In this sequence the Government of India passed an Act called as “Micro, Small, Medium Enterprises Development Act, 2006.”
The key feature of the MSMED Act, 2006 is timely release the dues of MSME suppliers.
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Payment recovery provisions under MSME Development Act, 2006 are as below:
KEY CONTENT OF THIS ARTICLE:
Latest definition of MSME unit
Appointed Day under MSME Act, 2006
Meaning of “Buyer” and “Supplier“
Time limit to make payment to MSME unit
Interest rate for delay payment of MSME Unit
MSME Facilitation Council and their juridiction
Setting aside decree, award or order
Overriding effect of MSME Act, 2006
Courts Jurisdiction
Advantage to file a suit under MSME Development Act, 2006
DEFINITION OF MSME UNITS:
This law, called the MSME Development Act, defines different types of businesses based on their size. These are called micro, small, and medium enterprises.
Micro Enterprises:
A micro enterprise is a very small business. According to the new rules from July 1, 2020, a business is considered a micro enterprise if:
- The money spent on machines or equipment is less than one crore rupees.
- The total sales or turnover of the business is less than five crore rupees.
Small Enterprises:
A small enterprise is a bit bigger than a micro one but still not very large. Under the updated rules, a business is a small enterprise if:
- The money spent on machines or equipment is less than ten crore rupees.
- The total sales or turnover of the business is less than fifty crore rupees.
Medium Enterprises:
Medium enterprises are larger than micro and small ones but still not huge. According to the new rules, a business is a medium enterprise if:
- The money spent on machines or equipment is less than fifty crore rupees.
- The total sales or turnover of the business is less than two hundred and fifty crore rupees.
These rules became effective from July 1, 2020.
Section 2(b) of MSME Development Act, 2006:
(i) “appointed day” means the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.
Explanation.-For the purposes of this clause,- (i) “the day of acceptance” means,-
the day of the actual delivery of goods or the rendering of services; or
where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen 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;
(ii) “the day of deemed acceptance” means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen 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;
Section 2(d) “buyer” means whoever buys any goods or receives any services from a supplier for consideration;
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, 2013;
(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, 1956/2013;
(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;
PAYMENT RECOVERY OF MICRO, SMALL ENTERPRISES:
Section 15: Liability of buyer to make payment:
Where any supplier supplies any goods; or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between in writing or, within 45 days from the day of acceptance or the day of deemed acceptance.
Section 16: Date from which and rate at which interest is payable.
Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, ‘as the case may be; from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.
Section 17: Recovery of 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.
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 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 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: 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 alternate dispute resolution services to which a reference is made by the Council, shall be entertained by any court decreed unless the appellant (not being a supplier) has deposited with it seventy-five percent (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:
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.
Section 20: Establishment of MSME facilitation council
The State Government shall, by notification, establish one or more Micro and Small Enterprises Facilitation Councils, at such places, exercising such jurisdiction and for such areas, as may be specified in the notification.
Section 22: Requirement to separately specify unpaid amount with interest of MSME units in annual statement of accounts:
the principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier as at the end of each accounting year;
the amount of interest paid by the buyer in terms of section 16, along with the amount of the payment made to the supplier beyond the appointed day during each accounting year;
the amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under this Act;
the amount of interest accrued and remaining unpaid at the end of each accounting year; and
the amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under section 23.
Section 23: Interest not to be deductible from Income of supplier:
The interest paid by the buyer to supplier (MSME Unit) under this act is not allowable to deduction as expenses in computation of income of buyer under Income tax Act, 1961.
Section 24: Overriding effect
The provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
Section 28: Jurisdiction of courts.
No court inferior to that of a Metropolitan Magistrate or a Magistrate of the first class shall try any offence punishable under this Act.
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BENEFITS UNDER UNDER FILING THE CLAIM UNDER MSME DEVELOPMENT ACT, 2006:
- The MSME unit can file the suite under with a nominal fee whereas in civil suit the civil court fee is very higher in various states.
- The MSME facility counsel in each state play the role of arbitrator and judiciary also.
- If the buyer is required to file appeal against the order/ decree/ award of MSME facility counsel, he must to be required to deposit 75% of decree amount before filing the appeal.