MSME payment delay – Legal way to recovery
Author- admin
Date:March 5, 2023
MSME payment delay – Legal way to recovery – MSME Law Article by Naveen Bhardwaj Managing Partner of NB Associates (Advocates & Solicitors)
We are among the top Law firms / Lawyers providing legal consultancy related to MSME dues recovery and handling related cases Pan India.
For any kind of legal consultancy, our client may contact us at the following number or email id :
Call us – 9811899279 | Email us – mail@nbassociates.net
Introduction
MSME Payment delay is one of the threats or dangers, which a micro or small industry or business houses face on regular basis.
MSME payment delay impacts cash flow, and in turn, affects the overall business.
Business necessities may be a compelling factor for micro and small companies for not to go harsh on the recovery process. However, willingly or unwillingly the business houses may sometimes need to move ahead and take harsh decisions to proceed with the legal way to recover the payment from the buyer of goods or services.
When comes to taking the legal way, comes in mind the lengthy and protracted litigation, jurisdictional issues, the issue process of enforcement of decree passed by the court, and the hefty stamp duties which need to be paid even before the start of the case.
However, here came the effective solution for MSME payment delay in the form of provisions of Chapter V of the Micro, Small and Medium Enterprises Development Act, 2006 which deals in ‘Delayed Payments to Micro and Small Enterprises’.
Advent of Micro, Small and Medium Enterprises Development Act, 2006
Micro, Small and Medium Enterprises Development Act (MSMED Act) came in the year 2006 with the object of facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto.
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 remedy when the payment is delayed. Section 19 deals with the appeal arising out of the legal remedy under section 18.
MSME Samadhan ‘Delayed payment system’
Although these provisions were there since 2006, however due it’s not being so popular, this was seldom used.
The 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 on 30th October, 2017
MSME Samadhaan enables MSEs to register cases related to delayed payments online. And this came as an effective solution for MSME payment delay.
Who can avail 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 a micro or small enterprise or medium enterprises shall file a 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.
_________________________
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
_____________________________
Law articles on MSME Claims
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
______________________________
MSME Claims Frequently Asked Questions
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
______________________________
Read : MSME case Study
Follow Us