Introduction
With the introduction of the Insolvency and Bankruptcy Code and strict measures by the Reserve Bank of India (RBI) for taking stringent action against Non- Performing Asset (NPA) accounts, MSMEs have been facing two-fold pressure:
i) Delayed payments;and
ii) Threat of turning into an NPA.
The Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”)provides for the provisions to deal with the problem of delayed payment, whereby any buyer who fails to make payment to MSME supplier, as per agreed terms or a maximum of 45 days, would be liable to pay interest to MSME supplier. Further, as mandated by the MSMED Act, all the states/union territories in India have constituted Micro and Small Enterprise Facilitation Council for the settlement of disputes in relation to the delayed payments. The Government of India hadalso launched SAMADHAAN portal (samadhaan.msme.gov.in) on October 30, 2017 to enable micro & small enterprises across the country to directly register their cases relating to delayed payments online on the portal.
The Ministry of Micro, Small and Medium Enterprises (“MMSME”) and the Ministry of Corporate Affairs(“MCA”) by issuing notification directed the specified companies to file return of amount due to micro and small enterprises.
The details of such notifications are given below-
| Details of Notification | Particulars |
| Notification No S.O. 5622(E) dated November 2, 2018 issued by MMSME | MMSME directed all the companies, who get supplies of goods or services from micro and small enterprise suppliers and the payment to those suppliers exceeds 45 days, shall submit half yearly return to the MCA stating therein the amount of payments due to micro and small enterprises and the reason for delay |
| Notification dated January 22, 2019 issued by the MCA | MCA directed all the specified companies to file details of outstanding dues to micro and small enterprises in MSME Form I. It requires filing of initial and half yearly return. |
We have listed below someof frequently asked questions pertaining to delayed payments to MSMEs and filing of form MSME I and have attempted to answer these questions to the best of our knowledge.
| What is micro, small and medium enterprise? |
Section 7 of MSMED Act classifies the enterprises into micro, small and medium enterprises. In case of manufacturing sector, classification has been done on the basis of investment in plant and machinery and in case of service sector, classification has been done on the basis of investment in equipment.
The Finance Minister while delivering the economic package on May 13, 2020, announced the revised definition of MSME. As per the revised definition – – Investment limits have been revised upwards; – There will be no distinction between manufacturing and service sector; – In addition to investment criteria, turnover criteria has also been added.
|
|||||||||||||||||||||||||||||||
| Which companies are required to file form MSME I? |
‘Specified Companies’ which satisfies the following conditions are required to file form MSME I: 1. Companies which have purchased goods or avail services from micro and small enterprises; and 2. whose payment to micro and small enterprises, exceeds 45 days from the date of acceptance or the date of deemed acceptance. Note: – Only delayed payment made to micro and small enterprises are to be reported. Reporting of delayed payment to medium enterprises are not covered under the notification. |
|||||||||||||||||||||||||||||||
| What is the reporting requirement? |
Under the MCA order, there is a requirement to file initial return and half yearly return. Initial return was one time return required to be filed within 30 days from deployment of form MSME I. The half yearly return is to be filed as follows-
|
|||||||||||||||||||||||||||||||
| What is the date of acceptance or deemed acceptance? |
Day of acceptance is defined under explanation to Section 2(b) of the MSMED Act to mean as: (a) the day of the actual delivery of goods or the rendering of services; (b) where any objection is made in writing by the buyer regarding acceptance of goods or services within 15 days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the MSME supplier. Further, the day of deemed acceptance means where no objection is made in writing by the buyer regarding acceptance of goods or services within 15 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. |
|||||||||||||||||||||||||||||||
| What is the maximum credit period allowed to the buyer? |
Section 15 of the MSMED Act which talks about the liability of the buyer, provides that the period agreed between the parties shall not exceed 45 days from the day of acceptance or deemed acceptance of goods or services. The maximum credit period allowed is tabled below-
|
|||||||||||||||||||||||||||||||
| Whether buyer is obligated to pay interest on delayed payment to MSME supplier? |
Yes, section 16 of the MSMED Act provides that in case buyer fails to make payment of amount to the MSME supplier, then the buyer shall be liable to pay compound interest with monthly rest to such supplier. This provision has an overriding effect on the agreement, if any, between the buyer and the MSME supplier. Further, Section 17 of MSMED Act provides that for goods supplied or services rendered bythe MSME supplier, the buyer shall be liable to pay amount with interest thereon as provided under Section 16. |
