Issues, Challenges and Empowerment of MSMED Act

Definition of MSME

The Micro, Small & Medium Enterprises (MSMEs) are defined in India under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 on the basis of capital investment made in plant and machinery, excluding investments in land and building. It is classified under two classes :

1. 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) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprises are defined in terms of investment in Plant & Machinery.

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

Criteria for applying for MSME Registration

MSME registration or Udyog Aadhaar can be obtained by any type of business entity. Proprietorships, Hindu Undivided Family, Partnership Firm, One Person Company, Limited Liability Partnership, Private Limited Company, Limited Company, Producer Company, any association of persons, co-operative societies, or any other undertaking can obtain MSME registration in India. Small businesses having MSME registration enjoy various benefits under the Micro, Small and Medium Enterprises Development Act, 2006. Hence, it is recommended that all small businesses obtain MSME registration or Udyog Aadhaar after starting up.

The investment limits for both the enterprises are notified vide S.O 1642(E) dated 29-09-2006 and further amendments in February 2018 are brought in effect, are as under:

The Central Government may, by notification, vary turnover limits, which shall not exceed thrice the limits specified in clause (a), (b) of sub-Section 1 of MSMED Act, 2006 for the purposes of development of micro, small and medium enterprises.

The turnover criteria can be pegged with reliable available figures e.g. in GST Network (GSTN) and other methods of ascertaining. This will help in having non-discretionary, transparent, and objective criteria. It will eliminate the need for inspections and make the classification system progressive and evolutionary.

It will also help in overcoming uncertainties associated with classification based on investment in plant & machinery and equipment and employment. It will also improve the ease of doing business. It will provide flexibility to the Government to fine-tune the classification of MSMEs in response to changing economic scenarios without resorting to an amendment of the MSMED Act.

Major Impact/benefits

The change in definition by keeping a turnover criterion will:

• help in having non-discretionary, transparent, and objective criteria, and will eliminate the need for inspections.
• make the classification system progressive and dynamic.
• improve the ease of doing business.
• provide flexibility to the Government to fine-tune the classification of MSMEs in response to changing economic scenario without resorting to the amendment of MSMED (Micro, Small & Medium Enterprises Development) Act frequently.

Who administrates MSME

The Ministry of Micro, Small and Medium Enterprises, a branch of the Government of India, is the apex body for the formulation and administration of rules, regulations, and laws relating to micro, small and medium enterprises in India. Its headquarters are in New Delhi. The Cabinet Minister of Micro, Small, and Medium Enterprises is Mr. Nitin Gadkari and the Minister of State is Mr. Pratap Chandra Sarangi.

Benefits of MSME registration

1. Collateral Free loans from banks
2. A hefty 50% subsidy on Patent registration
3. 1% exemption on the interest rate on overdraft
4. Eligible for Industrial Promotion subsidy
5. Protection against delayed payments
6. Concession in electricity bills:
7. Reimbursement of ISO Certification charges

When to apply for MSME registration?

Obtaining MSME registration or Udyog Aadhaar is not mandatory and is at the sole discretion of the Entrepreneur. However, it is recommended that the businesses should obtain MSME registration to enjoy various benefits like protection against delayed payments under the MSMED Act and to resolve the cases under the MSEFC portal.

Protection by Government to MSME registered Companies

1. State wise resolution of cases: Micro and Small Enterprises Facilitation Council (MSEFC) portal has been launched. The portal facilitates implementation of the delayed payment provisions of the MSMED Act, 2006, and assists in the monitoring of delayed payment cases. Most of the States have uploaded the information regarding delayed payment cases on the MSEFC portal.

2. Delayed payment clause: Delayed Payment is governed by the provision in The MSMED Act. Ministry has also launched a delayed payment monitoring portal, namely “MSME SAMADHAN”.

