prpri MSME legal backdrops series Part – II MSME legal backdrops series Part – II

In the previous article [MSME Legal backdrops Series – Part I], we have gained knowledge about what is MSME, difference between terms MSE and SSI, legal background of MSME, MSMED Act, 2006, purpose of MSMED Act etc.

In this article, we will discuss about some of the important provisions of MSMED Act, 2006 along with various notifications issued by Ministry of Micro, Small & Medium Enterprises. Italic lines in the article represent text of Act.

A. Chapter – 1 of MSMED Act, 2006:-

  • Chapter 1 of MSMED Act, 2006 provides Preliminary information about the act.
  • It contains 2 sections, Section 1 and 2 which are described below.

1. Section 1 – Short Title and Commencement:-

(1) This Act may be called the Micro, Small and Medium Enterprises Development Act, 2006.

(2) It shall come into force on such date as the Central Government may, by notification, appoint; and different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision.

Interpretations & Comments:

√ Full and official name of this Act is Micro, Small and Medium Enterprises Development Act, 2006.

√ This act came into existence on 16.06.2006 when President of India gave its assent to it. But it was applicable on whole of India w.e.f. 02.10.2006. This date was officially announced by Government of India vide Gazette Notification No. S.O. 1154(E) dt. 18.07.2006.

√ All 6 chapters and 32 sections came into force from this date and applicable on whole of India including Jammu & Kashmir and Ladhakh.

2. Section 2 – Definitions:

  • Meaning of various terms has been defined under this section.
  • We will discuss now only common terms which are used widely in the act and rest terms will be discussed along with their relevant sections wherever they have been used.
  • Section 2(n) “supplier” means a micro or small enterprise, which has filed a memorandum with the authority referred to in sub-section (1) of section 8, and includes,—

(i) the National Small Industries Corporation, being a company, registered under the Companies Act, 1956 (1 of 1956);

(ii) the Small Industries Development Corporation of a State or a Union territory, by whatever name called, being a company registered under the Companies Act, 1956 (1 of 1956);

(iii) any company, co-operative society, trust or a body, by whatever name called, registered or constituted under any law for the time being in force and engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprises;

Interpretations & Comments:

√ A Micro and Small Enterprise (MSE) have only been considered as Supplier for the purposes of this act. Medium Enterprise has been kept outside the preview of definition of Supplier.

√ There is also a precondition that these MSE must be a registered MSE as per the provisions of this act. Registration means MSE must have applied to authority for obtaining Udyam Registration Certificate (URC).

√ “Filing of Memorandum with the authority” – It was old process for obtaining registration. Now this process has been replaced with an online self declaration basis process called Udyam Registration Process. (This we will discuss in later parts)

√ NSIC, SIDC and any company, Co-operative society, Trust or Body which are registered or constituted under any law and they are engaged in selling goods or rendering services which are produced or provided by MSE, are also considered as Supplier for the purposes of this act.

For Example, Old Age Women Co-operative society engaged in the business of selling handicraft items manufactured by small small MSEs in their local area. So it will be Supplier for the purposes of this act.

√ Here, it is to noted that in order to obtain benefits under this act, a person must be an eligible Supplier.

  • Section 2(d) “buyer” means whoever buys any goods or receives any services from a supplier for consideration;

Interpretations & Comments:

√ The scope of the term Buyer is very broad.

√ Buyer can be any persons whether Individual, HUF, Company, AOP, BOI etc.

√ Buyer can purchase any goods or receive any service.

√ Buyer should purchase from a Supplier (as defined above).

√ There must be a consideration whether in cash or kind, paid or payable.

√ If someone receives any goods or service without consideration, it will not be considered as Buyer for the purposes of this act.

√ So, anyone who purchases any goods or receives any service from a supplier for a consideration is a buyer.

  • Section 2(f) “goods” means every kind of movable property other than actionable claims and money;

Interpretations & Comments:

√ All types of movable properties are goods. Immovable properties are kept outside the definition of goods.

√ Actionable Claims and Money both are not considered as goods.

  • Section 2(e) “enterprise” means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (55 of 1951) or engaged in providing or rendering of any service or services;

Interpretations & Comments:

√ Anyone who is doing business as an Individual/HUF/AOP/BOI/Company etc. and engaged in :-

Manufacture or Production of Goods, in any manner, pertaining to any industry specified in first schedule of I (D&R) Act, 1951


Providing or rendering of any service or multiple services Is an Enterprise for the purposes of this act.

√ In First Schedule of Industries (Development and Regulation) Act, 1951, various types of industries have been defined. (The same can be downloaded from the link given under References)

√ Service can be of any type or nature. There is no restriction on this except some restrictions which have been imposed via notifications which will be discussed later along with relevant provisions.

B. Synopsis:

  • We have covered 2 sections of MSMED Act, 2006.
  • Section 1 tells about Title and commencement date of this act.
  • Section 2 prescribes various definitions like – Buyer, Supplier, Enterprises, Goods etc.

C. What Next:

  • In next article, efforts will be made to provide an insight into 2nd Chapter and related sections of MSMED Act, 2006 from legal as well as practical point of view.

D. References:

  • MSMED Act, 2006. Link for downloading MSMED Act, 2006 –
  • First Schedule of I (D&R) Act, 1951. Link for downloading –
  • Various Notifications issued by Ministry of Micro, Small and Medium Enterprises.


Disclaimer : This material and the information contained herein is intended to provide general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). The information is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser.

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