|||||||||||||||||||||||||||||||
| What is rate of interest on delayed payment and the date from which it is payable? |
Section 16 of the MSMED Act provides that the buyer shall be liable to pay compound interest with monthly rest to the MSME supplier at three times the bank rate notified by the RBI. Further, it also provides the date from which interest is payable which is as follows –
|
|||||||||||||||||||||||||||||||
| Whether interest paid is allowed as deduction under Income Tax Act, 1961? | As per Section 23 of the MSMED Act, interest paid or payable by buyer to the MSME supplier shall not be allowed as deduction under the provisions of Income Tax Act, 1961. | |||||||||||||||||||||||||||||||
| Whether interest amount is also required to be reported in form MSME I? | As per our view, outstanding amount includes principal as well as the interest and accordingly required to be reported in form MSME I. | |||||||||||||||||||||||||||||||
| Whether payment made beyond 45 days but not outstanding as oncut-off dateis also required to be reported? | As per our view, payment to micro and small enterprise though not outstanding on the cut-off date but made beyond 45 days is required to be reported in form MSME I. | |||||||||||||||||||||||||||||||
| What are the disclosure requirement in the annual accounts? |
As per Section 22 of MSMED Act, where the buyer is required to get his annual accounts audited, he shall furnish the following information in the annual statement of accounts – i) Principal amount and interest due thereon (to be shown separately) remaining unpaid to any supplier as at end of accounting year; ii) Amount of interest paid by buyer under MSMED Act along with the amount of payment made to supplier beyond the appointed day during each accounting year; iii) Amount of interest due and payable for the period of delay in making payment (which have been paid but beyond appointed day) but without adding interest specified under the Act; iv) Amount of interest accrued and remaining unpaid at the end of each accounting year; and v) Amount of further interest remaining due and payable even in the succeeding years, until such dates when interest dues are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure. |
|||||||||||||||||||||||||||||||
| What is the penalty for not making requisite disclosure in financial statements? | Section 27 of MSMED Act specifies penalty in case buyer fails to disclose the unpaid amount with the interest in the financial statement of the company. It provides that the buyer shall be punishable with a fine which shall not be less than Rs.10,000/-. | |||||||||||||||||||||||||||||||
| What is the penalty for not filing form MSME I or furnishing wrong or incomplete information in form? |
Penalty for not filing form MSME I or knowingly furnishing the wrong information is provided under Section 405(4) of the Companies Act, 2013 (“Act”). Section 405 of the Act gives the power to the Central Government wherein it can directthe companies generally or any class of company to furnish information with regard to their constitution or working. Using this power, MCA issued the order requiring specified company to file details of all outstanding dues to micro or small enterprises suppliers in MSME Form I. As per Section 405(4) of the Act, if any company fails to comply with the order or knowingly furnishes any information or statistics which is incorrect or incomplete in any material respect, the penalty shall be as follows- – Company shall be punishable with fine up to Rs.25,000/-; and – Every officer in default, shall be punishable with imprisonment for a term not exceeding 6 months or with a fine not less than Rs.25,000/- but which may extend toRs.3,00,000/- or with both. |
|||||||||||||||||||||||||||||||
| Whether form MSME I is covered under Company Fresh Start Scheme-2020 (CFSS-2020)? |
The MCA vide its circular dated March 30, 2020 introduced CFSS -2020. The CFSS-2020 grants waiver of additional fees in case of late filing of form/document and provides immunity from prosecution on account of delayed filing. As per the aforesaid circular, e- form SH-7 for the purpose of increase in authorized share capital and all charge related forms have been kept outside the purview of CFSS-2020. In continuation of abovementioned circular,MCA issued the list of 76 forms which are covered under the CFSS-2020. However, the said list do not include MSME form I. Accordingly, there is no clarity as to whether MSME form I will be covered by CFSS-2020 or not. Though no fees is applicable on filing of form MSME I, but the immunity from prosecution on account of delayed filing will only be available if the form is covered under CFSS -2020. Accordingly, the MCA should come out with a clarification on the same. |
|||||||||||||||||||||||||||||||
| What is the dispute resolution mechanism available in regard to delayed payment? | As mandated by Section 20 of the MSMED Act, all the states/union territories in India have constituted Micro and Small Enterprise Facilitation Council. Any dispute with regard to amount due can be referred to said Facilitation Council. | |||||||||||||||||||||||||||||||
Author Bio
We purchased goods from a MSME registered company and they wrote on the invoice that payment can be done in 6 months from the invoice date.
