MSME Samadhan Scheme: Delayed Payment Monitoring Scheme

MSME Samadhan Scheme: Delayed Payment Monitoring Scheme

Micro, Small and Medium Enterprise (hereinafter collectively referred as “MSE Enterprises”) are flourishing across various sectors, playing vital roles in India’s economic development. These enterprises serve as catalysts for growth, fostering innovation, nurturing entrepreneurship, generating substantial employment opportunities, and crucially, promoting equitable wealth distribution by empowering local communities. Hence, the MSME Samadhan Scheme emerges as a critical safeguard, ensuring the stability of cash flows for MSE Enterprises by addressing payment delays and thereby harnessing their potential for sustained growth.

Overview of MSME Samadhan Scheme:

The MSME Samadhaan Scheme, initiated under the Micro, Small and Medium Enterprise Development (MSMED) Act of 2006 and launched in 2017, is designed to facilitate the timely recovery of payments owed by buyers to Micro, Small, and Medium Enterprises (MSMEs). By ensuring prompt payment settlements, the scheme creates a conducive environment for the growth and prosperity of MSMEs, enabling them to thrive and contribute more effectively to the economy.

Understanding of MSME Samadhan Scheme:

The MSMED Act, 2006 provides safeguard for delayed payment to MSE Enterprises/supplier’s, if buyers fail to make payment within 45 Days of accepting Goods or Services, then the buyer must pay compound interest to the supplier at three times the bank rate notified by the Reserve Bank of India. Instance, current notified Bank rate by RBI is 6.75% p.a. therefore compound interest chargeable at 20.25% p.a.

Eligibility for MSME Samadhan Scheme:

Any Micro, Small and Medium Enterprises having valid UAM can file the application through MSME Samadhan Portal [www<dot>samadhaan<dot>msme<dot>gov<dot>in]

For classification between Micro, Small and Medium Enterprises: Refer Section 7 of The Micro, Small and Medium Enterprises Development Act, 2006

Process for filing a claim under MSME Samadhan Scheme:

A step-by-step process is mentioned below in the easiest language possible for your understanding:

1. visit MSME Samadhaan Portal (www <dot> Samadhaan <dot> msme <dot> gov <dot> in)
2. Click on ‘Case Filing for Entrepreneur/MSE Units’.
3. Choose your MSME registration type: Udyog Aadhaar Number or Udyam Registration Number.
4. Login with you registration number, mobile number (as per the registration certificate), and verifying one time password sent to registered mobile number or E-mail ID.
5. Fill the claim application with all the required information and attaching relevant documents to prove your claim.
6. Submit the case for review by the MSME Samadhan team.
7. You’ll receive an acknowledgment of receipt of the complaint.
8. After successful submission of the application, an auto generated notice will be sent to Buyer mentioning the amount due and therefore ordering to pay within stipulated time.

Documents required for filing a claim under MSME Samadhan Scheme:

1. Copies of Invoice(s) issued by the MSME Supplier.
2. Copies of the agreement or Purchase Order between the MSME supplier and the buyer, if oral contract had happened then a written affidavit should be filed.
3. Proof of Delivery of Goods or Services by MSME Supplier.
4. Any Other relevant documents supporting the claim of MSME Supplier.

What if buyer has not responded to or mutually settled disputed amount within stipulated time mentioned in notice?

♦ Conciliation proceedings under section 18(2)

1. The MSME facilitation council turns the complaint into an MSME case if the buyer doesn’t pay or respond to the notice and therefore such case comes under the ambit of MSEFC.
2. Once it becomes an MSME case, Section 18 2) allows for conciliation between the parties.
3. The council can handle the conciliation process itself or refer to an conciliation institution for help.
4. The rules from sections 65 to 81 of the Arbitration & Conciliation Act, 1996, apply to this dispute, treating it as if it conciliation is initiated under part III of the Arbitration & Conciliation Act, 1996.

♦  Arbitration proceedings under section 18(3)

1. If conciliation under section 18(2) doesn’t work out or ends without a settlement, the MSME facilitation council sends the case to arbitration for resolution.
2. The council can either handle the arbitration process itself or refer the case to an institution or centre that offers alternate dispute resolution services for arbitration.
3. The rules of the Arbitration & Conciliation Act, 1996, apply to these arbitration proceedings or disputes.

