Provisions for dealing with delayed payments to MSME sector

MSMEs businesses have become a primary force behind the progress of
the Indian economy. It has been observed by many institutions that MSMEs
businesses have steadily been outperforming many other business sectors
in the recent times. This is primarily due to the growing interest of
entrepreneurs in setting up their businesses and making right use of the
advantages that this industry gives to new entrants. The delayed payments
to MSMEs are one of the primary problems the businesses of this sector
had to face in the post pandemic era. Covid-19 or Coronavirus as we all
have commonly known has been the most unbelievable event of the 21 st
century so far. Its implications have been felt far and wide making a deep
wound in the collective psyche of the modern man. This sudden occurrence
of the pandemic led the world to a standstill. MSME sector post pandemic
couldn’t fathom their next move. This is all just a recent past and everyone
is still bearing the heavy brunt of the pandemic.

The number of delayed payment cases was on the rise just after the
pandemic started fading little bit. It is very important to note the timings
of such events as it clearly helps to map out of the overall condition of the
economy. MSMEs operating from different corners of the country had to
face severe shortages of raw materials and access to labor due to lockdown
impositions. This was the time to become creative in order to handle and
maintain the businesses. Recent development in MSME sector shows that
small businesses were able to overcome the pandemic period with careful
and calculated measures.

Delayed Payments to MSMEs :
Any buyer who buys any good or avails any service from an MSME has
to make the payment on or before the agreed date and the agreed date
cannot exceed forty-five (45) days from the day of acceptance or the
day of deemed acceptance. In case there is no agreed date, the
payment has to be made on or before fifteen (15) days.
In case of delay, the buyer is liable to pay compound interest with
monthly rests to the supplier for the period of delay, at three (3) times
of the bank rate notified by the Reserve Bank of India.
What is the primary legal remedy to tackle the issue of delayed
payments to MSMEs?
In case of any dispute with regard to the payment, any party can make
a reference to the Micro and Small Enterprises Facilitation Council
(MSEFC). Thereafter, MSEFC will conduct conciliation in the matter, to
which the provisions of sections 65 to 81 of the Arbitration and
Conciliation Act, 1996 will apply.

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If conciliation fails, MSEFC will arbitrate on the dispute, to which the
provisions of the Arbitration and Conciliation Act, 1996 will apply. Every
reference has to be decided within a period of ninety (90) days.
There is a specific delayed payment monitoring system in place for
addressing the grievances of the MSMEs. It is a very useful platform and
is called the MSME Samadhan. They have also established a MSME
Samadhaan portal for the welfare of the MSME and the issues
pertaining to delayed payments within the sector.

Nature of support :
MSEFC of the State after examining the case filed by MSE unit will issue
directions to the buyer unit for the delayed payment amount along
with interest as per the provisions under the MSMED Act 2006.
Application Eligibility :
Any Micro or small enterprise having valid Udyog Aadhar(UAM) can
apply.
Features :
The buyer is liable to pay compound interest with the monthly rests to
the supplier on the amount at the three times of the bank rate notified
by RBI in case he does not make payment to the supplier for his
supplies of goods or services within 45 days of the acceptance of the
goods/service rendered. (Section 16)
State Governments to notify (i) Authority for filing Entrepreneur
Memorandum (ii) Rules of MSEFC and (iii) Constitution of MSEFC.

All States/UTs have notified Authority for Filing Entrepreneur &
Memorandum, 33 States/UTs (i.e. except Arunachal Pradesh, Assam
and Manipur) have Notified rules of MSEFC and all the 36 States/UTs
have constituted MSEFCs, as per provisions laid down under MSMED
Act 2006.
Every reference made to MSEFC shall be decided within a period of
ninety days from the date of making such a reference as per provisions
laid in the Act.

If the Appellant (not being the supplier) wants to file an appeal, no
application for setting aside any decree or award by the MSEFC shall be
entertained by any court unless the appellant (not being supplier) has
deposited with it, the 75% of the award amount.
How it is implemented?
The provisions under the Act are implemented by MSEFC chaired by
Director of Industries of the State /UT having administrative control of
the MSE units. State Government/UTs are requested to ensure that the
MSE Facilitation Council hold meetings regularly and delayed payment
cases are decided by the Councils within a period of 90 days as
stipulated in the MSMED Act, 2006.

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MSME Samadhaan Portal – Ease of filing application under MSEFC, an
Initiative from Ministry of MSME, Govt. of India
Ministry of MSME has taken an initiative for filing online application by
the supplier MSE unit against the buyer of goods/services before the
concerned MSEFC of his/her State/UT. These will be viewed by MSEFC
Council for their actions. These will be also visible to Concerned Central
Ministries, Departments, CPSEs, State Government, etc for pro-active
actions.

It is thus extremely important for all the MSME businesses to make use
of the MSME Samadhaan Portal in order to solve their MSME delayed
payment issues. This kind of arrangements helps to reduce the number
of delayed payments cases. Once the MSME industry is able to
significantly reduce the number of MSME cases, it would prove to a
decisive factor for further growth of the MSME sector in the coming
few years.