MSME guidelines for payment
MSME Law Notes by NB Associates
The MSME Act, or the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006, is an Indian legislation that provides guidelines and regulations for the promotion, development, and enhancement of competitiveness of micro, small, and medium enterprises in India.
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The act includes provisions related to various aspects of MSMEs, including payments. Here are some key guidelines regarding payment under the MSMED Act:
The act mandates that the buyer is required to make the payment to the supplier of goods or services from the micro or small enterprise on or before the agreed-upon date or within 45 days from the acceptance of the goods or services, whichever is earlier.
In case the buyer fails to make the payment within the stipulated timeframe, they are liable to pay compound interest with monthly rests to the supplier. The interest rate is three times the bank rate notified by the Reserve Bank of India or the rate specified in the agreement, whichever is higher.
It is advisable for both the buyer and the supplier to have a written agreement or contract specifying the payment terms and conditions, including the payment due date, interest on delayed payment, and any other relevant terms.
If the payment is not made by the buyer within the specified timeframe, the supplier can file a complaint under the MSMED Act. The complaint can be filed with the Micro and Small Enterprise Facilitation Council (MSEFC) established under the act.
The MSEFC is responsible for resolving disputes related to delayed payments between the buyer and the supplier. The MSEFC will examine the matter and pass appropriate orders, which may include directing the buyer to make payment along with interest.
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Law notes on RBI Bank rate for MSME – Bank rate by RBI for MSME
The MSME Act requires buyers to make payments to MSMEs within 45 days.
This timeline applies from the date of acceptance or deemed acceptance of goods or services.
If they fail to do so, they must pay interest at three times the bank rate notified by the Reserve Bank of India.e notified by the Reserve Bank of India.
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The bank rate notified by the Reserve Bank of India currently stands at 6.75%, as of Feb, 2023.
This means that the interest rate for MSME claims under the MSME Samadhaan portal is 3 times the current bank rate. Which is 20.25% (6.75% x 3)
The interest rate under the MSME Act may change based on notifications from the Reserve Bank of India.
The MSME Samadhaan portal regularly updates the applicable interest rate to reflect these changes.
Bank rate notified by RBI (Reserve Bank of India) since 2018.
| Date from | Date to | RBI notified Bank rate | Notification Link |
| 08.02.2023 | – | 6.75% | Click here |
| 07/12/2022 | 07/02/2023 | 6.50% | Click here |
| 30/09/2022 | 06/12/2022 | 6.15% | Click here |
| 05/08/2022 | 29/09/2022 | 5.65% | Click here |
| 08/06/2022 | 04/08/2022 | 5.15% | Click here |
| 04/05/2022 | 07/06/2022 | 4.65% | Click here |
| 22/05/2020 | 03/05/2022 | 4.25% | Click here |
| 27/03/2020 | 21/05/2020 | 4.65% | Click here |
| 04/10/2019 | 26/03/2020 | 5.40% | Click here |
| 07.08.2019 | 03.10.2019 | 5.65% | Click here |
| 06.06.2019 | 06.08.2019 | 6% | Click here |
| 04.04.2019 | 05.06.2019 | 6.25% | Click here |
| 07.02.2019 | 03.04.2019 | 6.50% | Click here |
| 01.08.2018 | 06.02.2019 | 6.75% | Click here |
Appeal Against MSME Order – Section 19 of MSMED Act
MSME Law Notes by NB Associates
Appeal against MSME order here we mean and discuss ‘an order arising out of the statutory arbitration proceeding under MSME Act’.
The MSME claim proceeding under MSME Act ultimately culminates into an Arbitration proceeding under section 18(3) of the MSMED Act.
The arbitration proceeding under MSMED Act can either be conducted by the MSME Facilitation Council or it may delegate the arbitration proceeding to any institution facilitating alternate dispute resolution. Such an institution appoints an arbitrator to adjudicate the dispute.
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So what is an Appeal against MSME order.
A Micro and Small enterprise can file an MSME claim against its buyer, if the buyer fails to make payment of the dues within a period of 15 (Fifteen) days of the date of the delivery of the goods or services.
Such a claim can be filed before the concerned MSME facilitation council through the online portal MSME Samadhan.
