Date:October 9, 2022
MSME Claim Settlement Procedure – Law Article by NB Associates, Advocates & Solicitors
When it came to initiating litigation for recovery of money to whom the services or goods have been supplied, always came in mind the protracted litigation, the jurisdictions issues, the cumbersome process of the enforcement of the decree passed by the court, and other factors.
The litigant felt it intricate and perplexing to approach a court for the recovery of money which is due to the person or institution to whom they have supplied the services or goods.
Small business houses are more in need of money inflow to survive. If money is stuck against the supply of goods or services, small businesses are hardly going to survive.
The advent of provisions of commercial suits has given some relief, however, small business houses i.e. MSMEs always needed better solutions to their money recovery issues.
|NB Associates, Advocates & Solicitors provides comprehensive legal services related to MSME claims or recovery of dues or debt.|
Here comes the aid of MSMEs, the MSME claim settlement procedures provided under the MSME Act.
The MSME Act was passed in 2006, however, very less people knew about the claim settlement procedure provided in the MSME Act or availed of benefits under this procedure. Further, little was done to make this provision popular and effective, unless the new Government came into power in the centre.
Now we have an effective mechanism giving wings to this MSME claim settlement procedure, and more are being done so that people avail of this claim settlement procedure.
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.
Where there is no agreed date, the payment to the supplier has to be made maximum within 45 days.
[Note: there are words are used like ‘appointed day’, ‘date of acceptance’, and ‘day of the deemed acceptance’, in section 15 however at present we are not discussing that to make this article simple and brief]
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.
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.
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.
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.
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
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 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)
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, Advocates & Solicitors provides comprehensive legal services related to MSME claims or recovery of dues or debt.
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