The impact of delayed payments to Micro, Small, and Medium Enterprises (MSME) vendors is a pressing concern in the business landscape. This editorial delves into the repercussions of such delays, examining both the provisions of the Companies Act, 2013, and the MSME Act, 2006, along with their reporting requirements.
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.
Conclusion
Delay in payments to MSME vendors not only has financial implications but also entails rigorous reporting requirements under both the Companies Act and the MSME Act. Companies failing to adhere to the prescribed timelines risk facing penalties and interest charges, highlighting the importance of timely payments and accurate reporting for fostering a conducive business environment.
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).
Author Bio
Assuming there is a dispute between the buyer company and mnc and the seller a micro msme, What happens if the MSME Court itself doesn’t follow the pertinent sections of the msme act & instead puts the buyer and seller through an independent audit after over an hearing of the case at their desk. What must the msme do in such a case.