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How can I recover my MSME money?

Question: How can I recover my MSME money?

Whenever one thinks recovery of money, dues or outstanding, comes in mind protracted litigation, hefty stamp duties, jurisdictional issues, the issue process of enforcement of decree passed by the court.

Protracted litigation delay inflow of cash, and in turn affect the business.

MSME money delay is one of the threat or danger, which a micro or small industry or business houses faces on regular basis.

Now is there any effective solution for recovery of MSME money, dues or outstanding?

Provisions of Micro, Small and Medium Enterprises Development Act, 2006

Chapter V of Micro, Small and Medium Enterprises Development Act, 2006 deals with a situation where the payments to the Micro and Small Enterprises is delayed.

Section 15, 16, 17, and 18 of MSMED Act deals with a remedy when the payment is delayed. Section 19 deals with the appeal arising out of the legal remedy under section 18.

Steps to recover MSME money

(1) Filing of MSME claim online with MSME Samadhan ‘Delayed payment monitoring system’

(2) Filing of MSME claim physical with the Facilitation council

(3) Participation in Conciliation Proceeding

(4) Participation in statutory Arbitration Proceeding

(5) Execution of arbitral Award

MSME Samadhan ‘Delayed payment monitoring system’

Current central Govt considered the need to speed up the recovery process for Micro and Small enterprises.

With aim to make this system of ‘Delayed Payments to Micro and Small Enterprises’ efficient, speedy and more accessible launched MSME Samadhan

MSME Samadhan enables MSEs to register cases related to delayed payments online.

And this came as an effective solution for recovery of MSME money.

Who can avail this MSME Samadhan ‘Delayed payment system’

Section 2(n) of the MSMED Act defines supplier as micro or small enterprises, which has filed a memorandum with the authority referred to in sub-section (1) of section 8.

Section 8 prescribes that any person who intends to establish micro or small enterprise or medium enterprises shall file memorandum of micro, small or as the case may be, of medium enterprises with such authority as may be prescribed by the State Government or Central Government.

Section 15, 16, 17 and 18 of the MSMED Act provides for the liability of the buyer to make payment, rate of interest for delayed payment, recovery of the amount due and reference to Micro and Small Enterprises Facilitation Council. These all provisions are for the supplier which has bene defined under section 2(n).

Hence to avail this remedy one need to be have registered as Micro or Small enterprises. Further, this provisions is available for only Micro and Small Enterprises and not for medium enterprises.

Delayed Payment provisions only for Micro and Small Enterprises

Chapter V of  Micro, Small and Medium Enterprises Development Act, 2006 starts with the heading ‘Delayed Payments to Micro and Small Enterprises’. Here words used are Micro and Small. Medium enterprises you cannot find mentioned here.

Section 2(n) further talks about only micro and small enterprise.

Thus, these provisions i.e. section 15 to 25 of MSMED Act are only applicable to micro and small enterprises and not to the medium enterprises. It is only micro and small enterprises, which can avail this solution of MSME payment delay.

Liability of Buyer to make payment

Section 15 of the MSME Act makes it mandatory for the buyer of the goods or services to make payment on or before the agreed date to the supplier of such goods or services. The agreed date not exceed 45 days period.

Where there is no agreed date, the payment to the supplier has to be made maximum within 15 days.

Provision for Deemed acceptance of goods

Section 2(b) Explanation (ii) provides that where no objection is made in writing by the buyer regarding acceptance of goods or services within 15 (fifteen) days from the day of the delivery of goods or the rendering of services, the day of deemed acceptance shall be the day of the actual delivery of goods or the rendering of services.

So, where no objection to the goods is made in writing within a period of 15 (Fifteen) days from the date of delivery of goods or rendering services, the buyer shall be deemed to have accepted goods.

The statutory interest rate in case of non-payment

In case of payment is not made within the specified period under section 15 to the supplier, then the buyer is liable to pay interest to the supplier on the principal amount at a fixed rate prescribed under section 16.

Such interest is compounded interest with monthly rest, meaning interest will compound at monthly intervals.

