Micro Small and Medium Enterprises Development Act 2006

CS Executive ECL Free Notes

Micro Small and Medium Enterprises Development Act 2006

Introduction

  • More than 94 per cent of MSMEs are unregistered, with a large number established in the informal or unorganized sector.
  • The Government has enacted the Micro, Small and Medium Enterprises Development Act, 2006 w.e.f. October 2, 2006.
  • The Act provides for facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto.

DEFINITIONS

Appointed Day

Appointed Day means the day following immediately after the expiry of the period of 15 days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.

Enterprise

Enterprise 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 (IDRA) or engaged in providing or rendering of any service or services.

Supplier

Supplier means a micro or small enterprise, which has filed a memorandum with the authority referred to in Sub-section (1) of Section 8, and includes,—

  1. the National Small Industries Corporation, being a company, registered under the Companies Act, 1956;
  2. 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;
  3. 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.

National Board for Micro, Small and Medium Enterprises

Under Section 3, the Central Government shall establish National Board for Micro, Small and Medium Enterprises with its head office at Delhi.

Functions of Board (Section 5)

The Board shall, subject to the general directions of the Central Government, perform all or any of the following functions, namely:-

  1. examine the factors affecting the promotion and development of micro, small and medium enterprises
  2. review the policies and programmes of the Central Government in regard to facilitating the promotion and development and enhancing the competitiveness of such enterprises and the impact thereof on such enterprises;
  3. make recommendations on matters referred to above which, in the opinion of the Government, is necessary or expedient for facilitating the promotion and development and enhancing the competitiveness of the micro, small and medium enterprises; and
  4. advise the Central Government on the use of the Fund or Funds constituted under Section 12.

Classification of enterprises (Section 7)

Central Government may classify 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,—

  1. 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 IDRA as—
    1. a micro enterprise, where the investment in plant and machinery does not exceed 25 lakh rupees;
    2. a small enterprise, where the investment in plant and machinery is more than 25 lakh rupees but does not exceed 5 crore rupees; or
    3. a medium enterprise, where the investment in plant and machinery is more than 5 crore rupees but does not exceed 10 crore rupees;
  2. in the case of the enterprises engaged in providing or rendering of services, as—
    1. a micro enterprise, where the investment in equipment does not exceed 10 lakh rupees;
    2. a small enterprise, where the investment in equipment is more than 10 lakh rupees but does not exceed 2 crore rupees; or
    3. a medium enterprise, where the investment in equipment is more than 2 crore rupees but does not exceed 5 crore rupees.

Advisory Committee [Section 7(2)]

The Central Government shall constitute an Advisory Committee. Functions of Advisory Committee include:

  1. To examine the matters referred to it by the Board in connection with any subject referred to in Section 5 and furnish its recommendations to the Board.
  2. To advise Central Government on any of the matters dealing with measures for promotion, development and enhancement of competitiveness of micro, small and medium enterprises.
  3. To advise the State Government on any of the matters specified in the rules made under Section 30in respect of the composition of the Micro and Small Enterprises Facilitation Council, the manner of filling vacancies of the members and the procedure to be followed in the discharge of their functions by the members of the Micro and Small Enterprises facilitation Council.
  4. To communicate its recommendations or advice to the Central Government or, State Government or the Board after considering the following:
    1. the level of employment in a class or classes of enterprises;
    2. the level of investments in plant and machinery or equipment in a class or classes of enterprises;
    3. the need of higher investment in plant and machinery or equipment for technological upgradation, employment generation and enhanced competitiveness of the class or classes of enterprises;
    4. the possibility of promoting and diffusing entrepreneurship in a micro, small or medium enterprise; and
    5. the international standards for classification of small and medium enterprises.

Memorandum of micro, small and medium enterprises (Section 8)

Any person who intends to establish,-

  1. a micro or small enterprise, may, at his discretion; or
  2. a medium enterprise engaged in providing or rendering of services may, at his discretion; or
  3. a medium enterprise 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,

shall file the memorandum of micro, small or, as the case may be, of medium enterprise with such authority as may be specified by the State Government or the Central Government.

