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Section 15 of MSME Act – What is Section 15 of MSME Act?

Section 15 of MSME Act – What is Section 15 of MSME Act?

MSME Law Notes by NB Associates

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 MSME Act in a nutshell

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).

Section 15 of MSME Act as it reads

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 15 of MSME Act – Ingredients

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.

What is appointed day?

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.

What is date of acceptance ?

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.

What is deemed day of acceptance?

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;

What happens if buyer breaches section 15 of MSME Act provisions?

The buyer to pay compound interest @ 3 times  of 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.

It is important to note that this provision applies only to transactions between MSMEs and other entities, and not to transactions between two MSMEs.

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