Its salient features are as under

1. The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 (Section 15-24): It deals with the issues relating to the Delayed Payments to Micro and Small Enterprises (MSEs) by the buyers(buyers may range from large enterprises to Government or PSUs, etc.) to the MSE supplier for the supplies made by them. In the case of delay in payment beyond 45 days, MSEs suppliers may approach the Micro and Small Enterprises Facilitation Council (MSEFC) constituted under the Act in all States/UTs. Under Section 16 of the MSMED Act, 2006, delayed payment to supplier units by their buyers, attracts compound interest with monthly rests at three times of the bank rate notified by the Reserve Bank.

2. As provided under Section 18(1) of Chapter V of the MSMED Act, 2006, any party to a dispute in connection with the Delayed Payments to MSEs, may make reference to the MSEFC of the State concerned where the supplier is located. All the states/UTs have constituted MSEFCs for speedy disposal of cases referred to them. The Act mandates the MSEFC to decide every reference made to it within 90 days from the date of making such reference. The Ministry of MSME has been regularly taking up the matter of delays in disposing-off the cases referred to MSEFC beyond the prescribed time period with the State Governments/UTs.

3. In furtherance of the objectives of MSMED Act, 2006, the Ministry of MSME has launched a portal (MSME SAMADHAAN) (http://samadhaan.msme.gov.in) on the 30th October 2017 which gives information about individual CPSEs/Central Ministries, State Govt, etc. regarding the payment pending with them in respect of the MSEs. The Central Ministries/State Govt. has been provided with user-ID and password to login and monitor the delayed payment cases in respect of organizations under their jurisdiction. The portal also empowers the MSEs to file their delayed payments related to complaints online. After 15 days of filing the case online, the case is automatically registered by the MSEFC concerned. The online filing of cases has been applauded by all MSEs and MSME Association. It is observed that there are instances of payment by buyers from MSEs subsequent to the filing of cases online. Ministry of MSME is making all efforts to make the portal successful and suggestions received from MSEFCs of the States to improve the portal are taken care of.

Data of Applications filed by Micro and Small Units (MSEs) at MSME Samadhaan

Cases filed in MSE Facilitation Council (MSEFC)

MSME FORM 1 - A new initiative by Government to help SMEs

On 1st May 2019, the Ministry of Corporate Affairs ("MCA") released e-form MSME 1 ("MSME 1"), requiring all companies obtaining supplies of goods/ services from micro and small enterprises ("Enterprises") and whose respective payments to such Enterprises exceed forty-five days from the date of acceptance or the date of deemed acceptance of such goods/ services to file MSME 1, by 30th May 2019.

The release of e-form MSME 1 by the MCA was a result of MCA's earlier order -Specified Companies (Furnishing of information about the payment to micro and small enterprise suppliers) Order 2019 ("Order ") dated 22nd of January 2019. The Order stated that all Companies who get supplies of goods/services from Enterprises and whose respective payments to such Enterprises exceed forty- five days from the date of acceptance or the date of deemed acceptance of such goods/ services (hereinafter referred to as "Specified Companies"), are required to submit a half yearly return to the MCA stating the amount of payment due and the reasons for the delay. The Order required all Specified Companies to furnish details of all such outstanding dues by filing MSME 1.

The term enterprises cover Companies, Partnership Firm, Association of Person, Hindu Undivided Family, Co-Operative Society, Proprietorship Firm, etc.

It is to be noted that MSME FORM 1 is not applicable in the case of outstanding sums due to medium enterprises.

Procedure for filing Form MSME 1

MSME 1 requires Specified Companies to provide details such as the total amount that is outstanding on the date of the MSME 1 being deployed, details about the specified Company (name, address, PAN and CIN), particulars of the supplier of the Enterprise (name, PAN), the date from which the amount is due and reasons for the delay in payment.

Subsequent to the notification of the Order, the MCA clarified that the due date for filing MSME 1 for the first time shall be thirty days from the date of the deployment of the MSME 1 on the MCA portal. As mentioned, MSME 1 has been released on the MCA portal as on 1st May 2019.

