MSME-I and Assessment of applicability of Notification S.O. 368(E) dated 22nd January, 2019

In exercise of powers conferred by Section 9 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the Ministry of Micro, Small and Medium Enterprises had vide Notification Dated 2nd November, 2018 directed all companies who

  • get supplies of goods and services from micro and small enterprises and,
  • whose payments to micro and small enterprise suppliers exceed 45 days from the date of acceptance or deemed acceptance

to file a half yearly return with the Ministry of Corporate Affairs (‘MCA’) stating the amounts due and the reasons for delay.

It is pertinent to note that- there is no word as ‘Specified Companies’ in the said notification.

Subsequently, in exercise of power under Section 405 of the Companies Act, 2013 (Power of Central Government to direct companies to furnish information for statistics), the Central Government, considers it necessary to require “Specified Companies” to furnish above information under said section of the Act. Therefore, Ministry of Corporate Affairs (‘MCA’) has made amendments under Schedule III of the Companies Act, 2013 and read with Notification S.O. 368(E) dated 22nd January, 2019 and introduced Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order 2019 thereby notified and  directed all Specified Companies to file form MSME-I.

The aforesaid requirement is applicable only to “Specified Companies” as defined under MCA notification: –

a) Companies which get supplies of goods and services from Micro and Small Enterprises and

b) Whose payments exceed 45 days from the date of acceptance or the date of deemed acceptance of the goods or services.

The MCA notification requires the following:-

a) One time return within 30 days of notification to be filed by ‘Specified Companies’.

b) Half yearly return by the end of the month succeeding the end of half year. The half year for this purpose shall be April to September and October to March and the due dates shall accordingly be 31st October and 30th April respectively.

Due Date of Filing of MSME-I in the year 2020-21.

Half yearly return with the registrar in respect of outstanding payments to Micro or Small Enterprise shall be filed within a month for each half year ended.

Due Date For the period
30/04/2020 For half year October 2019 to March 2020.
31/10/2020 For half year April 2020 to September 2020.

The aforementioned notifications issued by the Government has raised several questions among the companies. Now, we would try to solve the various issues pertaining to these notifications.

Applicability of Notification S.O. 368(E) dated 22nd January, 2019.

This notification is applicable only for those suppliers who are registered as MSME and include micro or small enterprise, which has filed a memorandum with the specified authority and has obtained the Unique Identification Number (UIN) for MSMEs.

Applicability of Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order 2019.

The aforesaid requirement of Form MSME-I is applicable only to “Specified Companies” as defined under MCA notification. Specified Companies means companies which get supplies of goods and services from Micro and Small Enterprises and whose payments exceed 45 days from the date of acceptance or the date of deemed acceptance of the goods or services.

It may be pertinent to note that only the details of outstanding dues to Micro and Small Enterprises (‘MS Suppliers’) are required to be filed and not details of outstanding dues to medium enterprises.

The Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order, 2019 issued by MCA does not define the term ‘outstanding dues’. However, from the intent of the notifications, it can be inferred that dues outstanding to Micro and Small enterprises for a period exceeding 45 days will be regarded as outstanding dues

Classification of Micro, Small and Medium Enterprises.

The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 and Section 7 of the said Act provides the definition of micro, small and medium enterprises.

Classification of Enterprises (w.e.f. 01.07.2020): –

 As per revised definition, an enterprise shall be classified as a micro, small or medium enterprise on the basis of the following criteria, namely:–

Revised MSME Classification
Sr. No. Enterprises Investment in and Turnover Limit
(i) A Micro Enterprises Investment in plant and machinery or equipment; AND does not exceed one crore rupees

(<Rs. 1 crore)

Turnover does not exceed five crore rupees

(<Rs. 5 crore)

(ii) A Small Enterprise Investment in plant and machinery or equipment; AND does not exceed ten crore rupees

(<Rs. 10 crore)

Turnover does not exceed fifty crore rupees

(<Rs. 50 crore)

(iii) a Medium Enterprise Investment in plant and machinery or equipment; AND does not exceed fifty crore rupees

(<Rs. 50 crore)

Turnover does not exceed two hundred and fifty crore rupees

(<Rs. 250 crore)

Earlier, MSMEs are classified in two categories, such as manufacturing and service enterprises. Now it has been removed both will be the same. MSMEs were defined on the basis of investments they put, now the revised definitions will also include turnover of the company, this will be notified once changes in the law are made. Under the new definition, manufacturing and service MSMEs will be defined under a common metric that will be a mix of investment in plants and machinery or equipment and turnover.

