The Micro, Small and Medium Enterprises Development Act, 2006 (in short, “the MSME Act”) is a beneficial legislation which was passed with an intent to promote and enhance the competitiveness of micro, small and medium enterprises (“the MSMEs”) and to address policy issues affecting MSMEs. The Act also classifies the enterprises as micro, small or medium on the basis of their investments in plant and machinery/equipments.
With effect from 01.07.2020, the government has amended the criteria for classification of MSMEs. The new criteria for classification of MSMEs also included turnover along with the investments in plant and machinery, as detailed below:
MSMEs get preferential treatment in various matters, however, to get the benefit of the preferential treatment, MSMEs need to mandatorily register under the MSME Act.
Following benefits, among others, can be availed by MSMEs pursuant to registration under MSME Act-
There are various other benefits which MSMEs can avail subsequent to registration under MSME Act.
Any buyer who buys any good or avails any service from an MSME has to make the payment on or before the agreed date and the agreed date cannot exceed forty-five (45) days from the day of acceptance or the day of deemed acceptance. In case there is no agreed date, the payment has to be made on or before fifteen (15) days.
In case of delay, the buyer is liable to pay compound interest with monthly rests to the supplier for the period of delay, at three (3) times of the bank rate notified by the Reserve Bank of India.
In case of any dispute with regard to the payment, any party can make a reference to the Micro and Small Enterprises Facilitation Council (MSEFC). Thereafter, MSEFC will conduct conciliation in the matter, to which the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 will apply.
If conciliation fails, MSEFC will arbitrate on the dispute, to which the provisions of the Arbitration and Conciliation Act, 1996 will apply. Every reference has to be decided within a period of ninety (90) days.
Jurisdiction of MSEFC
MSEFC can act as an Arbitrator or Conciliator in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India.
Applicability of Limitation Act
In M/S Silpi Industries vs. Kerala State Road Transport Corporation; C.A. Nos.1570-1578 of 2021, the Supreme Court has held that the Limitation Act, 1963 will apply to proceedings of arbitration before MSEFC.
Maintainability of counter-claims before MSEFC
In M/S Silpi Industries vs. Kerala State Road Transport Corporation; C.A. Nos.1570-1578 of 2021, the Supreme Court observed that since there is an express provision for filing counter-claim and set-off in the Arbitration and Conciliation Act, 1996, there is no reason for curtailing the right for making counter-claim or set-off in proceedings before the MSEFC.
Mandatory conciliation and arbitration proceedings
The conciliation and arbitration proceedings are separate arbitration has to mandatory follow in accordance with the procedure enunciated under Arbitration and Conciliation Act, 1996 in case conciliation fails.
In Jharkhand Urja Vikas Nigam Limited vs. The State of Rajasthan & Ors.; C.A. No.2899 of 2021, the Supreme Court set aside the order of MSEFC on the ground that the MSEFC passed the order only after conciliation failed without conducting arbitration proceedings.
MSME Act provides fast and efficacious remedy for MSMEs for resolution of disputes in case of delayed payment. It is important that the claim/reference is filed before the MSEFC within the limitation period. It is equally important that the correct procedure is followed by the MSEFC.
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