MSMED Act , 2006 has been enacted in order to facilitate promotion and development of MSMEs and enhancing competitiveness in the market. Special provisions has been made in order to ensure timely payment to these enterprises under the Act, failure of which may result to serious consequences.The presentation briefy discusses the provisions and implications of the Act.

1. The Micro, Small and Medium
Enterprises Development Act, 2006
A Law with Large Impact on Buyers
Presented By:
Amitabh Srivastava, LL.M
Asst. Manager (Law), POWERGRID

2. Preamble/Object of MSMED Act,2006
• MSMED Act has been enacted to provide for:
1. facilitating the promotion and development and
2. enhancing the competitiveness
of micro, small and medium enterprises and for matters connected
therewith or incidental thereto.
• MSMED Act, 2006 replaced the Interest on Delayed payments to Small
Scale and Ancillary Industrial Undertakings Act,1993.

3. Salient Features of MSMED Act,2006
• ‘Industry’ replaced by ‘enterprise’ which include service enterprises also.
• Ambit of sector enlarged to cover medium enterprises.
• Constitution and establishment of National Board for MSME (Chapter II) and
Advisory Committee [Section 7 (2)]
• Simplification of registration procedure Credit Facilities (u/s 10)
• Measures for promotion and development Procurement Preference Policy (u/s11)
• Penalty for delayed payments (Chapter V) Grants/Funds by Govt. (u/s 12,13)

4. Applicability of MSMED Act, 2006
• Following slabs have been prescribed under the MSMED Act to determine the status
of the Enterprise [u/s 7(1)]:
Type of Enterprise* Manufacturing Industry (Investment in
plant and machinery)
Service Industry (investment in
equipment)
Micro Does not exceed Rs 25 lakh Does not exceed Rs 10 lakh
Small Exceeds Rs 25 lakhs but does not exceed Rs
5 crores
Exceeds Rs 10 lakhs but does not exceed
Rs 2 crores
Medium Exceeds Rs 5 crores but does not exceed Rs
10 crores
Exceeds Rs 2 crores but does not exceed
Rs 5 crores
*Enterprise [Section 2 (e)]: It means an industrial undertaking or a business concern or any other establishment, by
whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any
industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (55 of 1951) or
engaged in providing or rendering of any service or services.

5. Is Registration necessary for availing benefits under
MSMED Act, 2006
• The registration requirements of Micro and Small Enterprises and Medium
enterprises engaged in the business of providing or rendering services is discretionary.
• Registration requirement is mandatory for Medium Enterprises which are engaged in
the manufacture of goods.
• Chapter V i.e. provisions dealing with delayed payments to Micro and Small
Enterprises is confined to ‘supplier’ only which has been defined u/s 2 (n) of the Act.
• Section 2 (n) : Supplier means a micro or small enterprise, which has filed a
memorandum with the authority referred to in sub-section (1) of section 8 (i.e.
registered as MSME under the Act), and includes,—

6. Contd…
• (i) the National Small Industries Corporation, being a company, registered under the Companies Act,
1956 (1 of 1956);
• (ii) the Small Industries Development Corporation of a State or a Union territory, by whatever name
called, being a company registered under the Companies Act, 1956 (1 of 1956);
• (iii) any company, co-operative society, trust or a body, by whatever name called, registered or
constituted under any law for the time being in force and engaged in selling goods produced by micro
or small enterprises and rendering services which are provided by such enterprises;
• Hon’ble High Court of Delhi in M/s Ramky Infrastructure Pvt Ltd v. MSEFC and Ors, WP (C)
5004/2017 dated 04.07.2018 held that registration is not mandatory for availing benefits under
MSMED Act 2006.

7. Provisions related to payments to Micro and
Small Enterprises (Chapter V)
• These provisions shall have overriding effect upon anything inconsistent to it contained in any
other law for the time being in force.
• Liability of buyer to make payment (Section 15) : The buyer has to make payment on or
before the date agreed on between him and the supplier in writing or, in case of no agreement
before the appointed day*.
Provided that in no case the period agreed upon between the supplier and the buyer in
writing shall exceed 45 days from the date of acceptance or the day of deemed acceptance.
• Appointed date means the day following immediately after the expiry of a period of 15 days
from the date of acceptance or the date of deemed acceptance of the goods and
services.[Section 2(b)]
• Note: While entering into any contract with MSME, this provision must be kept into mind
and provision under the contract must be in line with it.

8. • Date from which and rate at which interest is payable (Section 16): 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.
• Recovery of amount due (Section 17): For any goods supplied or services rendered
by the supplier, the buyer shall be liable to pay the amount with interest thereon as
provided under section 16.
• The amount of interest payable or paid by any buyer, under or in accordance with the
provisions of this Act, shall not be allowed as deduction for the purposes of
computation of income under the Income-tax Act, 1961. (Section 23)

9. Reference to Micro and Small Enterprises Facilitation Council (Section 18)
• Notwithstanding anything contained in any other law for the time being in force, any party to
a dispute may, with regard to any amount due under section 17, make a reference to the Micro
and Small Enterprises Facilitation Council.
• On receipt of a reference under sub-section (1), the Council shall either itself conduct
conciliation in the matter or seek the assistance of any institution or center providing alternate
dispute resolution services by making a reference to such an institution or center, for
conducting conciliation .
• Where the conciliation initiated under sub-section (2) is not successful and stands terminated
without any settlement between the parties, the Council shall either itself take up the dispute
for arbitration or refer it to any institution or center providing alternate dispute resolution
services for such arbitration.
• Every reference made under this section shall be decided within a period of ninety days from
the date of making such a reference.
Note: This provision must be kept into mind while drafting dispute resolution clause of a contract
where other party is MSME.

10. • Application for setting aside decree, award or order (Section 19)
No application for setting aside any decree, award or other order made either by the Council
itself or by any institution or center providing alternate dispute resolution services to which a
reference is made by the Council, shall be entertained by any court unless the appellant (not
being a supplier) has deposited with it 75% of the amount in terms of the decree, award or,
as the case may be, the other order in the manner directed by such court.
Provided that pending disposal of the application to set aside the decree, award or order, the
court shall order that such percentage of the amount deposited shall be paid to the supplier, as
it considers reasonable under the circumstances of the case, subject to such conditions as it
deems necessary to impose.
• Disclosure in the annual statement of accounts of any unpaid amount due to micro and
small enterprises with interest calculated as per Chapter V. Non disclosure shall be
punishable with fine which shall not be less than Rs. 10,000.