Impact of Delayed Payment to MSME Vendor

In this editorial author shall discuss the implication and effects of delay in payments to MSME vendor along with their reporting in Companies Act as well as MSME Act, 2006.

A. Provisions of Companies Act, 2013

As per MCA Notification dated 22nd January, 2019, MCA 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 (27 of 2006) (hereafter referred to as “Specified Companies”), shall submit a half yearly return to the Ministry of Corporate Affairs in form MSME-1.

B. Provisions of MSME Act, 2013

Section 15:  in no case the period agreed upon between the supplier and the buyer for payment of invoice in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.

Section 16: 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 rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.

Section 22: Where any buyer is required to get his annual accounts audited under any law for the time being in force, such buyer shall furnish the following additional information in his annual statement of accounts, namely:–

(i) the principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier as at the end of each accounting year;

(ii) the amount of interest paid by the buyer in terms of section 16, along with the amount of the payment made to the supplier beyond the appointed day during each accounting year;

(iii) the amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under this Act;

(iv) the amount of interest accrued and remaining unpaid at the end of each accounting year; and

(v) the amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under section 23.

IMPACT OF DELAY PAYMENT

A. Impact under Companies Act: If company make payments to its MSME Vendor after 45 days of acceptance of goods/services:

i. E-form: Company must file e-form MSME-1 every half year with Registrar of Companies mentioning all the transaction, wherever payment made after 45 days.

ii. Reporting in Financial Statement: Company required to give following additional information in its financial statement:

• the principal amount and the interest due thereon
• the amount of interest paid by the buyer in terms of section 16
• the amount of interest due and payable for the period of delay in making payment
• the amount of interest accrued and remaining unpaid at the end of each accounting year
• the amount of further interest remaining due and payable even in the succeeding years

Note: As per MSME Act, 2006, once any company made delay in payments to MSME vendor they have to pay huge amount of interests and reporting of defaults in their financial statements and other documents.

B. Impact under MSME Act: If company make payments to its MSME Vendor after 45 days of acceptance of goods/services:

i. Payment of Interest: Company have to pay interest on delayed payment to MSME registered supplier. Rate of Interest shall be three times of the bank rate notified by the Reserve Bank.

ii. Reporting in Financial Statement: Company have to give lot of new disclosures of default as mentioned above in their financial statement.

Note: There are many case laws, where MSME vendors have filed claim in court of law for delay payments and court pronounced order in their favour and instruct the companies to pay principle amount along with interest.

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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).

Disclaimer: The entire contents of this document have been prepared based on relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information.