January 28, 2025, 9:10 pm
- The Micro, Small and Medium Enterprises Development Act (MSMED) (hereinafter referred to as Act) provides a very quick and effective means of money recovery for micro and small enterprises. Section 15 to 25 of chapter V of the act covers the same. These special privileges are for micro and small enterprises. A small enterprise growing to medium can also avail these remedies for getting the delayed payments.
- A small enterprise, if engaged in manufacture or production of goods, is one where the investment in plant and machinery is more than 25 lakh rupees but does not exceed 5 crore rupees. In the case of an enterprise engaged in providing services, it will be treated as a small enterprise where the investment is more than 10 lakhs rupees but does not exceed 2 crore rupees.
- A micro enterprise is an enterprise engaged in the manufacture and production of goods and where the investment in plant and machinery does not exceed 25 lakh rupees. In the case of an enterprise engaged in providing or rendering of services, for a micro enterprise, the investment in equipment shall not exceed 10 Lakh rupees.
- As per section 15 of the act, if a supplier supplies any goods or renders any services to any buyer, the buyer shall make payment on or before the date agreed upon between him and the supplier in writing or when there is no agreement in this behalf, before the appointed day. Here a supplier means a micro or small enterprise. As per section 2(b) of the act, the appointed day means the day following immediately after the expiry of the period of 15 days from the day of acceptance or the day of deemed acceptance of any goods or services by a buyer from a supplier. The period agreed between the supplier and buyer, in writing, shall not exceed 45 days from the day of acceptance or the day of deemed acceptance.
- As per section 16 of the act, if a buyer fails to make payment of the amount to the supplier as required under the act, the buyer shall be liable to pay compound interest with monthly rests to the supplier on that amount from the time of the appointed day or from the date immediately following the date agreed upon at 3 times the bank rate notified by RBI. If the claimant has received the principal already, the claim can be filed for interest alone.
- As per section 18 of the act, if a supplier has a dispute with a buyer, in regards to any amount due, he may make a reference to the micro and small enterprises facilitation council (MSEFC)(hereinafter referred to as Council). On receipt of a reference, the council shall either itself conduct conciliation in the matter or refer the matter for conciliation to an institution providing ADR(Alternate Dispute Resolution ) services. The provisions of the delayed payments under the act, are not applicable to foreign buyers. Even a government department as a buyer can be proceeded against in the council.
- MSME Samadhan portal is a portal where micro and small enterprises can file their applications online regarding delayed payments. For the purpose of applying to the MSEFC, the micro or small enterprise shall have a valid UDYAM registration. The application filed online will be forwarded automatically to the concerned MSEFC which will take action on the application. The claim should be submitted in hard copy also.
- To file an application on MSME samadhan portal, work order is compulsory. In case the purchase order is oral, an affidavit to that effect is to be submitted. A legal notice by the supplier to the buyer is not necessary before filing the case in the council.
- If the conciliation under section 18 is not successful, the council shall either itself take up the dispute for arbitration or refer it to an institution or centre providing ADR services. For the purpose of this conciliation and arbitration, the jurisdiction of the MSEFC or the Alternate Dispute Resolution centre will be the supplier’s jurisdiction and the buyer can be located anywhere in India. Every reference to MSEFC under section 18 shall be decided within a period of 90 days from the date of making such a reference. An award passed by the MSEFC can be executed under section 36 of the arbitration and conciliation act, 1996.
- If a person wants to set aside the decree, award or order passed by the MSEFC, then they can file the application before the jurisdictional court under section 34 of the Arbitration and Conciliation Act 1996. If it is by the buyer, then he needs to deposit 75% of the amount in terms of the decree award or the order as a condition for filing the setting aside application. Furthermore, the court considering the application to set aside the decree, award or order, shall order a reasonable percentage of the amount deposited to be paid to the supplier.
- As per section 22 of the act, where any buyer is required to get his annual accounts audited, under any law, such buyer shall furnish several information about the principal and interest amount due to any supplier at the end of each accounting year and several other connected information. If anybody intentionally contravenes the provisions of section 22, he shall be liable with fine which shall not be less than 10 thousand rupees.
- If the buyer is claiming rejection of goods for quality deficiencies, then the rejection should be genuine within 15 days of the receipt of the goods and its immediate communication to the supplier.