references to the foreign company in relation, and only in relation, to such business.
1. Therefore, the consequence of default of non-reporting or mis-reporting in the Return is as per Section 405(4) above.
2. Further, Section 24 provides as under:
3. Overriding effect.—The provisions of Sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
4. Thus, in view of the above, provisions of Section 15 to 23 would override The Contract Act, and therefore any provision in a PO providing a higher Credit period than 45 days would be overridden because Section 15 provides as under:
5. Liability of buyer to make payment.—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.
5. Now the provision of Deemed Acceptance [Section 2 (b) (ii)] provides as under:
(ii) “the day of deemed acceptance” means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services;
6. In view of the above, only 15 days window is given to examine and communicate in writing the objection as to defects. In absence of such communication in writing, the Provision of payment would kick in and in absence of the payment in that regard there would also be a consequential obligation of reporting in the Return.
7. By way of mitigating the scenario and to likely protect the interests of buyer (Company) in case of there being genuine defects that could be noticed only after the 15-day period, The MSME Act, 2006 is examined and it does not preclude any other means to secure defects found post 15 days E.g., Contract/PO providing Security for facilitation of replacement, set-off mechanism in subsequent POs etc. and in this regard, it is advised as under:
1. To Pay the amount as required under the MSME Act, 2006 failing which interest burden would kick in which interest has to be stipulated in Annual statement of Accounts, cannot be deducted from taxable income [Sections 22 and 23] AND be required to be part of Return;
2. Then take recourse to other means of protecting our interests.