Definition of MSME valid upto 30th June 2020:-

The limit for investment in plant and machinery / equipment for manufacturing / service enterprises, as notified, vide S.O. 1642(E) dtd.29-09-2006 are as under- 

Existing MSME Classification
Criteria: Investment in Plant and Machinery or Equipment
Classification Micro Small Medium
Manufacturing Enterprises Investment <Rs. 25 lakh Investment <Rs. 5 crore Investment <Rs. 10 crore
Service Enterprises Investment <Rs. 10 lakh Investment <Rs. 2 crore Investment <Rs. 5 crore

Identification of Micro and Small enterprises (MS Suppliers).

The Company must ask the creditor’s entity or the suppliers of goods or services whether they are registered under the Micro, Small and Medium Enterprises Development Act, 2006. If yes, the Company must ask for the MSME Registration Certificate along with the declaration that during the period of supply of goods or the services, they were falling under the definition of MS Supplier.

Assessment of applicability of Notification S.O. 368(E) dated 22nd January, 2019.

The assessment of applicability shall be done as at each half year end. Accordingly there could be scenarios, where the Company might be a “Specified Company” as at a particular half year end and will end up filing the Form MSME-I whereas it may not be a “specified company” as at subsequent half year end and hence would not be required to file the Form MSME-I.

The relevant dates for assessment of outstanding amount shall be 30th September and 31st March of each half year respectively.

In other words, if any dues to MS supplier is outstanding for beyond 45 days as on relevant date (say 30th September) and even if the payment has been made (say by 15th October) before the due date of filing the Form MSME-1 (say 31st October), the details of outstanding dues would still have to be filed in the Form.

If as on 31.03.2020, no outstanding payment to MS Suppler, but there was delay in payment of some MS Supplier more than 45 days which has been paid on or before 31.03.2020. In this case whether Company needs to give details of such invoices in the form?

Please note that companies have to give details of outstanding payment to MS Supplier only on due date i.e. 31.03.2020. in case where the payment has already been made to MS Suppler before 31.03.2020, then company is not required to give details of such transaction in MSME-1.

Moreover, the assessment would have to be done for each MS supplier individually. For instance, if there is due to MS supplier for Rs. 10,000 against a particular invoice which is outstanding for beyond 45 days and there is an advance of Rs. 15,000 paid to the same supplier for another supply against which the goods have still not been received, the Company would still fall under the definition of Specified Company and would be required to file the Form.

MSME-I in case of ‘Zero’ outstanding amount.

There is no requirement of filing a NIL return by any company. Therefore, in the following scenarios, the companies are not required to file the return:

a) If any company does not have any MS supplier; or

b) If the outstanding dues does not exceed 45 days at any time during the period of half year.

The e-Form MSME-I allows companies to provide details of only 99 suppliers and fresh form is to be filed for entries in excess of 99.

Whether the supplier can fix the credit period more than 45 days?

Yes, the supplier is free to fix their credit period. However, please note that Section 15 of the MSMED Act casts ‘LIABILITY OF BUYER TO MAKE THE PAYMENT’. It states that where the supplier supplies goods or renders any services to any buyer,

  • then the buyer shall make payment on or before the date agreed upon between him and supplier in writing, and
  • if there is no agreement, then before the appointed date.

The proviso to this section states that the period of credit given by the seller shall not exceed 45 days from ‘the day of acceptance’ or from ‘the date of deemed acceptance’.

 “APPOINTED DATE” means the day following immediately after the expiry of the period of fifteen days (15 days) from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.

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 (15) 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.

Further, “THE DAY OF DEEMED ACCEPTANCE” means-

  • where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen (15) 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;

In view of the above, as per Section 15 of MSMED Act, if the payment terms are not agreed in writing, the appointed day shall be the due date for payment.

Even if the payment terms are agreed in writing, it shall not exceed 45 days from the date of acceptance or deemed acceptance. In other words, the payment terms for the purpose of computation of interest under Section 16 of the MSMED Act shall be based on the agreed days or 45 days whichever is lower.

Further, the MCA notification states the requirement of reporting is for all those payments which “exceed forty-five days from the date of acceptance or the date of deemed acceptance of the goods or services” only and not any sort of free credit period provided for the goods or services supplied to the company.

Further, the proviso to section 15 of the MSMED Act, 2006 states:

 “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 acceptance.”

Therefore, in any event the agreed credit period cannot be more than 45 days. Hence, the due date shall be calculated from the date of acceptance or deemed acceptance and not the expiry of credit period.

Accordingly, the payment (including credit period, if any) to a MS Supplier has to be made within 45 days of acceptance / deemed acceptance. If not made, the reporting has to be done on a half yearly basis as per the MCA circular within 30 days of end of each half-year.

Penalty for not complying the statutory provisions.

Penalty for furnishing any information or statistics which is incorrect or incomplete in any material respect and not to comply the order issued by the Government under Section 405(1) are as under-

Pursuant to the provisions of Section 405(3),

  • The Company shall be punishable with fine which may extend to twenty-five thousand rupees and
  • Every officer of the company who is in default, shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to three lakh rupees, or with both.
Particulars Penalty
On defaulting company Extended upto Rs. 25,000/-
Every officer who is in default Minimum Fine: Rs. 25,000/- which may be extended to Rs. 3,00,000/- Or

Imprisonment which may be extended to 6 months or both.

