Micro, Small and Medium Enterprises (MSME) Sector is a dynamic and vibrant sector of the Indian Economy. It plays a major role in the economic development of our nation and has emerged as a progressive industrial area providing indefinite opportunities in employment, industrialisation and creation of new businesses. The MSMED Act, 2006 was enforced from 02.10.2006
In recent times, there has been unprecedented ambiguity regarding whether an operational creditor should attempt to settle disputes relating to default in payment from a Corporate Debtor under the proceedings of the Insolvency and Bankruptcy Code, 2016 or under the arbitration proceedings of MSMED Act, 2006.
The Ministry of MSME is currently being run under the able leadership of Shri Nitin Jairam Gadkari, Hon’ble Minister.
The organisational set up is illustrated as under –
Delving into the intricacies of the provisions of the Act, let us take a look at the frequently asked questions (FAQs) upon the subjected matter:
1) Which type of enterprises fall under the MSMED Act?
Ans: The MSMED Act specifies the following companies to be registered under the Act as per the classification-
|Types of Enterprise||Manufacturing or Production of Goods (Investment in Plant & Machinery*)||Providing or Rendering of Service (Investment in Equipments)|
|Micro||Does not exceed Rs. 25 Lakh||Does not exceed Rs. 10 Lakh|
|Small||Exceeds Rs. 25 Lakh but does not exceed Rs. 5 Crore||Exceeds Rs. 10 Lakh but does not exceed Rs. 2 Crore|
|Medium||Exceeds Rs. 5 Crore but does not exceed Rs. 10 Crore||Exceeds Rs. 2 Crore but does not exceed Rs. 5 Crore|
*Note: While calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices and such other items as may be specified, by notification, shall be excluded.
2) What is the prescribed time period to make payment by the buyer/debtor?
Ans: As per section 15 of the Act, the credit period allowed is maximum 45 days from the date of acceptance of goods or services by the buyer.
[Section 15 | 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 acceptance1.]
The Central Government has directed all companies who get supplies of goods or services from MSEs and due date of payment to such MSE 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 the Act, shall submit a half yearly return to the Ministry of Corporate Affairs stating the following:
(a) The amount of payments due; and
(b) The reasons of the delay. ]
3) Is the buyer liable to pay any interest incase of delayed payments?
Ans: Yes, if the buyer fails to make payment within the prescribed time limit mentioned in Section 15, he shall be liable to pay compound interest along with the monthly rests (Interest calculated on the outstanding principal loan at the beginning of every month) from the appointed day, or, 3times the bank rate notified by Reserve Bank of India from the date immediately following the date agreed upon for such payment.
4) Which is the dispute redressal forum incase of default arising from non payment by buyer/ debtor?
Ans: Any party to a dispute with regard to any payment due may make a reference tothe Micro and Small Enterprises Facilitation Council (MSEFC), constituted by the respective State governments. Such MSEFCs are headed by a Chairperson, having administrative controls over that jurisdiction.
5) Under which jurisdiction the matter shall be applied?
Ans: The MSEFC or the centre providing ADR shall have jurisdiction to act as an arbitrator or conciliator in a dispute arising between a supplier and his buyer. Such jurisdiction shall prevail at a place where the supplier is located while the buyer can be located anywhere in India.
6) Who can file the Complaint under MSMED Act?
Ans: The Individual or an Entity who is registered as Micro or Small Enterprises under the MSME Act and having Udyog Aadhar Certifcate can file the Case with MSE Facilitaion Council.
7) What is the maximum time limit allowed for decision making?
Ans: The proceedings under the Act are required to be completed within 90 days from the date of referring a matter to the Facilitation Council.
8) When does the 90 days time period commence?
Ans: The period of 90 days starts only after notice of Arbitration by the Council under section 18(3) of the Act is issued to the buyer.
9) Whether any prior notice is required to be served before filing the case in MSEFC?
Ans: Yes, Demand Notice demanding the Buyer or receiver of goods and service to pay the pending amount is required to be served to the buyer before filing the case in MSEFC.
10) How can one file an application under the MSMED Act?
Ans: The Government has launched an online delayed payment monitoring system where an aggrieved party can file an application known as MSME Samadhan. It is mandatory for a supplier to file a memorandum with the State Government or the Central Government, as the case may be. Any MSME applicant having a valid Udyog Aadhar Memorandum (UAM) can file an application related to delayed payment in MSME Samadhan. After submission, the application is automatically forwarded to the concerned Facilitation Council or centre, MSEFC. Thereafter, MSEFC shall examine the matter and send requisite notice to the buyer for clearance of pending amount along with interest accrued. Physical applications can also be filed at the concerned MSEFC.
11) Is filing of UAD mandatory?
Ans: Yes, an entity willing to file an application must possess a valid UAM.
12) Which documents are required to be submitted with an application for its successful submission?
Ans: The following documents along with an affidavit (if purchase orders were made orally) are required to be filed with an application-
a) Details of goods/services
b) Terms of payment
c) Receipt of actual payment and date of such receipt
d) Amount due
f) Interest calculated as per section 16
13) Can the Council demand for any other particulars to be filed?
Ans: Yes, the Council can demand for other particulars necessary for the purpose of proceedings which must be filed by the petitioner within 15 daysfrom the demand by MSEFC.
14) What action is taken by the Council after receipt of an application?
Ans: The MSEFC examines the case with respect to both parties and conducts conciliation as per provisions of section 65-81 of the Arbitration and Conciliation Act by itself or with help of any institution providing dispute resolution services, if required.
15) Is there any other course of action taken by the Council if such conciliation fails to settle dispute?
Ans: If the conciliation fails, the MSEFC acts as an Arbitrator or refers the case to an institute for arbitration to settle the matter. The Council will make an Arbitral Award in respect of the aggrieved party once the proceedings come to an end.