Such interest rate is applicable notwithstanding anything contained in any agreement between the buyer and the supplier or in anything contained in law for the time being in force.

Interest-rate provided under section 16 of the Act is 3 (three) times of the bank rate notified by RBI (Reserve Bank of India)

This is the statutory interest rate prescribed under section 16 of the MSME Act, and there cannot be any deviation.

Recovery of the amount due to MSME

For the goods supplied or services provided by the supplier, the buyer is liable to pay the amount with interest thereon as provided under section 16.

If the amount is not paid along with interest as provided under section 16, the supplier can file a claim before the Micro and Small Enterprises Facilitation Council as per the provisions of section 18 of the Act.

MSME claim to Micro and Small Enterprises Facilitation Council

So, when the payment is not made a reference to the Micro and Small Enterprises Facilitation Council may be made.

Such a reference can be made by any party to the dispute. This means that either supplier or the buyer can make such a reference.

There is a facility to make such a reference online through MSME Samadhan Portal.

Conciliation proceeding

On such reference, there is a provision for conciliation between the parties.

The council can itself conduct conciliation proceedings or it may seek the assistance of an institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre for conducting conciliation.

The provisions of sections 65 to 81 of the Arbitration & Cancellation Act, 1996 apply to such a dispute as if conciliation was initiated under part III of the Arbitration & Cancellation Act, 1996.

Reference to Arbitration

Where the conciliation initiated is not successful or stands terminated without any settlement between the parties, the council can itself take the dispute for arbitration or refer the dispute to any institution or centre providing alternate dispute resolution services for such arbitration.

The provisions of the Arbitration & Cancellation Act, 1996 apply to the dispute as if arbitration was in pursuance of an arbitration agreement referred to in section 7 of the Arbitration & Cancellation Act, 1996

Appeal against decree, award or order

As per section 19 of the MSME Act, an application for setting aside a decree, award or order arising out of an arbitration proceeding can be filed.

The provisions of the Arbitration and Conciliation act, 1996 are applicable to an alternate dispute resolution/arbitration initiated under this Act [Section 18(3)], hence an objection / Application for setting aside the decree, or award order can be filed as per provisions of section 34 of Arbitration and Conciliation Act, 1996 read with section 19 of MSME act.

Execution of the decree, award or order

Execution of the degree, award or order can be as per the provisions of the arbitration and conciliation act 1996 i.e. section 36.

However certain states have formulated their own rule under which the amount decree can be recovered as arrears of land revenue e.g. Madhya Pradesh Micro and Small Enterprises Facilitation Council Rules, 2006 (Rule 5)

Whether this remedy provides an effective solution?

Honestly, this is the best and effective mechanism available to a micro and small enterprise for MSME payment delay.

The MSMED Act provides for the completion of proceeding within a period of 90 days. However it is taking time because of lack of effective system in place.

Law is always in evolution process. An effective mechanism with speedy disposal of cases definitely going to give much relief to the small business houses.

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Please note

This Article is written by Managing Partner Naveen Bhardwaj with assistance and research from the NB Associates team.

The content(s) of this Article cannot be copied or reproduced without the express written consent of NB Associates.

‘NB Associates’ provides comprehensive MSME related legal consultancy

Our clients can contact us for MSME related claims – Recovery of dues or other related legal consultancy

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MSME Frequently Asked Questions

What is MSME? 

What are the benefits of MSME registration? 

What is the MSME Facilitation council? 

How does MSME Facilitation Council work?

Where can an MSME claim be filed? Jurisdictions

Why is filing of claim before the MSME Facilitation Council beneficial?

Whether Limitation Act applies to claims under MSME Act?

MSME Frequently Asked Questions – Read more

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Law articles on MSME Claims

Whether mere notice of conciliation by the MSME facilitation council wipe out the legal defence of limitation?

Whether the condition of a 75% deposit under sec 19 MSME act is mandatory?

Can a deposit of 75% u/s 19 of the MSME Act be in Instalments?

Can the Bank guarantee be accepted as 75% pre-deposit u/s 19 MSME Act?

Law articles on MSME claim – Read more

Read : MSME case Study

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