Dear Professional Colleague:
Currently there are an estimated 42.50 million, registered & unregistered Small and Medium Enterprises in India a staggering 95% of the total industrial units in the country. The SME sector employs about 106 million, 40% of India’s workforce, next only to the agricultural sector and contributes over 30% to the GDP of the country.
The Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act) seeks to develop and promote the MSME sector.
What are MSMEs?
Entities which fulfill the criteria under Section 7 of the MSME Act (i.e. investment in Plant, Machinery or Equipment not exceeding Rs. 10 crores for goods manufacturing or Rs. 5 crores for services) may apply for registration under the said Act as MSMEs.
Key Benefits to MSMEs
As per the provisions of Section 15 of the Act, 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 him and the supplier in writing not exceeding 45 days from the day of acceptance or the day of deemed acceptance.
As per Section 16, where any buyer fails to make payment of the amount to the supplier, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier, be liable to pay compound interest with monthly rests to the supplier on that amount at 3 times of the bank rate notified by the Reserve Bank.
Apart from the above, the Government is launching various schemes and initiatives for easy availability of finance to MSMEs as well as preference to MSMEs in Insolvency and Bankruptcy Code, Intellectual Property Laws etc.
Compliances to be done by large Companies in relation to MSMEs – Recent Amendments
To further tighten the monitoring and compliance of the above provisions, the Ministry of Micro, Small and Medium Enterprises (MSME) had issued a notification no.5622 (E) dated 2nd November, 2018, pursuant to which, all companies who get supplies of goods or services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed 45 days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of Section 9 of the Micro, Small and Medium Enterprises development Act, 2006 (hereafter referred to as “Specified Companies”), shall submit a half yearly return to the Ministry of Corporate Affairs stating the following:
- The amount of payments due; and
- The reasons of the delay.
The Ministry of Corporate affairs has Vide order number S.O. 368(E) dated 22nd January, 2019 notified Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order, 2019. As per the said order Every specified company shall file in MSME Form I details of all outstanding dues to Micro or small enterprises suppliers:
- Existing on the date of notification of this order within thirty days from the date of publication of this notification. (One time Compliance)
- By 31st October for the period from April to September and by 30th April for the period from October to March. (Half Yearly Compliance)
It may be noted that MSME Form I is not yet available on the portal for filing, only the format is prescribed in the notification. However, we recommend that till the time the Form gets available, you can be ready in advance with the list of all the MSME Suppliers along with the following information:
|Sr. No.||Financial Years/Particulars||Name of Suppliers||PAN of Suppliers||Amount due||Specify the date from which amount is due||Reasons for delay in amount of payments due|
Further, MSME department has also issued another notification no.5621 (E)] dated 2nd November, 2018 which provides that all companies registered under the Companies Act, 2013 with turnover of more than Rs. 500 crores and all Central Public Sector Enterprises shall be required to get themselves on-boarded on the Trade Receivables Discounting System (TReDS) platform, set up as per the notification of the Reserve Bank of India.
Requirement to specify unpaid amount with interest in the annual statement of accounts (Section 22):
Where any Company procures goods or services from MSMEs, such Company shall furnish details of unpaid principal and interest due to such MSMEs in the prescribed format.
Penalty for non compliance
If any company fails to comply with the above order S.O. 368(E) or knowingly wrong information, the company shall be punishable with fine up to to Rs. 25,000 and every officer of the company who is in default, shall be punishable with imprisonment up to to 6 months or with fine from Rs. 25,000 to Rs. 3 Lacs, or with both.
It is expected that all the above regulatory initiatives will help recovery and collections for MSMEs, hence improving their working capital cycles and hence overall business environment.
If you you would like to explore registration as an MSME or the TReDS platfiorm, do let us know and our compliance team would be happy to help you.
If you are a large company, visit www.complinity.com to track and monitor 1000s of compliances applicable to you under all the laws and get real time legal updates on applicable laws (including the above compliances).
Call 98114 06675 or 98733 02025 to see how Complinity can help set-up an effective Compliance Framework in your organization!
The author is the Co-founder and Partner at eMinds Legal which is a Corporate Law Firm in Gurgaon (Delhi NCR) specializing in Governance, Risk & Compliance, with 80+ professionals and 200+ Clients all over India and abroad.