We have already published an article on MSME claim/court procedure and you can visit it by clicking here.
So, the MSME claim is finally adjudicated in an Arbitration proceeding conducted either by the MSME facilitation council or an arbitrator appointed.
A party aggrieved with any order, decree or award passed under this arbitration proceeding can file an appeal under section 19 of the MSME Act.
Section 19 of the MSME Act provides that an application for setting aside a decree, award or order made by the council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the council, can be filed.
Section 18(3) of the Act provides the council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services for such arbitration.
Section 18(3) of the Act further provides that the provisions of the Arbitration and Conciliation Act, 1996 apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in subsection (1) of section 7 of that Act.
Under the provisions of the Arbitration and Conciliation Act, 1996 an objection or appeal against the award passed by the arbitrator can be filed under section 34 of the Arbitration and Conciliation Act, 1996.
Thus, an appeal against the MSME order can be filed under section 34 of the Arbitration and Conciliation Act, 1996 read with section 19 of the MSMED Act.
19. Application for setting aside decree, award or order.—No application for setting aside any decree, award or other order made either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council, shall be entertained by any court unless the appellant (not being a supplier) has deposited with it seventy-five per cent. of the amount in terms of the decree, award or, as the case may be, the other order in the manner directed by such court:
Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case, subject to such conditions as it deems necessary to impose.
Section 19 of the MSMED Act provides that no application for setting aside any decree, award or other order made under the provisions of section 18(3) can be filed unless the appellant (who is not a supplier) has deposited with the court 75 % of the award amount.
Thus no Appeal against MSME order can be entertained in court unless 75% of the award amount is deposited in the court.
Section 19 of the MSMED Act further provides that the court can order such deposited amount to be paid to the supplier. Such an order by the court can be made if the court thinks it is reasonable under the circumstances and such order can be passed subject to such conditions as the court think fit.
Thus, section 19 of the MSMED Act provides the following:
1. An appeal against the order, decree or award under the proceeding started under section 18(3) / Arbitration proceeding can be filed.
2. No such appeal can be entertained by the court unless the appellant (not being a supplier) deposits with such court a sum equivalent to 75 % of the award amount.
3. Such deposited amount can be released to the respondent/supplier on such terms as the court may deem fit.
In an arbitration proceeding started under section 18(3) of the MSMED Act, the provision of the Arbitration and Conciliation Act, 1996 applies to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in subsection (1) of section 7 of that Act.
Section 18(3) reads as under:
18. Reference to Micro and Small Enterprises Facilitation Council.—
(1)
(2)
(3) Where the conciliation initiated under sub-section (2) is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in subsection (1) of section 7 of that Act.
Under the provisions of the Arbitration and Conciliation Act, 1996 an objection or appeal to the award passed by the arbitrator can be filed under section 34 of the Arbitration and Conciliation Act, 1996.
Thus, an appeal against MSME order can be filed under section 34 of the Arbitration and Conciliation Act, 1996 read with section 19 of the MSMED Act.
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Section 16 of MSME Act – Understanding Its Provisions and Significance -What is Section 16 of MSME Act
The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 is an Indian legislation. It aims to promote and support the growth and development of micro, small, and medium enterprises (MSMEs).
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Section 16 of the MSMED Act deals with the delayed payment to MSMEs by the buyer.
As per this section, Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer is liable to pay compound interest to the supplier.
Note the following points:
As per section 16 of MSME Act:
1. The rate of the compound interest is three (3) times the bank rate notified by RBI.
The bank rate notified by RBI From time to time
2. The interest is to compound on monthly intervals.
3. Section 16 of the MSMED Act applies the rate of interest, overriding any agreement between the buyer and the supplier.
This means that even if the buyer and supplier agree on a different rate of interest, the rate specified in Section 16 of the MSME Act prevails.
4. Section 16 of the MSMED Act applies the interest rate, overriding any contrary provisions in existing laws.
This means that even if another law provides a different rate of interest, the rate specified in Section 16 of the MSME Act prevails.
Section 16 of MSME Act mentions the compounding interest is payable on the amount due from the appointed day or, as the case may be from the date immediately following the date agreed upon.
