The article here describes the implication and effects of delay in payments to MSME vendor along with the reporting of the same under The Companies Act, 2013 and The MSME Act,2006.
1. Provisions under The Companies Act, 2013
According to the MCA Notification as on 22nd January, 2019, The Ministry of Corporate Affairs (MCA) directed all the companies, which receives supplies of goods or services or both from micro and small enterprises and whose payments to MSME suppliers exceed forty five days from the date of acceptance or from the date of deemed acceptance as per the provisions of Section 9 of The MSME Act, 2006, shall submit a half yearly return to the MCA in form MSME-1.
2. Provisions under The MSME Act, 2006
The following Sections under The MSME Act, 2006 describes the compliances to be followed for the delay in payments to MSME vendors:
- Section 15: In any case, the period agreed between the supplier and the buyer for payment of the invoice (in written form) shall not exceed 45 days from the day of acceptance or the day of deemed acceptance (as per Section 9).
- Section 16: When 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: In case any buyer is required to get his annual statements of 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:
1. The principal amount and the interest amount ( show separately) remaining unpaid to any supplier as at the end of the accounting year;
2. The amount of interest paid as under the Section 16, along with the amount of payment made to the supplier beyond the appointed day during the accounting year;
3. The amount of interest due and payable for the period of delay in making payment ( which have been already paid but beyond the appointed day during the year) but without adding the interest specified under this Act;
4. The amount of interest accrued and remaining unpaid at the end of the accounting year; and
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.
3. Impact of Delay in Payment under The Companies Act, 2013
If a company makes payment to its MSME vendor after the time period of 45 days, it is required to comply with the following as per The Companies Act, 2013:
- MSME-1: The Company must file E-Form MSME-1 every half year with the ROC, mentioning all the transactions in which the payment is made after 45 days.
- Reporting in Annual Statements: The Company is required to provide the following information in its financial statements:
1. The principal and the interest amount due;
2. The amount of interest paid as under the Section 16 of The MSME Act, 2006;
3. The amount of interest accrued and remaining unpaid at the accounting year end;
4. The amount of interest due and payable for the period of delay;
The amount of further interest remaining due and payable even in the succeeding years.
4. Impact of Delay in Payment under The MSME Act, 2006
If a company makes payment to its MSME vendor after the time period of 45 days, it is required to comply with the following as per The MSME Act, 2006:
1. Interest Payment: The Company have to pay interest on delayed payment to MSME registered supplier. The Rate of Interest will be 3 times of the bank rate notified by RBI.
2. Disclosures in Financial Statements: The Company is required to give disclosures in the financial statements as mentioned above.
5. Conclusion
The Companies shall make the payment to the MSME vendors as within the prescribed time limit to ensure compliance with laws and to avoid heavy interest amounts.
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