The Micro, Small And Medium Enterprises Act, 2006, as the name suggests, is enacted for facilitating the promotion and development and enhancing the competitiveness of these industries and for the matters connected or incidental thereto. The Act came into force from 2nd October, 2006. This Act has repealed "Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993". The new Act makes provisions to achieve the following objects:—

• Define and classify micro, small and medium enterprises

• Establish a high level board and advisory committee consisting of various stakeholders for the development of these enterprises

• Ensure timely payments to these industries.

• Ensure smooth, timely and appropriate flow of funds to prevent sickness in these industries.

• Facilitate the procurement of goods and services.

• Formulate policies, programmes, guidelines etc. to enhance the competitiveness of these industries.

• To formulate reservation policies for manufacturing/production sector enterprises.

• Alternate Dispute Resolution System.

• To provide for simplified exit scheme (for other than companies)

1. In the case of enterprises engaged in manufacture or production of goods pertaining to any industries specified in First Schedule to the Industries (Development And Regulation) Act, 1951 as

   Nature of enterprise	* Investment in Plant and Machinery
   Micro	Does not exceed Rs. 25 lakhs
   Small	More than Rs. 25 lakhs but less than 5 crores
   Medium	More than Rs. 5 crores but less than 10 crores

2. in the case of enterprises engaged in providing or rendering services as:

   Nature of enterprise	* Investment in Plant and Machinery
   Micro	Does not exceed Rs. 10 lakhs
   Small	More than Rs. 10 lakhs but less than 2 crores
   Medium	More than Rs. 2 crores but less than 5 crores

* In calculating the investment in plant and machinery, the cost of pollution control, R & D and industrial safety devices will be excluded.

1. ‘Appointed’ day means a day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.

1. the day of acceptance means

1. the day of the actual delivery of goods or the rendering of services or

2. where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of delivery of goods or rendering of services, the day on which the objection is removed by the supplier.

2. the day of deemed acceptance means where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days the actual delivery of goods or rendering of services, the day of actual delivery of goods or rendering of services.

2. ‘Enterprise’ means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development & Regulation) Act, 1951 or engaged in providing or rendering of any service or services.

3. ‘Supplier’ means a micro or small enterprise, which has filed a memorandum with the authority referred to in section 8(1) and includes National Small Industries Corporation, Small Industries Development Corporation, any company, co-operative society, trust or a body by whatever name called under any law for the time being in force and engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprise.

4. ‘Buyer’ means whoever buys any goods or receives services from supplier for consideration.

Any person who intends to establish a micro, small enterprise or medium enterprise engaged in providing or rendering services at his discretion shall file a memorandum of micro, small or medium enterprise with such authority as may be prescribed by the State or Central Government. However, a medium enterprise engaged in manufacture or production of goods pertaining to any industry in the First Schedule to the Industries (Development & Regulation) Act, 1951, shall file such memorandum with the prescribed authority. Any person whose unit is already registered as small scale industry, may at his discretion shall, within 180 days from the commencement of this Act file such memorandum.

An industry engaged in manufacture or production of goods pertaining to any industry in the First Schedule to the Industries (Development & Regulation) Act, 1951 and who has filed an Industrial Entrepreneur’s Memorandum and having investment in plant and machinery more than Rs. One crore but less than Rs. ten crores shall file such memorandum with the prescribed authority.

The filing of memorandum in some cases is optional and hence non-filing will not attract any penalty but may result in loss of benefits under this Act. Those who will choose not to file the memorandum will not be recognized as "supplier" and will loose the right to receive timely payments and interest thereon.

Authority for Filing the Memorandum under the Act is General Manager, District Industries Centre or District Level Officer of equivalent rank dealing with micro, small or medium enterprises of the State Government or the Union Territory.

The name of the form is Entrepreneurs Memorandum and is available in every District Industries Centre (DIC). It is required to be filed in quadruplicate. There are no fees to be paid. The new applicants are supposed to fill up Part I of the application and Part II is to be filled up on commencement of the commercial production in two years of filing Part I. Existing units intending to register with DIC are to fill up Part II of the form. Any changes subsequent to filing of the form are to intimated to DIC within one month. The changes in the investment in plant and machinery are to be informed within three months. The application should accompany Power of Attorney or board resolution empowering the applicant to apply and the certified true copy of the Partnership Deed or the Memorandum & Articles of Association, as the case may be.

The buyer shall make payment to the supplier

• on or before the date agreed upon between him and the supplier in writing. The agreed date in no case can be of maximum 45 days from the date of acceptance.

• Where there is no agreement in this behalf, before the appointed day; i.e., 15 days from the date of acceptance.

Without considering or referring anything in any agreement or in any law, where the buyer fails to make payment to the supplier as mentioned above, he shall be liable to pay compound interest with monthly rests on that amount from the appointed day or as the case may be from the next day of the date agreed upon at three times of the bank rate notified by Reserve Bank of India.

The disputes in respect of any amount due (principal or interest), shall be referred to Micro and Small enterprises Facilitation Council.

Any buyer required to get his accounts audited under any statute e.g. the Companies Act, The Income-tax Act, VAT, Trust Laws etc. shall furnish the following information in his annual accounts.

• Principal amount and separately the interest due thereon remaining unpaid to any supplier at the end of the financial year.

• The amount of interest paid u/s 16 of this Act, along with the amounts of payments made to the supplier beyond the appointed day during each accounting year.

• The amount of interest due and payable for the period of delay in making payment which have been paid but, beyond the appointed day during the year.

• The amount accrued and remaining unpaid at the end of each accounting period; i.e., principal is paid but interest has remained unpaid.

• The amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to small enterprise, this is required for the purpose of disallowance as a deductible expenditure.

The amount of interest payable or paid by the buyer under or in accordance with the provisions of this Act, shall not be allowed as deduction for the purpose of computation of taxable income.

The provisions of Sections 15 to 23 with respect to payment to micro, small and medium enterprises, provision and payment of interest, disclosure in annual accounts etc. shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

1. Any person who intentionally contravenes or attempts to contravene or abets the contravention of any of the provisions as regards filing of memorandum with the prescribed authority u/s. 8 of the Act shall be punishable

• in case of first conviction, with a fine which may extend to Rs. 1,000/-

• in case of second and subsequent conviction, with a fine which shall not be less than Rs. 1,000/- but which may extend to Rs. 10,000/-

2. Where the buyer contravenes the provisions to specify the unpaid principal and the interest thereon in the annual accounts, he shall be punishable with a fine which shall not be less than Rs. 10,000/-.