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Due to aftermath of Covid19 Pandemic cash crunch is prevailing in the market. In order to maintain cash flow every businessman wants that his/ her debtors/receivable should be recovered at a very fast pace. Recovery of debts becomes a tedious and daunting task for every businessman. Businessman does his business with the intention of profit making but no recovery from debtors causes stress and tension to the businessman.

In order to avoid a long legal battle /litigation and for the sake of Ease of doing business the Government has chalked out a way out for early recovery of Receivables/Debtors to the Units/Businesses covered under MSME. The mandatory condition for recovery of debts through the aforementioned procedure is getting registration under the MSME Act. The Scheme is only applicable for the units which are eligible under MSME Act.

Unit Classification under MSME Act –

An enterprise shall be classified as micro, small or medium on the basis of following criteria-

  • A micro enterprise, where the investment in plant and machinery or equipment does not exceed 1.00 crore rupees and turnover does not exceed 5.00 crore rupees.
  • A small enterprise, where the investment in plant and machinery or equipment does not exceed 10.00 crore rupees and turnover does not exceed 50.00 crore rupees.
  • A medium enterprise, where the investment in plant and machinery or equipment does not exceed 50.00 crore rupees and turnover does not exceed 250.00 crore rupees.

Eligibility Criteria-

Only Micro and Small Units are eligible units for opting of the scheme as provided under MSME Act. 

Scheme of Recovery of Debts under MSME Act-

1. The buyer shall make payment to the seller for goods purchased or services received on or before the due date as agreed between seller and buyer.

2. In no case the Due date of payment for receiving payment can be more than 45 days from the date of receipt/acceptance of goods or services.

3. The buyer shall pay interest on the payment due if paid after the due date as agreed between buyer and seller. If no date is agreed then interest shall be paid after 15 days from the date of acceptance/receipt of goods or services. The rate of interest shall be 3 times the rate of banks.

4. In the case of dispute the seller may make a reference to the Micro and Small Enterprises Facilitation Council.

5. Every reference made to the Micro and Small Enterprises Facilitation Council is resolved within 90 days from the date of making reference.

6. No application for setting aside any decree, award or other order made shall be entertained by any court unless the appellant has deposited 75% of the amount payable.

Note-The views expressed by the author is for educational purpose only and not for legal purpose.

Authored By- CA.Keshav Grover | Email-keshavgrover08@yahoo.co.in

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