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Section 16 of MSME Act – Understanding Provisions

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Section 16 of MSME Act – Understanding Its Provisions and Significance -What is Section 16 of MSME Act

The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 is an Indian legislation. It aims to promote and support the growth and development of micro, small, and medium enterprises (MSMEs).

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Section 16 of MSME Act in nutshell

Section 16 of the MSMED Act deals with the delayed payment to MSMEs by the buyer.

As per this section, Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer is liable to pay compound interest to the supplier.

Note the following points:

As per section 16 of MSME Act:

1. The rate of the compound interest is three (3) times the bank rate notified by RBI.

The bank rate notified by RBI From time to time

2. The interest is to compound on monthly intervals.

3.  Section 16 of the MSMED Act applies the rate of interest, overriding any agreement between the buyer and the supplier.

This means that even if the buyer and supplier agree on a different rate of interest, the rate specified in Section 16 of the MSME Act prevails.

4.  Section 16 of the MSMED Act applies the interest rate, overriding any contrary provisions in existing laws.

This means that even if another law provides a different rate of interest, the rate specified in Section 16 of the MSME Act prevails.

Section 16 of MSME Act – Since when interest is payable

Section 16 of MSME Act mentions the compounding interest is payable on the amount due from the appointed day or, as the case may be from the date immediately following the date agreed upon.

As per Section 2(b) (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.

Further section 15 provides 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.

So, the following may be noted:

1. The interest is payable on the expiry of the 15^th date if there is no written agreement.

2. If a written agreement specifies the payment period and it is within 45 days, the buyer must pay interest after the agreed period expires.

3. If a written agreement specifies the payment period and the agreed period exceeds 45 days, the buyer must pay interest after 45 days have passedyable.

Section 16 of MSME Act reads as under

16. Date from which and rate at which interest is payable.—Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.

Section 16 of MSME Act – What it provides

(a) Date from which interest is payable and

(b) rate at which interest is payable

What is the 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 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 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 within 15 days of the date of delivery, the buyer shall deemed to have accepted the goods.

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;