The Micro, Small and Medium Enterprises Development Act, 2006

The Micro, Small and Medium Enterprises Development Act, 2006

The Micro, Small and Medium Enterprises Development Act, 2006 aims at facilitating the promotion, development and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto.

The Act is operational from 2nd October 2006.

DEFINITION OF MICRO, SMALL & MEDIUM ENTERPRISES:
In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two categories:

a. Manufacturing Enterprises:
The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) Act, 1951). The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery.

b. Service Enterprises:
The enterprises engaged in providing or rendering of services and defined in terms of investment in equipment.

The limit for investment in plant and machinery / equipment for manufacturing / service enterprises, as notified, vide S.O. 1642(E) dtd.29-09-2006 are as under:

Manufacturing Sector
Manufacturing SectorInvestment in plant & machinery
Micro EnterprisesDoes not exceed 25 lakh rupees
Small EnterprisesMore than 25 lakh rupees but does not exceed 5 crore rupees
Medium EnterprisesMore than 5 crore rupees but does not exceed 10crore rupees
 
Service Sector
EnterprisesInvestment in equipments
Micro EnterprisesDoes not exceed 10 lakh rupees:
Small EnterprisesMore than 10 lakh rupees but does not exceed 2 crore rupees
Medium EnterprisesMore than 2 crore rupees but does not exceed 5 core rupees


AIM AND OBJECT OF THE ACT:
The Act aims at facilitating the promotion and development and enhancing the competitiveness of small and medium scale enterprises and seeks to:-

  • Provide for statutory definitions of "small enterprise" and "medium enterprise".
  • Provide for the establishment of a National Small and Medium Enterprises Board, a high-level forum consisting of stake holders for participative review of and making recommendations on the polices.
ESTABLISHMENT OF BOARD:
"Board" means the National Board for Micro, Small and Medium Enterprises established under section 3 of the MSMED Act 2006.
The head office of the Board is at Delhi.

ESTABLISHMENT OF ADVISORY COMMITTEE:
The Central Government can by notification, constitute an Advisory Committee.

IS REGISTRATION OF MICRO, SMALL AND MEDIUM ENTERPRISES MANDATORY?
Registration of the micro or small or medium enterprises is replaced with the filling of Memorandum.

  • The Registration of micro or small enterprises (both manufacturing and rendering of service) or medium enterprise engaged in providing or rendering of services is important but discretionary or optional.
  • However, a medium enterprise engaged in the manufacture or production of goods has to compulsorily register under the Act.
Taking into consideration the benefits available under the Act, it is recommended that every enterprise be it minor, small or medium must opt for the registration.

REGISTRATION OF MICRO, SMALL AND MEDIUM ENTERPRISES
All classes of enterprises, whether Proprietorship, Hindu undivided family, Association of persons, Co-operative society, Partnership firm, Company or Undertaking, by whatever name called can apply for the registration and get qualified for the benefits provided under the Act.

Any person who intends to establish a micro, small or medium enterprise at his discretion may file the memorandum of micro, small or, as the case may be, of medium enterprise with such authority as may be specified by the State Government under sub-section(4) or the Central Government under sub-section (3) of the Act.

  • Provisional Registration: Provisional registration is granted to a unit at its pre-investment period to enable it to take necessary steps to apply for financial credit, land or an industrial set, water, power or telephone connections, etc.
  • Permanent / Final Registration: A provisionally registered industrial unit when it is about to go into production is to apply for grant of Permanent / Final Registration. An existing and functioning industrial unit is eligible to apply for Permanent / Final Registration without going into provisional registration processes.
The Micro and Small Enterprises should mention/get printed on their letter heads, supply order sheets, invoices, bills and other relevant documents, the MSMED Registration/Entrepreneurs Memorandum (EM) Number allotted by a competent authority, so that there remains an identification of being an MSE supplier.

BENEFITS OF REGISTRATION OF MSM ENTERPRSES:
If a micro or small enterprise files a memorandum with District Industries Centre (DIC) of its area, then it stands to gain many benefits like:

  • Easy finance availability from Banks, without collateral requirement;
  • Protection against delay in payment from Buyers and right of interest on delayed payment;
  • Preference in procuring Government tenders;
  • Stamp Duty and Octroi benefits;
  • Concession in electricity bills;
  • Reservation policies for manufacturing/production through conciliation and arbitration;
  • Reimbursement of ISO Certification Expenses;
  • Moreover with the enactment of the Act, the interest on delayed payments to small scale and ancillary Industrial Undertaking Act, 1993 is repealed with effect from October 2, 2006.

Similarly, Medium enterprises enjoys the below mentioned benefits:

  • Easy finance availability from Banks, without collateral requirement
  • Preference in procuring Government tenders
  • Reservation policies for manufacturing / production sector enterprises
  • Time-bound resolution of disputes with Buyers through conciliation and arbitration
DISPUTES UNDER THE MSME DEVELOPMENT ACT
In case of disputes with regard to any amount due because of delayed payment:

  • the enterprises under the provisions of the Act may refer to the Micro and Small Enterprises Facilitation Council which would further itself conduct conciliation in the matter
  • and where the conciliation initiated 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.
  • The Micro and Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall have the same jurisdiction to act as an Arbitrator or conciliator under this section in a dispute between the supplier located within the jurisdiction and a buyer located anywhere in India.
The Act also has provision that every reference made under this section shall be decided within a period of 90 days from the date of making the reference.

Under section 19 of the Act, it has also been mentioned that no Application for setting aside any decree/award, made by the Council / referred Institution shall be entertained by any Court unless the appellant (not being the supplier) has deposited with it seventy-five percent of the amount in terms of the decree/ award.

Further, 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.

PRECAUTIONS:

  • Once the application is done under MSEFC, there is no provision to withdraw the proceedings. Therefore, the Buyer should ensure the best ways to resolve the disputes, if any, instead approaching to MSEFC in the initial stages of dispute.
  • The Buyers need to ensure that the Buyer does not owe any outstanding amount, including interest due to MSM Enterprises for more than 15 days. Otherwise, the Buyer needs to disclose this non-payment in the Annual Financials of the Buyer.
  • The Act provides for the payment of compound interest at 3 times the Bank Rate by the Buyer in case of failure to make the payment within a maximum of 45 days from the date of receipt of goods or services.

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