16) Is it possible to challenge the decision made by the MSEFC?
Ans: Yes, an appellant, herein, the buyer, who is desirous of contradicting the Arbitral Award may file an appeal after depositing 75% of the Award amount before filing the appeal. This is to ensure timely flow of finance to the SME supplier in order to remain sustainable incase of delay or failure in payment of debt by the buyer. High courts shall not entertain any application unless the buyer deposits 75% of the amount in terms of the amount in terms of the decree/award passed against him.
[Section 19 I Application for setting aside decree, award or order.
Ans: No application for setting aside any decree, award or other order made either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council, shall be entertained by any court unless the appellant (not being a supplier) has deposited with it seventy-five per cent of the amount in terms of the decree, award or, as the case may be, the other order in the manner directed by such court:
Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be
paid to the supplier, as it considers reasonable under the circumstances of the case, subject to such conditions as it deems necessary to impose.]
17) What are the compliance requirements under the act in case of amount due to the supplier?
Ans: As per section 22 of the Act, any purchaser/Receiver of goods and services from a MSME supplier will be required to furnish the following additional information in its annual statement:
a) Principal and interest remaining due at the end of each accounting year to be shown separately
b) Interest paid by the buyer and any payment made by the buyer beyond the appointed day during each accounting year
c) Interest due and payable for the period of delay in making payment but without adding the interest specified under the Act.
d) Interest accrued and remaining unpaid at the end of each accounting year. e) 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
18) Are there any other statutory requirements for the respective buyers?
Ans: The Central government vide its order2 dated 22.01.2019 has directed all such companies who get supplies of goods or services from MSME and in the event of failure in payment within 45 days are mandatorily required to submit a half yearly return in Form- MSME 1 by 31st October for the period from April to September and by 30th April for the period from October to March.
The details to be furnished in the form are as follows:
a) Name of the supplier
b) PAN of the supplier
c) Amount due against the supplies of goods or services
d) Date from which the amount is due
e) Reasons for delay in payment of the amount due
19) Is extension of jurisdiction possible under the Act?
Ans: The jurisdiction for a State Council can only be extended to such districts where MSEFC has not been constituted.
20) What are the recommendations of the Expert Committee with regard to further growth and development of the MSME sector?
Ans: The Expert Committee in its report dated 25.06.2019 has come up with several recommendations with respect to MSME Sector , the following are the some of the important recommendation of the Expert Committee constituted under the Chairmanship of Mr.U.K.Sinha -Former Chairman, Securities and Exchange Board of India
1. The scope of Facilitation Council is limited to redress cases of MSEs. Presently, Medium enterprises supplying to large corporates are deprived of redressal forum. Hence, the ambit of Facilitation Council may be extended to Medium enterprises also.
2. There has to be specific mention in MSMED Act, 2006 for cases already taken up by NCLT. Suitable amendment needs to be done in MSMED Act as NCLT came into effect in the year 2016 much later than MSMED Act, 2006. Although section 14(1) of IBC 2016 clearly states that “subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority. There is no clarity about process to be adopted after moratorium period is over.
3. Some supplier units filed cases before High Court about matter not decided within 90 days as stipulated in the sub-Section 18(5) of the MSMED Act, 2006. Completing the proceedings (Conciliation & Arbitration) within 90 days is difficult. Hence, MSMED Act, 2006 may be amendment by way of inserting “shall be decided ‘preferably’ within 90 days” or within 180 days instead of “shall be decided within 90 days.
4. During meetings with State Government officials and MSME Associations, the Committee was informed that MSE borrowers lack awareness about Samadhaan Portal. Therefore, there is a need to publicize the portal amongst the MSME entrepreneurs.
5. It is observed that majority of the States have only one Facilitation Council which is not adequate to cater to delayed payment cases arising in the entire State. Hence, there is a need to increase the number of MSEFCs particularly in larger States such as Madhya Pradesh, Uttar Pradesh, etc., and in areas of large concentration and volume, so as to meet the time specified for resolving cases.
21) Is there any limit of monetary due to be taken up by the Councils?
Ans: As of now, there is no such limit of monetary due.
22) How many cases are currently pending under MSME Samadhaan?
Ans: A total of 39, 312 applications have been filed by MSEs as on 31.03.2020 involving an amount of Rs. 10346.69crore. Out of these, 3,435 applications involving Rs. 390.40crore have been mutually settled. 3132 cases involving Rs. 598.19 crore have been disposed off.
23) Are the provisions of Limitation Act applicable in filing application under the MSMED Act?
Ans: No, the Limitation Act is not applicable to take up the Matter before MSE Facilitation Council but the supplier should not sleep over his dues receivable (Delay and Latches Principle will be Applicable.
24) What is the latest scheme introduced by the Ministry of MSME?
Ans: An incubation scheme3 has been initiated by the Ministry of MSME to endorse the technical knowledge based innovative ventures and to encourage untapped potential of innovators. The benefits of the scheme include financial assistance upto Rs. 15lakh for developing and nurturing of an idea.
Students, entrepreneurs of institutions such as technical colleges and institutes, universities, other professional colleges and institutes, NGOs involved in relevant activities, etc.
This Write up is a knowledge resource of Mamta Binani & Associates and is prepared by ensuring the accuracy, completeness and reliability of the information available to us. The author will not be responsible for any action taken on the basis of this document for any reasons whatsoever.
Any form of plagiarism will be considered as an offence and in the case of any excerpt required due reference has to be given.
1(i) “the day of acceptance” means,–
(a) the day of the actual delivery of goods or the rendering of services; or
(b) where any 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 on which such objection is removed by the supplier;
(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;
Sucharita Laha (Associate)
Prarthana Kayal (Executive)