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Section 16 of MSME Act – What is Section 16 of MSME Act?

Section 16 of MSME Act – What is Section 16 of MSME Act

MSME Law Notes by NB Associates

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 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.

The followings may be noted :

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.  The rate of interest as provided in section 16 of the MSMED Act is applicable notwithstanding anything contained in any agreement between the buyer and the supplier.

Meaning even if any other rate of interest is agreed between the buyer and supplier, the rate of interest as provided in section 16 of MSME Act shall prevail.

4.  The interest rate as provided in section 16 of the MSMED Act is applicable notwithstanding anything contrary contained in any law in force.

Meaning even if any other rate of interest is provided in any other law, the rate of interest as provided in section 16 of MSME Act shall prevail.

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 15th date if there is no written agreement.

2. If there is a written agreement and the same provides the period within which payment is to be made, and the agreed period of within 45 (Forty-Five) days, then the interest shall be payable upon the expiry of such agreed period.

3. If there is a written agreement and the same provides the period within which payment is to be made, and the agreed period of more than 45 (Forty Five) days, than the interest shall be payable upon the expiry of 45 days.

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;

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