Can they now ask for interest now as payment got delayed and payment cleared in 7 months?
We have a partnership firm. on 20-08-2020 we have registered in UDTYAM AADHAAR. We have raised gst
sale bills for a party located in delhi around march 2018. payemnt of 2673394.00 is still due till date. i have purchase order from the party. can i apply for the dalayed payment through udyam aadhhar .?
We have entered into a works contract with an MSME vendor for supply and installation of Ac equipment. As per the terms of the contract the defects liability is 12 months from completion of the works. As per Contract the Payment will be made within 45 days from the date of submission of tax Invoice after with holding a retention of 5% which shall be released after completion of defects liability period.
Am i liaible to pay interest to MSME vendor on the 5% retention made by us which we will be releasing after completion of Defects liability period of 12 month.
If i will pay msme vendor payment within 45 days & dont have any outstanding more than 45 days, so also its mandatory to file form 1 ?
how many years we need carry the provision of interest payable to MSME vendor
As you said for medium enterprises it is incorrect as investment in Plant &Machinery is not more than 50 crores and Turnover not more than 250 crores then it will will satisfy the rule .I have seen this in MSME website .Please check.
I’m in a Micro unit. A co. to whom we rendered services did not pay us since 2017-18. I have to raise a debit note for OD interest/compound interest on monthly rests. I could not trace the relevant notification reg. Interest rates & compound rates of interest to be charged on defaulted/outstanding payments as per RBI notification as per MSMED Act Sec.16. Can you please help me by providing the link to this notification or applicable rates since 2017 so that I can prepare the interest accrued in a Debit Note to our defaulting client.
I have the due amount of Rs. 1.33 crore with one multi-national company. The first invoice was submitted 9 months back and the the remaining two were submitted in the last month. In that case, may I file a complaint against all three pending Invoices? We have a proper contract and purchase order issued by the buyer and as per the contract, they have to clear the Invoices within 30 days. But they are claiming that as they did not receive the payment from the end client so cant’ pay. However, there is no provision of back-to-back payment in the contract. Please suggest. Regards Rajiv
I have a pending payment since 2019 and i don’t know how to calculate the rate of bank rate which is to be applied to calculate the interest?
i have raised invoice on april month, my customer term is 7 days from the day of invoice. i have just received partial payment last month . yet to receive remaining amount. can i take any action against them
When the MSME Registered person charges interest from the party who fails to pay to him within 45 days, whether the same MSME registered person is liable to pay GST on the same and it is to be include in his GST Outward supply.
I dont think so
Award has been passed in my favor. What next to realise the amount
The party against whom award is made can file application u/s34 to the local court which can be accepted only if 75% award amount is deposited in the court. Out of this amount upon application and upon giving a bank guarantee court can order payment out of it as it deems fit to the awardee. If application u/s 34 is not filed then an execution case is to be filed in which the property of the party can be confiscated to recover the dues
sir , in msme return form I- what have outstanding due include msme interest books posted as on 31/3/2021, ?
what is outstanding , with interest or not
i have finalized the work during covid period 2020 till july 2020 i have to submitted the all bill invoice but their is no payment still to pay bt can i do
You need to have a Micro or small enterprise registration with MSME to avail interest on delayed payment
i have finalized the work during covid period 2020 till july 2020 i have to submitted the all bill invoice but their is no payment still to pay bt can i do
Is there any processing charges/Court fees to be made/affixed on application for Delayed Payment? if yes, what amount is to be paid and how?
Yes there is fee to be deposited with the application for delayed payment, for which you may write to me.
In MSME Form I, we need to show interest plus principal amount or just the principal amount in the “amount” column?
Please confirm, whether I have to furnish the details of the payment made within half year period, payment made before 30th September or 31st of March, while filing return,
Ex: the due date for material received is 20.02.2021 & I have paid on 18.03.2021, I have to show in pending details as on 31.03.2021 or not.
