Delayed payment to Micro and Small Enterprise’s & its Disclosure

Delayed payment to Micro and Small Enterprise’s & its Disclosure

Preface

The Micro, Small and Medium Enterprise (MSE) Sector is the spine of Country’s economic growth and development and in order to strengthen its position in the current business environment. The Ministry of Micro, Small and Medium Enterprises has taken several initiatives to uplift their present status since it not only plays a crucial role in providing large employment opportunities at a comparatively lower capital cost but also encourage entrepreneurial activities in rural and backward areas.

The Ministry from time to time has addressed one of the primary constraints faced by such enterprises in terms of delayed payment from its debtors/customers and resulting to which the classification of MSE’s accounts as NPA’s in the books of their lender and many of such enterprises have also dragged by its Financial Creditors & Operational Creditors before National Company Law Tribunal in order to initiate insolvency proceedings under Insolvency & Bankruptcy Code, 2016.

Recently, In order to bring some relief for the cash strapped MSME sector amid the COVID-19 pandemic, the threshold limit of Default for triggering Insolvency has raised to Rs.1 crore from the existing limit of Rs 1 lakh with a view to preventing triggering of insolvency proceedings against such MSEs.

Ministry’s initiative for compulsory Reporting

The Ministry of Micro, Small and Medium Enterprises vide its notification dated 2nd November 2018 exercising its powers conferred under Section 9 of the Micro, Small and Medium Enterprises Development Act, 2006 has directed that all Companies who get supplies of goods or services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed 45 (forty-five) days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of the Act, shall submit a half yearly return to the Ministry of Corporate Affairs stating the (i) amount of payments due; and (ii) the reasons of the delay and in this regards the Ministry of Corporate Affairs vide its notification dated 22nd January 2019 has come up with Specified Companies (Furnishing of Information about payment to Micro and Small Enterprise Suppliers) Order, 2019 under which the Companies have been directed to report semi- annually vide form MSME-1 details of all outstanding dues to Micro and Small Enterprise suppliers by 31st October (for transaction undertaken from April to September) and latest by 30th April (for transaction undertaken from
October to March) of any year. Whereas the Medium enterprises have been kept outside the purview of this reporting notification.

The Delhi High Court in the matter of M/S Ramky Infrastructure Pvt. Ltd. Vs Micro and Small Facilitation Council and Anr. W.P (C) 5004/2017 has further clarified that, to avail the benefit under the notification, a Micro or Small enterprise supplier must be registered under the MSMED Act, 2006. Apart from such Micro or Small enterprises, those entity(ies) engaged in selling goods produced by Micro or Small enterprises or rendering services provided by such enterprises are also included within the definition of suppliers irrespective of the fact that they have registered themselves under the Act or not.

Half-Yearly Reporting instruction from Ministry of Corporate Affairs

In order to comply with this requirements, the reporting Company is required to file notified Form MSME-1, for which the buyer/ purchaser is required to identify that whether it has dealt in last six months with any

I. Micro and Small enterprise and whether such enterprise are registered under the MSMED Act, 2006.

II. Any entity engaged in selling of goods produced by Micro or Small enterprises or rendering services provided by such enterprises.

And if there is/are any delay in making payment to above enterprises which are due for more than 45 days from the Appointed date or any other date as may be agreed upon between buyer and supplier but subject to the provision of Sec. 15 of the Act, then Company is required to furnish the details of such suppliers in Form MSME-1 and the same is required to be submitted with Registrar of Companies with complete details of name of supplier, its PAN, date from which such amount is due, total outstanding amount due reasons for delay in payment and corresponding invoice.

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