MSME – ENABLING PROVISIONS FOR RECOVERY OF THEIR AMOUNT
Micro, Small and Medium Enterprise Units has been one of the major growth engine of Indian Economy. Realizing their contribution, the Govt. of India has come out with number of enabling provisions for empowerment and enhancing further competitiveness of MSME sector. One of such important legislation introduced by the Government is passage of Micro, Small and Medium Enterprise Act, 2006. The Act confers many exclusive rights to MSME units so their role in the economic activity can be further strengthened.
Besides, many other advantage the Act provides an enabling platform for expeditious disposal of cases pertaining to recovery of MSME dues in a transaction of sale and supply of any goods and services by an MSME entity to any buyer –
MSME units can invoke the relevant provisions of MSME Act, 2006 if default is made by the buyer in clearance of their dues :
The Analysis of the relevant provisions of MSME Act, 2006 in the matter of recovery of MSME dues are as under
Section 15 of MSME Act, 2006 dealing with Buyers Liability to make payment to MSME Units
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 him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day: Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.
It is clear from the above that there is a definitive obligation of the buyer purchasing any material or supply from the MSME unit to make the payment to the buyer within a prescribed time. In case, no specific time is specified, a deemed time limit of forty five days is prescribed for payment of such amount.
Section 16 dealing with Delayed Interest payment to MSME Unit from the appointed day as per earlier section 15
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.
It is made clear by the Act in case of default is made by the buyer in clearance of the amount due to the MSME unit than a delayed interest calculated at the rate of three times of the bank rate is payable to MSME Unit.
Section 18 of the Act dealing with Mechanism for Enforcement of the Rights of MSME Units
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 (26 of 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 (26 of 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.
In addition to the above, MSME Act, 2016 also mandates the disclosure of unpaid amount with interest payable to MSME unit in the Annual Accounts of the borrower.
Requirement to specify unpaid amount with interest in the annual statements of accounts (sec 22)
Buyer who require to get accounts audited under any law shall furnish the following additional information:-
- the Principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier 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 under section 23.
Therefore, the law confers a lot of rights in favour of MSME Units in the matter of realization of their eligible claims on account of unpaid amount from the buyers in an expeditious manner.