As per Section 2(b) (b) “appointed day” means the 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.
Further section 15 provides that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.
So, the following may be noted:
1. The interest is payable on the expiry of the 15th date if there is no written agreement.
2. If a written agreement specifies the payment period and it is within 45 days, the buyer must pay interest after the agreed period expires.
3. If a written agreement specifies the payment period and the agreed period exceeds 45 days, the buyer must pay interest after 45 days have passedyable.
16. Date from which and rate at which interest is payable.—Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.
(a) Date from which interest is payable and
(b) rate at which interest is payable
As per section 2(b) of MSME Act “appointed day” means the 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.
Thus the appointed day means the day immediately following the 15 days of the date of the acceptance of goods or day of the deemed acceptance of goods.
Section 2(b) of MSME Act reads as under:
2. Definitions.—In this Act, unless the context otherwise requires,—
(a) __;
(b) “appointed day” means the 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.
As per Section 2(b) explanation the date of acceptance means :
(1) the day of the actual delivery of goods or the rendering of services; or
(1) where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier;
Section 2(b) explanation reads as under :
2. Definitions.—In this Act, unless the context otherwise requires,—
(a)___
(b) ___
Explanation.—For the purposes of this clause,— (i) “the day of acceptance” means,—
(a) the day of the actual delivery of goods or the rendering of services; or
(b) where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier.
Section 2(b) explanation (ii) provides that 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 from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services.
So when no objection is made in writing by the buyer regarding the goods within 15 days of the date of delivery, the buyer shall deemed to have accepted the goods.
Section 2(b) explanation (ii) reads as under
2. Definitions.—In this Act, unless the context otherwise requires,—
(a) __
(b) __
Explanation.—
For the purposes of this clause,—
(i) “___
(ii) “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 from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services;
Payment terms for MSME – MSME Payment terms
MSME Law Notes by NB Associates
Micro & Small (MSEs) are the backbones of the Indian economy. Their growth and success are essential for economic development.
However, one of the biggest challenges that MSEs face is managing their cash flow. Cash flow management is vital for the survival and success of any business, but it is even more critical for MSEs, which often have limited resources and access to financing.
We are the leading Law firm / Lawyers providing comprehensive MSME legal consultancy to our clients. We also help and legally assist our clients in the recovery of dues or outstanding.
Clients may contact us on the given number for any legal consultancy.
Contact no : 9811899279
The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 was introduced by the Government of India to provide support and promote the growth of Micro, Small and Medium Enterprises (MSMEs). One of the key provisions of the Act is to ensure timely payment of dues to MSMEs.
The Act has mandated certain payment terms for MSMEs, which are as follows:
1. The buyer is required to make payment to the supplier maximum of 45 days from the date of acceptance or the deemed acceptance of goods or services.
2. In case of a delay in payment, the buyer is required to pay interest to the supplier at the rate which is 3 times of prevailing rate of the Reserve Bank of India (RBI) for the period of delay.
The interest is compounding interest at monthly rest.
These payment terms are applicable to all buyers, whether they are government agencies, public sector undertakings, or private companies.
When the parties i.e. the supplier and the buyer have not agreed on the period under which the payment is to be made by the buyer to the supplier, the payment has to be made within a period of 15 days of the delivery of the goods or services.
When the parties i.e. the supplier and the buyer have agreed on the period under which the payment is to be made by the buyer to the supplier, and that agreed period is within 45 days from the date of the delivery of the goods, then the payment has to be made within the agreed period of days of the delivery of the goods or services.
When the parties i.e. the supplier and the buyer have agreed on the period under which the payment is to be made by the buyer to the supplier, and that agreed period is more than 45 days from the date of the delivery of the goods, then the payment has to be made within 45 days of the delivery of the goods or services.
The Act also mandates the creation of a facilitation council at the district level to assist MSMEs in the settlement of disputes related to payment. This council is responsible for the following:
The MSME Act, of 2006 has provided a significant boost to the growth of MSMEs in India.
The mandatory payment terms have ensured that MSEs are paid on time, which has improved their cash flow and reduced their dependence on external financing.
The creation of facilitation councils has also provided MSEs with a platform to settle disputes related to payment in a timely and efficient manner.
