Disclosure requirements regarding MSME dues under MSMED Act, 2006

The MSME Development Act, 2006 (‘MSMED Act’) strengthens the provisions relating to delayed payments to the Micro, Small and Medium Enterprises (‘MSME’) by specifying the maximum credit period and higher penal interest if delayed beyond that period. If there is a delay in payment, companies will have to mention the reason for such delay in the statement of accounts.

Please note that Section 15 of the MSMED Act casts ‘LIABILITY OF BUYER TO MAKE THE PAYMENT’. It states that where the supplier supplies goods or renders any services to any buyer,

• then the buyer shall make payment on or before the date agreed upon between him and supplier in writing, and
• if there is no agreement, then before the appointed date.

The proviso to this section states that the period of credit given by the seller shall not exceed 45 days from ‘the day of acceptance’ or from ‘the date of deemed acceptance’.

“APPOINTED DATE” means the day following immediately after the expiry of the period of fifteen days (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.

“THE DAY OF ACCEPTANCE” means-

• 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 (15) 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.

Further, “THE DAY OF DEEMED ACCEPTANCE” means-

• where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen (15) 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;

ANALYSIS OF SECTION 15:

As per Section 15 of MSMED Act, if the payment terms are not agreed in writing, the appointed day shall be the due date for payment.

Even if the payment terms are agreed in writing, it shall not exceed 45 days from the date of acceptance or deemed acceptance. In other words, the payment terms for the purpose of computation of interest under Section 16 of the MSMED Act shall be based on the agreed days or 45 days whichever is lower.

Further, as per Section 16 of the MSMED Act, if a buyer fails to make the payment within the stipulated date, it will be liable to pay compound interest with monthly rests on the outstanding amount additionally. The interest shall be calculated from the appointed date at three times of the bank rate notified by the RBI. However, in case of any dispute regarding the payment of principal/interest between the supplier and the borrower, reference shall have to be made to the Micro and Small Enterprises Facilitation Council (‘MSEFC’), constituted by the respective state governments.

The Government has also launched an online delayed payment monitoring system called the MSME Samadhaan the ease of filing an application under the MSEFC. Any MSME, having a valid Udyog Aadhaar Memorandum (UAM) can make an application via this portal. After an application is made by the MSME, the MSEFC shall examine the case and then issue directions to the buyer unit for payment of the due amount along with the interest.

DISCLOSURE REQUIREMENTS: –

Section 22 of the MSMED Act states that the buyer, who buys goods or avails services from the MSMEs, and is required to get his annual accounts audited, has to mandatory disclose the following additional information in its annual statement of accounts with respect to the amount due to the MSMEs:

• The principal amount and the interest due thereon remaining unpaid to the supplier till the appointed date;
• The amount of interest paid by the buyer on account of delayed payments;
• The principal amount and interest due beyond the appointed date for the period of delay;
• The amount of interest accrued and remained unpaid at the end of each year;
• The amount of further interests;
• Remaining due and payable even in succeeding years, until such date when the interest due is actually paid to the MSMEs.

In exercise of powers conferred by Section 9 of the MSMED Act, the Ministry of Micro, Small and Medium Enterprises had vide Notification Dated 2^nd November, 2018 directed all companies who

• get supplies of goods and services from micro and small enterprises and,
• whose payments to micro and small enterprise suppliers exceed 45 days from the date of acceptance or deemed acceptance

to file a half yearly return with the Ministry of Corporate Affairs (‘MCA’) stating the amounts due and the reasons for delay.

It is pertinent to note that- there is no word as ‘Specified Companies’ in the said notification.

Subsequently, in exercise of power under section 405 of the Companies Act, 2013 (Power of Central Government to direct companies to furnish information for statistics), the Central Government, considers it necessary to require “Specified Companies” to furnish above information under said section of the Act. Therefore, MCA vide Notification dated 22 January 2019 issued an Order i.e. Specified Companies (Furnishing of Information about Payment to Micro and Small Supplier) Order, 2019 and directed all Specified Companies to file form MSME-I.

The aforesaid requirement is applicable only to “Specified Companies” as defined under MCA notification: –

1. Companies which get supplies of goods and services from Micro and Small Enterprises and
2. Whose payments exceed 45 days from the date of acceptance or the date of deemed acceptance of the goods or services.

The MCA notification requires the following:-

1. One time return within 30 days of notification to be filed by Specified Companies.
2. Half yearly return by the end of the month succeeding the end of half year. The half year for this purpose shall be April to September and October to March and the due dates shall accordingly be 31st October and 30th April respectively.

It is submitted that this notification is applicable only for those suppliers who are registered as MSME and include micro or small enterprise, which has filed a memorandum with the specified authority and has obtained the Unique Identification Number (UIN) for MSMEs.

Due Date of Filing of MSME-I in the year 2020-21.

Half yearly return with the registrar in respect of outstanding payments to Micro or Small Enterprise shall be filed within a month for each half year ended.

Penalty for not complying the statutory provisions: –

Penalty for furnishing any information or statistics which is incorrect or incomplete in any material respect and not to comply the order issued by the Government under Section 405(1) of the Companies Act, 2013 are as under-

Pursuant to the provisions of Section 405(3) of the Companies Act, 2013

• The Company shall be punishable with fine which may extend to twenty-five thousand rupees and
• Every officer of the company who is in default, shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to three lakh rupees, or with both.

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