The Micro, Small and Medium Enterprises Development Act, 2006

The MSME Development Act, 2006, has been implemented to ease the businesses of such enterprises, while making them more competitive and economically sound. The Act provides a nuanced understanding of registration benefits, the process of registration and imposition of fines and penalties in case of default.

Tue May 10 2022 | Business Law | Comments (0)

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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:

Manufacturing Enterprises:

The enterprises engaged in the manufacture or production of goods pertaining to  any industry specified in the  First Schedule  of  The Industries (Development and Regulation)  Act, 1951. The Manufacturing Enterprise are defined in terms of investment in  Plant & Machinery.

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 Sector

Investment in plant & machinery

Micro Enterprises

Does not exceed 25 lakh rupees

Small Enterprises

More than 25 lakh rupees but does not exceed 5 crore    rupees

Medium Enterprises

More than 5 crore rupees but does not exceed 10crore    rupees

 

Service Sector

Enterprises

Investment in  equipment

Micro Enterprises

Does not exceed 10 lakh rupees:

Small Enterprises

More than 10 lakh rupees but does not exceed 2 crore    rupees

Medium Enterprises

More 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 stakeholders  for participative review  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 New 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,  in whatever form, can apply  for  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  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 take the matter forward for conciliation.
  • 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 a provision where  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 complete 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 of  approaching to MSEFC in the initial stages of dispute.
  • The Buyers need to ensure that  no outstanding amount is owed, 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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