In conclusion, the payment terms for MSMEs under the MSME Act, 2006 have played a crucial role in supporting the growth of MSMEs in India. It has ensured timely payment of dues, improved cash flow, and reduced the risk of non-payment. MSMEs should take advantage of the provisions of the Act and ensure that their buyers comply with the payment terms mandated by the Act.
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Mutual consent divorce section
Mutual consent divorce law notes by NB Associates
Here we will discuss Mutual consent divorce section.
Mutual consent divorce is a legal process by which a married couple seeks to end their marriage.
In India, the mutual consent divorce process is governed by various laws. The law varies depending on how the marriage happened. Basically, there are the following acts which deal with mutual consent divorce.
Hindu Marriage Act, 1955 – Applicable to Hindus
Special Marriage Act 1954 – Applicable to special marriages
Divorce Act 1869 – Applicable to Christians
Parsi Marriage and Divorce Act 1936 – Applicable to Parsis
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Section 13B of the Hindu Marriage Act 1955 contains provisions for mutual consent divorce for Hindus.
Section 13B provides that a petition for dissolution of marriage by a decree of divorce may be presented to the district court by both parties to a marriage together.
Section 28 of Special Marriage Act 1954
Section 28 of Special Marriage Act 1954 talks about mutual consent divorce for special marriages under Special Marriage Act 1954
Section 28 provides that petition for dissolution of marriage by a decree of divorce may be presented to the district court by both the parties to a marriage together.
Such petition can be presented on the grounds provided therein.
The divorce laws for Christian is provided under Section 10 of Divorce Act 1869.
Section 10A talks about mutual consent divorce in Christian.
Section 10A provides that petition for dissolution of marriage by a decree of divorce may be presented to the district court by both the parties to a marriage together.
Such petition can be presented on the grounds provided therein.
The provision of marriage & divorce for Parsis in India is governed by Parsi Marriage and Divorce Act, 1936
Section 32B of Parsi Marriage and Divorce Act 1936 talks about mutual consent divroce in Parsis.
Section 32B provides that petition for dissolution of marriage by a decree of divorce may be presented to the district court by both the parties to a marriage together.
Such petition can be presented on the grounds provided therein.
Mutual consent divorce can be a faster and less contentious process than a contested divorce, in which the spouses do not agree on the terms of the divorce and must go through a trial to resolve their issues. However, it is important to consult with a lawyer to ensure that your rights and interests are protected during the divorce process.
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How can we be contacted
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Payment to MSME – MSME Payment RulesRules
MSME Law Notes by NB Associates
The Government of India has implemented various rules and regulations to ensure timely payment to MSMEs (Micro, Small, and Medium Enterprises).
Here are some of the key rules related to the payment to MSMEs:
This act defines the timeframe for payment to MSMEs.
According to the act, the buyer is required to make payment to the MSME supplier maximum within 45 days of the acceptance of goods or services.
If the buyer fails to do so, they are liable to pay interest at three times the prevailing bank rate notified by RBI .
This policy mandates that at least 25% of the total annual procurement of goods and services by Central Ministries/Departments/Public Sector Undertakings (PSUs) should be from MSMEs.
This is an online platform that facilitates the financing of trade receivables of MSMEs through multiple financiers. It enables MSMEs to get their bills discounted at competitive rates and receive payment within a shorter timeframe.
This portal enables MSMEs to file their grievances related to delayed payments by buyers.
The portal also provides information on the status of their complaints.
This code provides a time-bound and structured mechanism for the resolution of insolvency and bankruptcy cases of companies, including MSMEs.
Overall, these rules and regulations aim to provide a conducive environment for the growth and development of MSMEs by ensuring timely payment to them.
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Section 15 of MSME Act – What is Section 15 of MSME Act?
We will here discuss Section 15 of MSME Act.
The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 is an Indian legislation aimed at promoting and supporting the growth and development of micro, small and medium enterprises (MSMEs) in the country.
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Section 15 of the MSMED Act deals with the delayed payment to MSMEs by the buyer.
As per this section, buyer is liable to make payment to the supplier within a period of 15 days if there is not agreed date of payment or a maximum period of 45 days when period is agreed.
