Return about Payment to MSME Suppliers

Ministry of Corporate Affairs and Ministry of Micro, Small and Medium Enterprises came together to protect interests of micro, small and medium enterprises. We will discuss in this post two recent notifications issued by these ministries.

Requirement of Return

The Ministry of Micro, Small and Medium Enterprises, Central Government vide notification number S.O. 5622(E), dated the 2nd November 2018 has directed that all companies –

• who get supplies of goods or services from micro and small enterprises; and
• whose payments to micro and small enterprise suppliers exceed forty-five days from the date of acceptance or the date of deemed acceptance of the goods or services

shall submit a half yearly return to the Ministry of Corporate Affairs stating the following:

(a) the amount of payment due; and

(b) the reasons for the delay.

The companies required to file a half yearly return may be referred to as Specified Companies.

This notification number S.O. 5622(E), dated the 2nd November 2018 was issued under section 9 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006). Section 9 of the MSMED Act, 2006 give power to Central Government to specify, by notification, such programmes, guidelines or instructions, as it may deem fit.

Such instruction shall be for the purposes of facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises, particularly of the micro and small enterprises, by way of development of skill in the employees, management and entrepreneurs, provisioning for technological upgradation, marketing assistance or infrastructure facilities and cluster development of such enterprises with a view to strengthening backward and forward linkages.

Return Form

Ministry of Corporate Affairs vide notification number S.O. 368(E) on 22^nd January 2019 issued under section 405 of the Companies Act, 2013 issued an order called the Specified Companies (Furnishing of information about the payment to micro and small enterprise suppliers) Order, 2019. This order came into force on 22^nd January 2019.

Every specified company shall file in MSME Form I.

{Update: the form MSME-1 made available for filing on 1st May 2019 and discussed here.]

The due date for First Time/ One Time Return

Every specified company shall file in MSME Form I details of all outstanding dues to Micro or small enterprises suppliers existing on the date of notification of this order within thirty days from the date of publication of this notification.

The Due date of filing this Form I is 20^th February 2019. (Please note it is inclusive of 22^nd January 2019).

In this initial return, item number 3 of the Form shall be filled.

Due Dates for Half Yearly Return

Every specified company shall file a return as per MSME Form I annexed to this Order –

• by 31st October for the period from April to September; and
• by 30th April for the period from October to March.

In Half yearly return, item number 4 of the form shall be filled, not item number 3.

Information to be given in the Return

The following information is required to be given in the Return –

• Outstanding dues to micro and small enterprises; and
• Reasons for Delay in the amount of payments due.

Details of outstanding shall be as under –

• Financial Years/Particulars;
• Name of Suppliers;
• PAN of Suppliers;
• Amount due; and
• Date from which the amount is due.

The form is required to be signed by a director, manager, CEO or company secretary.

Classification of Enterprises

Section 7(1)(a) of the MSMED Act, 2006 classify enterprises engaged in manufacturing and production of goods while Section 7(1)(b) classify enterprises engaged in providing or rendering of services.

According to Section 7(1)(a) any class or classes of enterprises, whether proprietorship, Hindu undivided family, association of persons, co-operative society, partnership firm, company or undertaking, by whatever name called in the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951),as—

• a micro enterprise, where the investment in plant and machinery does not exceed twenty-five lakh rupees;
• a small enterprise, where the investment in plant and machinery is more than twenty-five lakh rupees but does not exceed five crore rupees; or
• a medium enterprise, where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees;

According to Section 7(1)(b) any class or classes of enterprises, whether proprietorship, Hindu undivided family, an association of persons, co-operative society, partnership firm, company or undertaking, by whatever name called, in the case of the enterprises engaged in providing or rendering of services, as—

• a micro enterprise, where the investment in equipment does not exceed ten lakh rupees;
• a small enterprise, where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees; or
• a medium enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees.

Micro Enterprise

An Enterprise is a microenterprise –

• In the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951), where the investment in plant and machinery does not exceed twenty-five lakh rupees; and
• in the case of the enterprises engaged in providing or rendering of services, where the investment in equipment does not exceed ten lakh rupees.

Small Enterprise

An Enterprise is a Small enterprise –

• In the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951), where the investment in plant and machinery is more than twenty-five lakh rupees but does not exceed five crore rupees; and
• in the case of the enterprises engaged in providing or rendering of services where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees.

Medium Enterprise

An Enterprise is a Small enterprise –

• In the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951), where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees; and
• in the case of the enterprises engaged in providing or rendering of services where the investment in equipment is more than two crore rupees but does not exceed five crore rupees.

Liability of buyer to make payment

According to Section 15 of the MSME Act, 2006, the buyer shall make payment to an MSME supplier 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.

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.

Date from which and rate at which interest is payable

According to Section 16 of the MSME Act, 2006, where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall 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.