♦ Appeal against decree, award, or order under section 19

1. Section 19 of the MSME Act allows for an application to set aside a decree, award, or order resulting from arbitration proceedings.
2. The rules of the Arbitration and Conciliation Act of 1996 are applicable to alternate dispute resolution or arbitration initiated under the MSME Act.
3. Therefore, an objection or application to set aside the decree, award, or order can be filed according to the provisions of section 34 of the Arbitration and Conciliation Act, 1996, in conjunction with section 19 of the MSME Act.

♦ Execution of Arbitral decree, award, or order

1. The degree, award, or order can be executed as per the provisions of section 36 of the Arbitration and Conciliation Act, 1996.

Timeline: Generally, the whole process should be completed within 90 Days from the date when application was admitted as case by MSEFC. 

MSME Samadhaan vs. Insolvency & Bankruptcy Code, 2016 – Which Road to Recovery is suitable?

Certainly! Let’s delve deeper into the factors to consider when deciding between MSME Samadhaan and filing an application under the Insolvency & Bankruptcy Code, 2016 (IBC):

1. Nature of the Dispute:

• MSME Samadhaan: This mechanism primarily addresses disputes related to delayed payments from buyers to MSMEs. It focuses on resolving these disputes through conciliation and arbitration, aiming to expedite the resolution process and ensure timely payments without resorting to insolvency proceedings.
• IBC: Filing an application under the IBC is typically considered when the financial distress faced by the MSME is severe and other attempts to resolve the issue, such as negotiation and mediation, have failed. This route may be chosen if the dispute goes beyond delayed payments and involves broader financial difficulties or insolvency concerns.

2. Willingness to Maintain Business Relationships:

• MSME Samadhaan: If preserving business relationships with the defaulting party (buyer) is a priority and there’s a possibility of resolving the payment delay amicably, MSME Samadhaan may be preferred. It provides a structured mechanism for dispute resolution while aiming to maintain commercial ties.
• IBC: Filing under the IBC is a more formal legal process that may strain business relationships, as it involves initiating insolvency proceedings against the defaulting party. This route is typically pursued when other avenues for resolution have been exhausted, and the priority is to recover outstanding dues rather than preserve relationships.

3. Severity of Financial Distress:

• MSME Samadhaan: This mechanism is suitable for addressing relatively minor payment delays or disputes where the financial health of the MSME is not severely compromised. It offers a quicker and less adversarial way to resolve disputes without escalating to insolvency proceedings.
• IBC: Filing under the IBC is appropriate when the financial distress faced by the MSME is significant, and there’s a genuine risk of insolvency. If efforts to recover dues through other means have failed and the MSME’s survival is at stake, initiating insolvency proceedings under the IBC may be necessary to protect the interests of creditors and stakeholders.

4. Legal Implications and Processes:

• MSME Samadhaan: The process under MSME Samadhaan involves conciliation and arbitration as per the provisions of the MSME Act. It is a relatively straightforward process focused on resolving payment disputes between parties.
• IBC: Filing an application under the IBC entails adhering to the legal requirements and procedures prescribed under the Code. It involves the appointment of insolvency professionals, admission of the application by the National Company Law Tribunal (NCLT), and subsequent resolution or liquidation proceedings as per the provisions of the IBC.

Synopsis: Decision between MSME Samadhaan and filing under the IBC depends on factors such as the nature and severity of the dispute, willingness to preserve business relationships, and the legal implications involved. It’s essential to carefully assess the specific circumstances of the case and seek expert advice to determine the most appropriate course of action.

Facts & Figures of MSME Samadhaan Portal (as on 05^th May, 2024)

• Total Application Filed: 1,88,321 Cases
• Cases mutually settled: 17,374 Cases
• Therefore, Cases Transferred to MSEFC: 1,70,947 Cases
• Cases disposed by MSEFC: 35,778 Cases
• Cases under observation of MSEFC: 38,838 Cases
• Cases yet to be viewed by MSEFC: 47,797 Cases
• Application Rejected by MSEFC: 48,534 Cases

Based on the data, it’s evident that the MSME Samadhaan portal isn’t operating at peak effectiveness currently. However, it’s still proving beneficial for MSE Enterprises by facilitating the recovery of stalled payments and monitoring delays. Looking ahead, there’s optimism for enhanced efficiency from the MSME Samadhaan Portal in the future.