If a buyer fails to make payment for goods or services supplied by an MSME, the buyer shall be liable to pay compound interest with monthly rests to the supplier on the amount due, as per the rate notified by the Reserve Bank of India (RBI).
15. Liability of buyer to make payment.—Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day:
Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.
The followings are the essential ingredients of section 15 of MSME Act
1. Supplier supplying goods or services to any buyer.
2. Once goods or services are supplied, the buyer has to make payment to the supplier on or before the date agreed between the supplier and the buyer in writing.
3. if there is no agreement in writing stating the date before which the payment is to be made then the payment is to be made before the appointed day.
4. In no case the agreed period of payment between the supplier and buyer to exceed 45 days from the date of acceptance or deemed acceptance.
As per section 2(b) of MSME Act “appointed day” means the 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.
Thus the appointed day means the day immediately following the 15 days of the date of the acceptance of goods or day of the deemed acceptance of goods.
Section 2(b) of MSME Act reads as under:
2. Definitions.—In this Act, unless the context otherwise requires,—
(a) __;
(b) “appointed day” means the 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.
As per Section 2(b) explanation the date of acceptance means :
(1) the day of the actual delivery of goods or the rendering of services; or
(1) where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier;
Section 2(b) explanation reads as under :
2. Definitions.—In this Act, unless the context otherwise requires,—
(a)___
(b) ___
Explanation.—For the purposes of this clause,— (i) “the day of acceptance” means,—
(a) the day of the actual delivery of goods or the rendering of services; or
(b) where any objection is made in writing by the buyer regarding the acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier.
Section 2(b) explanation (ii) provides that the day of deemed acceptance” means, where no objection is made in writing by the buyer regarding the acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services.
So when no objection is made in writing by the buyer regarding the goods or services within 15 days of the date of delivery, the buyer shall be deemed to have accepted the goods or services.
Section 2(b) explanation (ii) reads as under
2. Definitions.—In this Act, unless the context otherwise requires,—
(a) __
(b) __
Explanation.—
For the purposes of this clause,—
(i) “___
(ii) “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 from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services;
The buyer to pay compound interest @ 3 times the bank rate notified by RBI.
The interest is to be calculated from the date agreed upon between the buyer and supplier, or, in the absence of such agreement, the date after which the payment becomes due as per the provisions of section 16 of the Act.
This provision is aimed at safeguarding the interests of MSMEs, who often face financial difficulties due to delayed payments from buyers, and to encourage prompt payment by buyers.
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MSME rules for payment
MSME Law notes by NB Associates
MSME (Micro, Small and Medium Enterprises) rules for payment refer to the regulations and guidelines that govern the payment terms and conditions for transactions between MSMEs and their buyers.
The Indian Government has set up specific rules for payments to be made to MSMEs, which are outlined in the MSME Development Act, 2006.
As per the MSME rules, the buyer is required to make the payment to the supplier for the goods or services rendered within a maximum period of 45 days from the date of acceptance or the deemed acceptance of the goods or services.
In case of delay in payment, the buyer is liable to pay interest at a rate which is three times the bank rate notified by the Reserve Bank of India.
The MSME supplier can also file an application before the Micro and Small Enterprises Facilitation Council (MSEFC) in case of non-payment or delayed payment by the buyer.
If there is no agreed credit period between the supplier and the buyer then payment is to be made within 15 days.
If there is an agreed credit period which is within 45 days then the payment has to be made within the agreed credit period.
If there is an agreed credit period which is more than 45 days, then notwithstanding the agreement the payment has to be made within a period of 45 days.
Section 15 of the MSMED Act prescribes that the payment by the buyer has to be made before 15 days of the date of delivery and if there is any agreement this period should not exceed 45 days .
Section 15 reads as under :
15. Liability of buyer to make payment.—Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day:
Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.
Section 16 of the MSMED Act provides that the buyer is liable to pay compound interest with monthly rest at the rate three times the bank rate notified by RBI.
Section 16 reads as under :
16. Date from which and rate at which interest is payable.—Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.
If the payment is not made, the supplier can approach MSME Facilitation Council under sections 17 and 18 of the MSME Act for the recovery of the payment.