Following the first filing of MSME 1, every specified Company is required to file Form MSME 1 on the MCA portal twice a year on or before the prescribed "due-date" which is as under:

• For the period April - September: 31st October;
• For the period October - March: 30th April.
• Penalty

Non-compliance will lead to punishment and penalty under the provision of the Companies Act. As per Penalty Provision of Section 405 (4) of the Companies Act, 2013, failure to comply with the Order, shall attract a fine which is extendable to twenty-five thousand Rupees. Further, any officer in default of the specified Company shall be punishable with imprisonment which can extend to a period of six months or fine which can extend to three lakhs Rupees, but not less than twenty-five thousand Rupees or both.

Challenges by Professionals

The Company Secretary of the Company needs to determine whether their suppliers are registered under the Micro, Small and Medium Enterprises Development Act, 2006, which is a great task though. If they have been, and if payments to them are due for more than forty-five days from the date of acceptance of the goods or services, the Enterprise would be compulsorily required to file Form MSME 1. Also, if they are not registered under the MSME Act, suggestions may be given to register as soon as possible to take benefits and protection from the Government. Also, professionals need to take care that every supplier to be paid within the time limit given so that Company does not have to pay penalty/interest for defaulting the Act.

Recent updates: MSME sector to contribute 50% to GDP from the current 29%

Aiming to provide an impetus to economic activity in the country as well as to revive the rural economy, Union minister Nitin Gadkari said the government will strengthen the micro, small and medium (MSME) industry sector which will not only create five crore jobs but also take the MSME sector contribution in GDP to 50 percent from current level of around 29 percent.

"Prime Minister Narendra Modi has set a target of India becoming a $5-trillion economy and my ministry will also work on creating five crores more jobs in the next five years to achieve this objective," Union Minister for Road, Transport and Highways and MSME, Mr. Nitin Gadkari said. He advocated the deployment of board gauge metro as an affordable, efficient, and time-saving option for inter-city travel which will reduce stress on large cities like Delhi, Mumbai, and Bangalore.

The government asked banks not to declare any stressed loan account of MSMEs as NPA till March 2020 and work on recasting their debt.

At a press conference after meeting PSU bank heads, Finance Minister Ms. Nirmala Sitharaman said, there already exists a circular from the Reserve Bank that provides for stressed loan accounts of MSMEs not being declared non-performing assets (NPAs).

Conclusions & Suggestions

The main purpose of data collection was to study how the entrepreneurs managed the micro, small and medium enterprises. Hurdles like financial constrain and issues relating to power, raw material procurement should be more effectively dealt by the government. Overall globalized business environment of India has been favorable for the growth of micro and small scale industries. The nub of the data is that the MSMEs have played role in employment generation in India.

Simple and clear policies and acts are made by the Government so that these enterprises can understand them and utilize as well as implement them in their business for compliance and security benefits. There are many Government schemes but it was observed that most of these enterprises are not aware and do not understand how they can benefit from them.

It is very important to empower the MSME sector to utilize the limited resources (human & economic) they have in an optimum manner. The MSMEs need to be educated and informed of the latest developments taking place globally and helped to acquire skills necessary to keep pace with the global developments. MSMEs are now exposed to greater opportunities than ever for expansion and diversification across the sectors. Indian market is growing rapidly and Indian entrepreneurs are making remarkable progress in various Industries like Manufacturing, Precision Engineering Design, Food Processing, Pharmaceutical, Textile & Garments, Retail, IT and ITES, Agro, and Service sector.

To counter the challenges faced by the MSME sector and grab the opportunities in the market, the Government has developed key strategies to promote and support the MSME sector. The Government encourages MSMEs to adopt innovative ideas and concepts for the promotion of their business. We, the professionals need to help Government in the economic restructuring and development of India by making them aware of MSMEs benefits and opportunities they can have.