The Government of India on Wednesday announced the special economic package under the government’s Atmanirbhar Bharat Abhiyan-India’s Rs 20 lakh crore Covid-19 economic package. The entire package is aimed at providing a much-required boost to the Indian Economy which might otherwise face the inevitable economic slump due to long lockdown period.

Amongst other, one of the major relief that comes out of the Wednesday press conference is the revised definition of the MSME, the revised definition can be seen as a multi-dimensional effort of the Government of India to extend the loan facility to the maximum number of corporate and to simplify the definition since there is no distinction between manufacturing and service industry. The change in the norms of classification will enhance the ease of doing business. The consequent growth and will pave the way for increased direct and indirect employment in the MSME sector of the country.

REVISED DEFINITION OF THE MSME

Section 7 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 will accordingly be amended in terms of annual turnover and investment as follows:

Classification Micro Small Medium
Manufacturing Services Investment < Rs. 1 cr. and Investment < Rs. 10 cr. And Investment < Rs. 20 cr. and
Turnover< Rs. 5 cr. Turnover< Rs. 50 cr. Turnover< 100 cr.

Though explanation to Section 7 of the MSMED Act, 2006 provides the mechanism for the calculation of the investment, however, we have to wait for the definition of the turnover since same is not defined under MSMED Act, 2006 and it is also unlikely that definition of turnover to be in line with Companies Act, 2013 since applicability MSMED Act goes beyond the corporate form of organization.

Explanation-1 to Section 7 provides that- For the removal of doubts, it is hereby clarified that in 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.

Further, through a notification dated 5th October, 2006, following items shall be excluded while calculating the investment in plant and machinery;

i. equipment such as tools, jigs, dyes, moulds and spare parts for maintenance and the cost of consumables stores;

ii. installation of plant and machinery;

iii. research and development equipment and pollution controlled equipment

iv. power generation set and extra transformer installed by the enterprise as per regulations of the State Electricity Board;

v. bank charges and service charges paid to the National Small Industries Corporation or the State Small Industries Corporation;

vi. procurement or installation of cables, wiring, bus bars, electrical control panels (not mounded on individual machines), oil circuit breakers or miniature circuit breakers which are necessarily to be used for providing electrical power to the plant and machinery or for safety measures;

vii. gas producers plants;

viii. transportation charges (excluding sales-tax or value added tax and excise duty) for indigenous machinery from the place of the manufacture to the site of the enterprise;

ix. charges paid for technical know-how for erection of plant and machinery;

x. such storage tanks which store raw material and finished produces and are not linked with the manufacturing process; and

xi. fire-fighting equipment.

2. While calculating the investment in plant and machinery refer to paragraph 1, the original price thereof, irrespective of whether the plant and machinery are new or second handed, shall be taken into account provided that in the case of imported machinery, the following shall be included in calculating the value, namely;

1. Import duty (excluding miscellaneous expenses such as transportation from the port to the site of the factory, demurrage paid at the port);

2. Shipping charges;

3. Customs clearance charges; and

4. Sales tax or value added tax.

INCREASED IMPORTANCE OF MSME FACILITATION CENTRE

The Government of India also plans to suspend the insolvency proceeding for coming six months, since there might be a large number of defaults in the payment of a financial and operational debt due to no or negligible financial activities due to COVID-19.

The new clause — Section 10A is to suspend sections 7, 9 and 10 for six months or until further orders, with a rider that the amendment clause cannot be extended to more than a year.

So with the increased number of MSME due to revised definition and suspension of insolvency proceeding due to insertion of Section 10A, the MSME will have no choice but to knock the doors of the MSME facilitation centre for the recovery of the amount.

RECOVERY MECHANISM UNDER MSMED ACT, 2006

Section 17 Recovery of the 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.

If any buyer defaults in making payment to the supplier of goods and services as per Section 17 then such MSME supplier can make reference to MSME Facilitation Council as per Section 18.

Section 18 laid down the procedure for making an application to the facilitation Council. Sub-Section 1 of Section 18 provides that any party either buyer or seller, subject to the condition that at least one party shall MSME, in case of any dispute related to the amount payable as Section 17 may make an application to MSME Facilitation Council. Sub Section 1 carries a non-obstante clause; hence such dispute can be raised notwithstanding anything contained in any other law.

Sub Section 2 provides that once the Facilitation Council receives the application under sub section 1, either the Council itself starts the conciliation proceeding or may appoint any other institution engaged in such proceeding. Further all the provisions of Section 65 to 81 of the Arbitration and Conciliation Act, 1996 shall be applicable.

Sub Section 3 further provides that if conciliation proceeding remains unsuccessful than the council shall move arbitration and such arbitration proceeding may be taken by the council itself or council may appoint the third party for the same. All the provisions of the Arbitration and Conciliation Act, 1996 shall be applicable to such arbitration proceeding as if such an application is made under Section 7 of the Arbitration and Conciliation Act, 1996.

Section 7 of the Arbitration and Conciliation Act, 1996 deals with Agreement to be entered for submitting a dispute for Arbitration

Sub-Section 4 provides for the jurisdiction of the Council, Council shall have the power to provide such mediation only in its jurisdiction and the buyer shall be situated in such jurisdiction. Section 20 gives power to the State Government to establish such a council and define its jurisdiction.

Sub Section 5 provides the time period within which the reference made shall be disposed off with 90 days.

For reference I am producing Section 18 below;

Section 18.Reference to Micro and Small Enterprises Facilitation Council

(1) Notwithstanding anything contained in any other law for the time being in force, 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.

(2) On receipt of a reference under sub-section (1), the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to such a dispute as if the conciliation was initiated under Part III of that Act.

(3) Where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section(1) of section 7 of that Act.

(4) Notwithstanding anything contained in any other law for the time being in force, the Micro and Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an Arbitrator or Conciliator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India.

(5) Every reference made under this section shall be decided within a period of ninety days from the date of making such a reference.

Section 19 provides for the application for setting aside the decree, award, or order passed by the council itself or by other institution appointed by the council for making such decision, the section provides that any application made to the court for setting aside decree, award, or order passed by the council itself or by other institution appointed by the council for making such decision shall be entertained only after the buyer deposit 75% 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.

The court may further direct to pay such percentage of amount out the amount deposited by the buyer as it may think fit to the supplier. For reference, please find the Section 19 below.

Section 19: Application for setting aside decree, award or order.

No application for setting aside any decree, award or other order made either by the Council itself or by any institution or centre providing alternative 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 percent. 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.

CONCLUSION

We can hope that this pandemic will open door to many economic and non-economic reform be it tax reform, land reforms, MSME reforms etc, and by taking other required steps India will become Atmanirbhar and Vishwa Guru.

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