The MSMED Act, 2006 And Its Amendment In 2018
The Importance Of Laws
Law is the formal expression of the features and characteristics of the rules and regulations, which decide, determine and govern the activities and developments prevailing in an arena of existence, as envisaged and interpreted from a human perspective. They are contained in legal acts & enactments, which are the written forms and formats of the laws and their applications. Like there are various laws describing and defining various aspects of the Republic of India, the industries falling under the ambit of Micro, Small and Medium Enterprises (MSMEs) are governed by Micro Small And Medium Enterprises Development Act, 2006 which was somewhat revised in the year 2018.
The Scope & Ambit Of MSMED Act 2006
MSMEs is a wide range of industries and activities that cover a broad arena of human development, which is significant economically and very significant socio-economically. Let us now discuss about the most important law of MSMEs in the Republic of India:
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The Description And Basic Explanation Of The Micro, Small and Medium Enterprises Development Act, 2006
The Micro, Small and Medium Enterprises Development Act, 2006 is an Act of the Parliament of India. According to the act, "any buyer who fails to make payment to MSMEs, as per agreed terms or a maximum of 45 days, would be liable to pay monthly compounded interest at three times the bank rate notified by RBI". Industries are divided into 2 categories. Manufacturing and services. They are further divided into micro, small and medium. For both, manufacturing and services sectors, micro industries' capital requirements are under 1 Crore rupees and an annual turnover of less than 5 Crore rupees. Small industries shall have cis 50 and 250 Crores respectively.
The Main Objective Of MSMED Act, 2006
As per the Statement of Objects and Reasons of the MSMED Act, 2006, one of the primary objects is to make provision for ensuring timely and smooth flow of credit to small and medium enterprises to minimize the incidence of sickness among and enhancing the competitiveness of such enterprises.
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Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (hereinafter, the IDPSSAIU Act, 1993 or the 1993 Act ) was earlier the governing legislation in this field, which was repealed by the 2006 Act.
The Pitfalls Of MSMED Act 2006, Which Paved The Way For The Revision Act In 2018
At present, Aatmanirbhar Bharat has brought a slew of incentives including financial stimulus to MSMEs, in order to neutralise the effect of Covid-19 on the dream project Make in India. (It brings no surprise, as MSMEs are one of the emergent priorities for the present regime.). Though beneficial in its objective, announcement of the above economic concession is an acknowledgment of the lack of robust economic health of our MSMEs.
The need to provide for special and faster mechanism in the 2006 Act as well as the 1993 Act (since repealed) for recovery of amount due to MSMEs from their defaulting customers/buyers is another acknowledgement of the economic fragility existing in MSME sector. MSME sector, though presently crutched, will be a key factor for India's economic growth in times ahead.
To begin with, Section 15 of the MSMED Act, 2006 is an advancement over Section 3 of the IDPSSAIU Act, 1993 (since repealed), inasmuch as the liability of a buyer to make payment to the supplier/MSME is now within 45 days from the day of actual delivery of goods/rendering of services vis- -vis 120 days in the 1993 Act. The period of 120 days in the earlier law was thus found to be much more than what is endurable for a supplier/MSME.
Sections 16 and 17 of the MSMED Act, 2006 are also in the nature of substantial advancement over Sections 4 and 5 of the 1993 Act, inasmuch as under the 2006 Act, the defaulting buyer, in case of failure to make payment as per Section 15 above, must pay compound interest with monthly rests at 3 times of the Bank Rates notified by the Reserve Bank of India.
Thus, not only that the MSMED Act, 2006 got with itself the significant amendment in rate of interest, it also made such interest payable from after expiry of just fifteen days from the day of actual delivery of goods/rendering of service [See Section 16 with Section 2(b)], notwithstanding any contrary clause in any agreement between MSME supplier and its client/buyer or even in any law for the time being in force.
However, success of substantive beneficial law requires an equally efficacious mechanism of enforcement. This is where the 2006 Act fails to rise upto the expectation, and, in the opinion of the authors, requires immediate attention of the Legislature.
The Revision Of MSMED Act, 2006 In 2018
MSMEs Redefined
A proposal was made to redefine MSMEs by the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2018, to classify them as manufacturing or service-providing enterprises, based on their annual turnover.
Classification of enterprises into micro, small and medium enterprises (in Rs)
Kind of enterprise |
Act of 2006 |
Bill of 2018 |
|
|
Manufacturing |
Services |
All enterprises |
|
Investment towards plant & machinery |
Investment towards equipment |
Annual Turnover |
Micro |
25 lacs |
10 lacs |
5 Cr |
Small |
25 lacs to 5 Cr |
10 lacs to 2 Cr |
5 Cr to 75 Cr |
Medium |
5 Cr to 10 Cr |
2 Cr to 5 Cr |
75 Cr to 250 Cr |
The Gains From The Proposed New Reclassification
According to the proposed reclassification or the new classification, there would be no need for frequent inspections to check the investment in plant and machinery. Also, the operations of MSMEs would be transparent, non-discriminatory, and objective in nature.
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The Highlights Of New MSMEs:
‘Atma Nirbhar Bharat Abhiyan’ or the Self-Reliant India Scheme of 2020 by the Government of India has given a new definition for MSMEs.
Following are a few highlighting features of new MSMEs –
A provision of Collateral Free Loans to MSMEs
An arrangement of loans to MSMEs worth of Rs. 3 lac crores
An offer for MSMEs to get a Moratorium period of 12 months
Consideration of Manufacturing and Service MSMEs as the same entities
MSM is a granted a repayment Tenure of 48 months
MSMEs are assured a 100% Credit Guarantee
Reclassification of MSMEs will benefit approximately 45 Lac units.
The Conclusion
MSMED Act 2006 recognized, acknowledged and established the importance of MSMEs. The revision in 2018 further strengthened those provisions.