MEASURES FOR PROMOTION, DEVELOPMENT AND ENHANCEMENT OF COMPETITIVENESS OF MICRO, SMALL AND MEDIUM ENTERPRISES

Promotion and Development (Section 9)

The Central Government mayspecify such programmes, guidelines or instructions, as it may deem fit for the purposes of facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises, by way of

  • development of skill in the employees, management and entrepreneurs,
  • provisioning for technological upgradation,
  • providing marketing assistance or infrastructure facilities and cluster development of such enterprises

with a view to strengthening backward and forward linkages.

Credit facilities (Section 10)

The policies and practices in respect of credit to the micro, small and medium enterprises shall be progressive to ensure timely and smooth flow of credit to such enterprises, minimise the incidence of sickness among and enhance the competitiveness of such enterprises.

Funds

  • There shall be constituted , by notification, one or more Funds to be called by such name as may be specified in the notification and there shall be credited thereto any grants made by the Central Government under section 13. (Section 12)
  • The Central Government may credit to the Fund or Funds by way of grants for the purposes of this Act, such sums of money as that Government may consider necessary to provide.(Section 13)
  • The Central Government shall have the power to administer the Fund.The Fund or Funds shall be utilised exclusively for the measures specified in section 9.The Central Government shall be responsible for the coordination and ensuring timely utilisation and release of sums. (Section 14)

DELAYED PAYMENTS TO MICRO AND SMALL ENTERPRISES

Liability of buyer to make payment (Section 15)

Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefore 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.

Note

  • In no case the period agreed upon between the supplier and the buyer in writing shall exceed 45 days from the day of acceptance or the day of deemed acceptance.

Date from which and rate at which interest is payable (Section 16)

Where any buyer fails to make payment 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 3 times of the bank rate notified by the Reserve Bank.

Reference to Micro and Small Enterprises Facilitation Council (Section 18)

  • 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, the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services, for conducting conciliation.
  • Where such conciliation 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 centre providing alternate dispute resolution services for such arbitration.
  • Notwithstanding anything contained in any other law for the time being in force, the Micro and Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an Arbitrator or Conciliator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India.
  • Every reference made under this section shall be decided within a period of 90 days from the date of making such a reference.

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 centre 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.

Micro and Small Enterprises Facilitation Council

  • The State Government shall establish one or more Micro and Small Enterprises Facilitation Councils. (Section 20)
  • The Micro and Small Enterprise Facilitation Council shall consist of not less than three but not more than five members. (Section 21)

Requirement to specify unpaid amount with interest in the annual statement of accounts (Section 22)

Where any buyer is required to get his annual accounts audited under any law for the time being in force, such buyer shall furnish the following additional information in his annual statement of accounts, namely:-

  1. the principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier as at the end of each accounting year;
  2. the amount of interest paid by the buyer in terms of section 18, along with the amounts of the payment made to the supplier beyond the appointed day during each accounting year;
  3. the amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under this Act;
  4. the amount of interest accrued and remaining unpaid at the end of each accounting year; and
  5. the amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under section 23.

Interest not to be allowed as deduction from income (Section 23)

Notwithstanding anything contained in the Income-tax Act, 1961, the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act, shall not, for the purposes of computation of income under the Income-tax Act, 1961, be allowed as deduction.

Over-riding effect (Section 24)

The provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

Appointment of officers and other employees (Section 26)

  • The Central Government or State Government may appoint such officers with such designations and such other employees as it thinks fit for the purposes of this Act and may entrust to them such of the powers and functions under this Act as it may deem fit.
  • Such Officers may, for the purposes of this Act, by order require any person to furnish such information, in such form, as may be prescribed.

Penalty for contravention of section 8 or section 22 or section 26 (Section 27)

  • Whoever intentionally contravenes or attempts to contravene or abets the contravention of any of the provisions contained in section 8 or sub-section (2) of section 26 shall be punishable –
    1. in the case of the first conviction, with fine which may extend to Rs. 1000; and
    2. in the case of any second or subsequent conviction, with fine which shall not be less than Rs. 1000 but may extend to Rs. 10000
  • Where a buyer contravenes the provisions of section 22, he shall be punishable with a fine which shall not be less than Rs. 10000.

Jurisdiction of courts (Section 28)

No court inferior to that of a Metropolitan Magistrate or a Magistrate of the first class shall try any offence punishable under this Act.

What do you mean by the day of acceptance?

The day of acceptance as to mean the day of the actual delivery of goods or the rendering of services; or 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 do you mean by the day of deemed acceptance?

The day of deemed acceptance to mean, 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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