THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

This act was enacted for facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto.

This act came into force on 16th June 2006.

Under this act Enterprises are classified as under on the basis of the investment in Plant and Machinery/Equipment as below:

MICRO SMALL MEDIUM
Manufacturing Enterprises Upto Rs 25 Lakhs More than Rs 25 Lakhs but not exceeding Rs. 5 Crore More than Rs. 5 Crore but not exceeding Rs. 10 Crore
Service enterprises Upto Rs 25 Lakhs More than Rs 10 Lakhs but not exceeding Rs. 2 Crore More than Rs. 2 Crore but not exceeding Rs. 5 Crore

Note: For 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.

Background:

For strengthening the provisions relating to the delayed payments to the MSMEs, the maximum credit period and higher penal interest if delayed beyond the period has been specified.

If there is a delay in payment, companies will have to mention the reason for such delay in the statement of accounts.

Some important features from the Act:

Sec 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 therefore 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 45 days from the day of acceptance or the day of deemed acceptance.”

Here, appointed day means  the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.

Sec 16. Date from which and rate at which interest is payable.—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.

Sec 17.  Recovery of amount due.—For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16.

Sec 18: Reference to Micro and Small Enterprises Facilitation Council: any party to a dispute may, with regard to any amount due under section 17, make a reference to the Micro and Small Enterprises Facilitation Council

New Notification:

Sec 9 of the Act confers a power to the Central government and pursuant to that power Ministry of Micro, Small and Medium Enterprises has come up with a notification dated 2nd November, 2018.

The notification says:

All the Companies who get supplies of goods or services from MSMEs and whose payments to the suppliers exceed 45 days from the date of acceptance or date of deemed acceptance.

Such companies shall file a half yearly return with MCA, stating the following-

1. The amount of payments due

2. The reasons of delay in paying

Sec 9: Measures for promotion and development.—The Central Government may, from time to time for the purposes of facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises, particularly of the micro and small enterprises, by way of development of skill in the employees, management and entrepreneurs, provisioning for technological upgradation, marketing assistance or infrastructure facilities and cluster development of such enterprises with a view to strengthening backward and forward linkages, specify, by notification, such programmes, guidelines or instructions, as it may deem fit.

However, it is important to note that the notification has not prescribed any form for filing such a return. It is expected that MCA will come up with a notification in this regard.

Conclusion:

Sec 9 of the Act gives a power to the Central government that it can come up with such notification for the promotion and development of the MSMEs. For the promotion and development and enhancing the competitiveness of micro, small and medium enterprises, Ministry of Micro, Small and Medium Enterprises came up with a notification for strengthening the MSMEs by prescribing the maximum credit period, enhanced penal interest and conferring duty on all the companies who get the supplies from the MSMEs makes payment after 45 days from the date of the acceptance or the deemed acceptance to file a half yearly return on the MCA site with the reason.

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One Comment

  1. H ANIL KUMAR says:

    Is there any change in definition of “supplier” under clause 2 (n) restricting the applicability only to those who have filed the memorandum with the authority and therefore does not apply to all MSEs

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