Test of applicability of General Circular No. 11/ 2020 dated 24th March, 2020 for delayed filing of MSME-I.

Due to the emerging financial distress faced by most companies on account of the large-scale economic distress caused by COVID 19, there is delay in filing of various forms which are provided under the Act. In view of this, Ministry of Corporate Affairs (MCA) has taken special measures under Companies Act, 2013 and Limited Liability Partnership Act, 2008 in view of the COVID -19 outbreak vide General Circular No. 11/ 2020 dated 24th March, 2020.

In order to support and enable Companies and Limited Liability Partnerships (LLPs) in India to focus on taking necessary measures to address the COVID-19 threat, including the economic disruptions caused by it, some measures have been implemented by the MCA to reduce their compliance burden and other risks. In Para I of the said Circular-

“No additional fees shall be charged for late filing during a moratorium period from 01st April to 30th September 2020, in respect of any document, return, statement etc., required to be filed in the MCA-21 Registry, irrespective of its due date, which will not only reduce the compliance burden, including financial burden of companies/ LLPs at large, but also enable long-standing non-compliant companies/ LLPs to make a ‘fresh start’. The Circulars specifying detailed requirements in this regard are being issued separately.”

It is submitted that there is no fee to file MSME Form, therefore, there is no benefit of special measure provided by MCA vide General Circular No. 11/ 2020 dated 24th March, 2020, as a moratorium period from 1st April, 2010 to 30th September, 2020.

Test of applicability of “Companies Fresh Start Scheme, 2020 (CFSS-2020)” videCircular No. 12/2020 dated 30th March, 2020 for delayed filing of MSME-I.

The CFSS-2020 is applicable between the 1st of April, 2020 and the 30th of September, 2020. Therefore, company will be able to file remaining forms, compliances till 30th September, 2020. The said Scheme CFSS-2020 is a golden opportunity for the defaulting companies to clear their slate and to make good any filling related defaults, irrespective of the duration of defaults, without any additional fees/ penalty / prosecution and make a fresh start as a fully compliant entity.

However, under said Scheme CFSS-2020, there is one additional compliance which a company have to abide by i.e. company has to file a FORM CFSS-2020 after closure of scheme and after the document(s) are taken on file, or on record or approved by the designated authority as the case may be but not after the expiry of six months from the date of closure of the scheme. There shall not be any fee payable on this Form.

The ultimate benefits given by said Scheme CFSS-2020,

  • No addition fees/penalty/prosecution for filing of belated documents;
  • Seeking immunity by filing FORM CFSS-2020.

Now, Question is arises herein, whether the immunity benefit shall be given for filing belated form MSME-I?, i.e. Whether MSME-I can be filed under said Scheme CFSS-2020?

As per para 6(iv) of CFSS-2020, every defaulting company shall be required to pay normal fees as prescribed under the Companies (Registration Offices and Fee) Rules, 2014 on the date of filing of each belated document and no additional fee shall be payable.

Immunity from the launch of prosecution or proceedings for imposing penalty shall be provided only to the extent such prosecution or proceedings for imposing penalty under the Act pertain in any delay associated with filings of belated documents.

Any other consequential proceedings, including any proceedings involving interests of any shareholder or any other person qua the company or its directors or key managerial personnel would not be covered by such immunity.

For example, under Section 42(8), every company is required to file a return of allotment within the period provided therein. However, the proviso to Section 42(4) also requires that the utilisation of money raised through private placement shall not be made unless the return of allotment has been filed in the registry. Now, the immunity under the Scheme shall only be available in respect of the proceedings for imposing penalty on account of delay in filing the return of allotment, but not on account of utilisation of the money raised through private placement prior to the filing of the return with the registry.

For more understanding: The immunity shall be issued only in respect to filing of the belated documents under the Scheme. Filing of Annual Return and Balance Sheet under this scheme will give immunity with respect to penalty for filing these belated documents. However, if Annual General Meeting is not convened with in statutorily prescribed time, then it is violation of law for which prosecution or adjudication may be initiated. Similarly, non composition of CSR Committee as required under section 135 cannot be absolved under this Scheme.

Note: The basic thumb rule of the scheme is that the “Immunity will be provided to defaulting companies only in case of belated filings by waiving off additional fees however where proceedings involve interest of any shareholder or its director, or key managerial person or any other person belonging to the company than immunity shall not be provided”.

The MCA has uploaded a list of 76 forms (including for companies and LLPs) for which the benefit of the Scheme CFSS-2020 can be availed. Form MSME-I is not included in the list to avail the benefits under CFSS-2020.

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.

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