Delayed payments have always been a hurdle for MSE’s as it blocks their cash flow and working capital requirements. To protect the interest of MSE’s with respect to their delayed payment, the Government has constituted Micro and Small Enterprises Facilitation Council (MSEFC) which redress the grievances of MSE’s.
These MSEFC are entrusted with the responsibility to resolve the disputes with regard to the pending payment of MSE’s and provide amicable solution for MSE’s.
There are 36 states/UT’s where Micro and Small Enterprises Facilitation Council has been constituted.
Chapter V of MSMED Act 2006 “Delayed payment to Micro and Small Enterprises” covers the provisions whereby MSE’s has given right to receive their payment in particular time limit and recourses available if payment is not received within specified time period.
What is the liability of Buyer regarding payment?
As per section 15 of MSMED Act 20016, if any MSE supplier or service provider has supplied any goods or rendered services than the buyer is under obligation to make payment to the supplier:
- As per their agreed agreement
- If no agreement to an appointed date
- If no date fixed within 45 days from the date of acceptance of goods/services.
In all cases payment date cannot exceed the limit of 45 days.
What are the consequences of non-payment?
If buyer fails to make payment within the stipulated time line of 45 days then he will be liable to pay compound interest with monthly rest on the amount which was to be paid, calculated from the appointed day at three times of the interest notified by Reserve Bank of India. This provision is given under section 16 of the MSMED Act 2006.
What is role of Micro and Small Enterprises Facilitation Council (MSEFC)?
Under section 18 of the MSMED Act 2006, MSE has power to raise their concern of delayed payments to MSEFC.
When MSEFC receives any complaint, it proceeds in below given manner:
Seek assistance of any institution or centre providing alternate dispute resolution service for conducting
If conciliation is not successful, seek of any institution or centre providing alternate dispute resolution service for conducting Arbitration.
To entertain the complaints the council and the centre providing dispute resolution shall have jurisdiction to act as arbitrator for dispute between supplier located within its jurisdiction and buyer located anywhere in India.
Thus, the supplier needs not to worry for the location of buyer for determining jurisdiction and filing compliant to MSEFC.
Every complaint referred to the council must be resolved within 90 days from the making such reference.
Who can apply to MSFEC?
Any Micro or small enterprise having valid EM Part -II /UAM can apply.
Application for setting aside decree, award or order
As per section 19 of the MSMED Act 2006, If the buyer wants to make any application to set aside the decree , award order before any court , Court shall not entertain the application unless 75% of the amount in term of decree, award or order has been deposited by the buyer with the court or in manner directed by the court.
Composition of MSEF Council
Section 21 of the MSMED Act, 2006 states that council shall comprise of minimum three but not more than five persons as its members from the following categories:
- Director of Industries or officer at par of such rank in the Department of State Government having administrative control of MSME’s.
- Representatives of association of MSME in the state
- Representative of banks and financial institution lending to MSME’s.
- Person having specific knowledge of industries, finance, law.
The person appointed as Director will act as the Chairperson of the Committee.
Oher obligations of Buyer
Under section 22 of the MSMED Act 2006, buyers are required to mention unpaid amounts with interest in the annual accounts in below manner:
- Principal amount and interest due to MSE at the end of financial year
- Amount of interest paid with amount of interest paid due to delayed payment
- Amount of Interest due and payable without interest
- Amount of interest accrued and remaining unpaid
Amount of further interest remaining due and payable even in succeeding years until such date when the interest is actually paid.
The Central Government has requested State Government/UTs to ensure that the MSE Facilitation Council hold meetings regularly and delayed payment cases are decided by the Councils within a period of 90 days as stipulated in the MSMED Act, 2006
In order to facilitate hassle free process for MSE’s , Government of India has also launched MSME Samadhaan portal to redress the grievances of MSE through online process.
As explained above the non-consequences of delayed payment can cause heavy monetary loss to the buyer and adversely impact on buyers Balance Sheet also. It is advisable to all entities where MSE’s are suppliers to make timely payment to MSE’s, this will not only help MSE to maintain their cash flows but also plays significant role in economic growth in the country.