Yes you have to show as intent of the law is to check defaults irrespective of the fact that it is made good before due date of form or later on.
we have taken services and paid advance against many invoice. There is delay in checking and account settled after 1 years. So do we need to pay interest to vendor due to non settlement of invoices. Nevertheless, we have already advance paid against all due Invoices.
Thank you for knowledge sharing here.
You paid advance payment, right, is’t in full or partly cover the Invoice amount leaving a part still outstanding. The criteria is any balance/ outstanding amount (partly or full) of invoice due pending after the due date qualify for interest payment (after 45 days or within 15 days of ‘deemed acceptance’ of supply or services.
We have a Query about Payment terms of MSME Supplier.
Suppose if we Supplied materials to my customer before we apply for MSME Registration. (as their Payment terms as 90 Days from the date of supply)
For Example :
1. February month we Supplied materials to our customer their payment terms of 90 Days from the date of supply.
2. March Month we apply for MSME Registration & we got MSME Certificate on that month ( MSME Supplier Payment Terms as 45 days from the date of supply.)
After we got successful registered of MSME Certificate our Query that Payment terms of 90 Days or its 45 days from the Date of Supply for the MSME Supplier.
Please we request you to clarify our query of Payment terms it’s change while we apply for MSME.( Before and after of MSME Registration)
You must be a MSME unit with Udyog Aadhar at the time of supply to claim the benefits of MSME Act
what is the percentage of interest to be charged on short payment which is delayed ?
Is old outstanding before taking MSME certificate (vendor under MICRO) consider under MSME for dispute?
No
ca i claim interest on delayed payment on security deposit/retention payment???
Can i claim interest on delayed Payment at DLSA (District Legal service authority)??
I being an MSME, can i voluntarily agree to receive payment after 45 days in case i am not in requirement of funds instantly? That way i can save my customer also if i give them some more grace period
You can. But if you have to claim interest you can do it after expiry of 45 days
Sir , our customers are retailers they not issue work order . All orders placed orally. So, what i fill in place of work order.
Sir we are Small scale industry registered with MSME. We were getting payments within 30 days as per our negotiated payment terms however since last month customers are delaying payment stating MSME rules mandates payment within 45 days hence cannot release payments in 30 days. We are facing problems because of this
If payment terms agreed are 30 days, then the buyer has to pay in 30 days
For MSME vendor payment is to be made within 45 days. Can you please share the exception where MSME vendors (e.g. service / dealers) are exempt to make mandatory payment within 45 days.
can you send msme circular for emd exemption
is it mandatory to have msme registration for claiming delayed payment .in UAM recvd on 2020 date of establishment of unit shown in 1989 will it be acceptable?
what is the percentage of interest to be charge?
Presently it is 12.75% per anuum compounded monthly
Presently it is 12.75%
Does it mean if compound interest @ 12.75% on monthly rests, i.e.interest on interest every month and that again 3 times of it ? If yes that will be a huge amount. Pl.confirm
Whether these provisions for interest on delayed payment is also applicable where both supplier and customer are MSME
Yes, of course
What are the exception clause for not paying within 45 Days? Whether COVID-19 will be considered as an exception case since there will shortfall in collection.
what will be Interest provision in case delay for Medium Enterprises as here mentioned provision only for Micro and Small
NOT PROVIDED UNDER MSMED ACT FOR MEDIUM , YOU CAN APPROACH THE CIVIL COURT FOR THAT
we are registered under msme. we supplied material to JVVNL and the payment made by them very late. we filed case for interest claim to MSME council. i want to know that 3 times compound interest is payable till interest payment received by us or upto principal amount received.
TILL PRINCIPAL AMOUNT RECEIPT
i have come acroos many cases where the Govrnment undertakings do not lift materials for months to gather after expiry of delivery period mentined in contract ,thus Msme suffer a lot, as on one hand they are asked to accept penalty clause and on other hand goods are not lifted
is there any law protecting MSME for this situations?
Is interest to be provided on delayed payment to Medium Enterprise under MSME Act
No
is interest liability triggered in case of purchase of capital goods (machinery) where pending part payment is to be made only after successful commissioning of the machine which would be later than 45 days?
Payment to a Regd. MS unit becomes due after 45 days or after 15 days after ‘deemed acceptance’ (whichever is early). Irrespective whether there is a clause in the PO or not. In your case if the ‘deemed acceptance’ occurs only after ‘Installation & Commissioning’ there you have to probably await ‘successful commissioning’ is over.