Overall, the MSME rules for payment are designed to ensure that MSMEs are paid on time for their goods or services and to promote their growth and development.
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MSME Arbitration Procedure: A Step Towards Speedy Resolution of Disputes
Micro and Small Enterprises (MSEs) form the backbone of the Indian economy. They contribute significantly to the country’s GDP and provide employment opportunities to a large section of the population. However, these enterprises often face a variety of challenges, including the non-payment of dues by their clients. Delayed payments lead to a severe cash crunch and hinder the growth and expansion of SMEs. To address this issue, the government introduced the MSME arbitration procedure.
The MSME arbitration procedure is a legal mechanism designed to resolve disputes between Micro and Small (MSEs) and their clients. It is a cost-effective and time-efficient alternative to traditional litigation. The procedure is governed by the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, which was enacted to promote and develop (MSEs) in India.
Under the MSMED Act, a Micro or Small Enterprise can initiate the arbitration process against a buyer who has failed to make payment for the goods or services supplied within the stipulated time period.
The arbitration process is conducted by an arbitrator appointed by the Micro and Small Enterprises Facilitation Council (MSEFC). The MSEFC is a statutory body set up by the government to facilitate the resolution of disputes between MSMEs and their clients. The council has the power to appoint an arbitrator under section 18(3) of MSMED Act.
However, there is a process for the appointment of an arbitrator. The process starts with the filing of the claim with the MSME Facilitation Council, thereafter conciliation proceedings under section 18(2) of the MSMED Act, and once conciliation fails the provisions for the appointment of arbitrator by MSME Facilitation Council under section 18(3) of MSMED Act is triggered.
The MSME arbitration procedure is a speedy and efficient way of resolving disputes. The arbitrator is required to pass an award within 90 days of receiving the reference.
The award is final and binding on both parties and can only be challenged in court on limited grounds. This ensures that the dispute is resolved in a timely manner, and the MSME is not left waiting for an indefinite period to receive payment.
Another advantage of the MSME arbitration procedure is that it is a cost-effective alternative to traditional litigation.
The fees for the arbitration process are minimal, the stamp duty paid on arbitration award is also minimal, which reduces the overall cost of the process.
The procedure is also conducted in an informal manner, which makes it less intimidating for MSEs, who may not have extensive legal knowledge.
However, the MSME arbitration procedure is not without its challenges.
One of the main issues is the enforcement of the award. In many cases, the buyer may refuse to comply with the award, which leaves the MSME with no option but to approach the court for enforcement. This defeats the purpose of the arbitration process, which was designed to provide a speedy resolution of disputes.
Another challenge faced by MSMEs is the lack of awareness about the arbitration process. Many MSMEs are not aware of their rights under the MSMED Act, and they continue to suffer due to delayed payments. The government has taken several steps to increase awareness about the procedure, including the launch of an online portal for MSMEs to file their grievances. The portal provides information on the claim process and facilitates the resolution of disputes between MSMEs and their clients.
the MSME arbitration procedure is a step towards ensuring the timely resolution of disputes between MSMEs and their clients. It is a cost-effective and efficient alternative to traditional litigation and has the potential to benefit a large number of MSMEs in India. The government has taken several steps to increase awareness about the procedure and to address the challenges faced by MSMEs in enforcing the awards.
However, more needs to be done to promote the MSME arbitration procedure and to ensure that MSMEs are aware of their rights under the MSMED Act. The government can consider launching awareness campaigns to educate MSMEs about the benefits of the procedure and the steps involved in initiating the arbitration process. This will go a long way in promoting the use of the procedure and in reducing the number of delayed payments faced by MSMEs.
Furthermore, the government can consider setting up more MSEFCs across the country to facilitate the resolution of disputes between MSMEs and their clients. This will make the procedure more accessible to MSMEs in remote areas and will reduce the time taken to resolve disputes.
The MSME arbitration procedure is a significant development in the legal landscape of India. It provides a much-needed mechanism for MSMEs to resolve disputes with their clients and ensures that they receive timely payment for their goods and services.
The procedure has the potential to benefit a large number of MSMEs in India and can play a crucial role in the growth and development of the sector.
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