MSME Award Appeal here we mean and discuss Appeal against the order, decree or Award arising out of the statutory arbitration proceeding under MSME Act. There have been challenges to this provision in courts, where the contentions were raised that this provision is not mandatory and there can be deviation by the Appellate court. Thus, the Supreme Court has made it clear that the provision of section 19 of the MSME Act is mandatory in nature..             
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MSME Samadhan Scheme –The Effective Recovery System


Author- admin
Date:March 27, 2023

Law Article by NB Associates – MSME Samadhan Scheme –The effective recovery system

MSME Samadhan Scheme

We have a special law related to MSME in the form of the Micro, Small and Medium Enterprises Development Act, 2006. This Act / law came in to the year 2006.

What is MSME?

This Act’s objective is to facilitate the promotion and development and enhancement of the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto.

Intro – Recovery Mechanism

This Act, besides having other provisions for the promotion of and development of the MSME also contains provisions for the recovery of the payments due to MSME.

Chapter V of the Act is devoted to the ‘Delayed payments to Micro and Small Enterprises’.

These provisions are having overriding effect on other laws. The provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force, as says section 24 of the Act.

Thus, notwithstanding anything contrary contained in any other law, the provisions of section 15 to 23 which relates to ‘Delayed payments to Micro and Small Enterprises’ has an overriding effect, i.e. the provisions of these sections prevail over any other laws.

Provisions for recovery of payment due to MSME

Micro, Small and Medium Enterprises Development Act, 2006 provides the following specific provisions for recovery of the payment due to MSME:

1.         Section 15 of the Act provides for the ‘Liability of buyer to make payment’.

2.         Section 16 provides for the ‘Date from which and rate at which interest is payable’

3.         Section 17 provides for ‘Recovery of the amount due’

4.         Section 18 provides for ‘Reference to Micro and Small Enterprises Facilitation Council;.

5.         Section 19 provides an Application for setting aside a decree, award or order arising from the proceedings under section 18.

6.         Section 24 provides the overriding effect of sections 15 to 23 in terms that the provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

MSME Samadhan scheme for Delayed payment

The above noted provisions i.e. sections 15 to 23 have been there since 2006, however, this was seldom used by Micro or small enterprises.

Central Govt considered the need to speed up the recovery process for Micro and Small enterprises.  And, with aim to make the system of ‘Delayed Payments to Micro and Small Enterprises’ efficient, speedy and more accessible, it 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 delayed payment.

Who can avail MSME Samadhan scheme for Delayed payment

To avail MSME Samadhan scheme for Delayed payment the business entity needs to be registered as Micro or Small enterprises.

Further, this provisions is available for only Micro and Small Enterprises and not for medium enterprises.

MSME Samadhan scheme for Delayed payment only for Micro and Small Enterprises

These provisions i.e. sections 15 to 23 of the Act are only applicable to micro and small enterprises. It is not applicable to the medium enterprises.

It is only micro and small enterprises, which can avail this benefit of these provisions for MSME payment delay.

Buyer’s liability to make payment

Buyers of the goods or services are required to make payment on or before the agreed date to the supplier of such goods or services, as per section 15. The agreed date not to exceed 45 days period

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

Deemed acceptance of goods Provision

Where no objection to the goods or services 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 or services.

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.

Compounding Interest in case of non-payment

There is provision of paying fixed compounding interest if payment is not made within the specified period to the supplier.

Such interest rate is applicable even if buyer and supplier has agreed any other rate of interest

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.

MSME dues Recovery provisions

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

Claim to Micro and Small Enterprises Facilitation Council

So, when the payment is not made, an online complaint to MSME Samadhan Portal can be made. Once claim is made,  a reference is made to the Micro and Small Enterprises Facilitation Council.

Section 18(2) Conciliation proceeding

On such reference, section 18 (2) provides 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 & Conciliation Act, 1996 apply to such a dispute as if conciliation was initiated under part III of the Arbitration & Conciliation Act, 1996.

Section 18 (3) Reference to Arbitration

Where the conciliation is not successful or stands terminated without any settlement between the parties, a reference to the arbitration is made for adjudication of the dispute as per law.

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 & Conciliation Act, 1996 apply to the dispute.

Section 19 – Appeal against decree, award or order

Section 19 of the MSME Act, provides for 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.

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 Arbitral decree, award or order

Execution of the degree, award or order can be as per the provisions of section 36 of the Arbitration and Conciliation Act, 1996.

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)

MSME Samadhan scheme for Delayed payment an effective solution?

To conclude MSME Samadhan scheme for Delayed payment is the best and effective mechanism available to a micro and small enterprise for MSME delayed payment recovery.

This 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.

This law is certainly going to evolve during the passes of time. This Law with 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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More Law Articles ther 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

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MSME Frequently Asked Questions claims

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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Read : MSME case Study