By S.Bageerathan, Advocate, Practicing at Madras High Court
The Micro, Small, and Medium Enterprises (MSME) sector plays a vital role in the Indian economy, contributing significantly to the GDP and employment generation. However, MSMEs have faced long-standing challenges, particularly regarding delayed payments and the recovery of dues from customers. To address these issues, the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006 was enacted, providing a robust legal framework aimed at ensuring timely payments and promoting the growth of MSMEs.
Key Provisions of the MSMED Act
Mandatory Payment Timelines: Under Section 15 of the MSMED Act, buyers are required to make payments to MSMEs within 45 days of the delivery of goods or services. This provision ensures that MSMEs do not face undue delays in receiving their dues.
Deemed Acceptance: According to Section 2(b), if the buyer does not raise any objection or dissatisfaction regarding the quality of goods or services within 15 days, the transaction is deemed accepted. This prevents buyers from raising baseless disputes to avoid payments.
Interest on Delayed Payments: Under Section 16, any delay in payment beyond the stipulated 45 days attracts compound interest, which can be up to three times the RBI’s notified bank rate. This provision acts as a deterrent against payment delays and provides MSMEs with a financial remedy.
Micro and Small Enterprise Facilitation Council (MSEFC): The Act empowers MSMEs to approach the MSEFC to resolve disputes regarding delayed payments. The MSEFC is mandated to resolve cases within 90 days, using Alternative Dispute Resolution (ADR) mechanisms such as conciliation and arbitration.
Several landmark judicial decisions have strengthened the rights of MSMEs under the MSMED Act:
M/s Maa Alloys Pvt. Ltd. v. M/s Shree Metallic Ltd.: In this case, the MSEFC awarded both the principal and a substantial interest amount for delayed payments. This highlighted the power of the MSMED Act to not only recover dues but also enforce hefty interest penalties on defaulting buyers.
Gupta Power Infrastructure Ltd. v. Chhattisgarh State Power Distribution Company: This case emphasized the speedy resolution provided by the MSEFC, with the Council awarding both the principal amount and interest within a year, thereby ensuring timely justice for the MSME.
Recent Legal Updates and MSME Schemes:
In 2024, the government has taken several steps to strengthen MSMEs' legal rights:
The introduction of the Samadhaan Scheme under the MSMED Act has provided a centralized web portal or filing complaints and tracking disputes with buyers. The scheme ensures that disputes are referred to the appropriate MSEFC for speedy adjudication.
The Atma Nirbhar Bharat initiative has provided additional financial support to MSMEs, ensuring liquidity and easing the burden of delayed payments.
Legal amendments are being proposed to bring medium-sized enterprises within the purview of the MSMED Act, ensuring that more businesses can benefit from the law's protections.
Conclusion:
The MSMED Act, 2006, reinforced by recent judicial decisions and government initiatives, is a critical tool for ensuring that MSMEs are protected against delayed payments and unfair practices. With the MSEFC and Samadhaan Scheme offering expedited resolution mechanisms, MSMEs now have a clear legal pathway to recovering dues. However, continued efforts are needed to raise awareness about the Act and ensure its provisions are fully utilized by the MSME community. With ongoing legal reforms and increased focus on the MSME sector, the future looks promising for these essential drivers of the Indian economy
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