For Micro, Small, and Medium Enterprises (MSMEs), delayed payments and non-payment from buyers can lead to severe financial strain and hamper business operations. To address this issue, the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006, provides a legal framework for the recovery of dues from buyers, coupled with compound interest. This article explores the provisions of the MSMED Act, highlighting their significance in resolving payment recovery disputes and promoting timely payments.
The Plight of MSMEs: Delayed Payments and Financial Strain
MSMEs form the backbone of the Indian economy, contributing significantly to employment and economic growth. However, delayed payments from buyers pose a critical challenge, creating cash flow issues and hindering the growth prospects of these enterprises.
Understanding the MSMED Act:
Definition and Eligibility:
The MSMED Act defines MSMEs based on their investment in plant and machinery or equipment. Enterprises falling within the specified investment limits are eligible for the benefits and protections provided under the Act.
Provisions for Timely Payments:
MSMED Act addresses the recovery of dues from buyers, ensuring that MSMEs receive their rightful payments within the stipulated timeframe.
Key Provisions of MSMED Act, 2006
Section 15: Liability of buyer to make payment.
—Where any supplier, supplies any goods or renders any services to any buyer, the buyer shall make payment therefor 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: Provided that 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.
The Micro, Small and Medium Enterprises Development Act, 2006
Legal Remedy for Delayed Payments:
MSME suppliers facing non-payment or delayed payment from buyers can file a complaint under Section 15 of the MSMED Act.
Application to the Micro and Small Enterprises Facilitation Council (MSEFC):
The supplier must submit an application to the MSEFC, seeking redressal for the outstanding payment.
Compounding of Interest:
Upon successful application, the MSEFC has the authority to direct the buyer to pay the amount due along with compound interest, as specified under the Act.
Filing of Suit under Section 18(1) of MSMED Act:
18. Reference to Micro and Small Enterprises Facilitation Council.—
(1) Notwithstanding anything contained in any other law for the time being in force, 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.
Section 18(1) provides an alternative legal recourse for MSME suppliers to recover their dues from buyers. This section empowers MSME suppliers to file a suit for recovery of outstanding payments in a civil court of competent jurisdiction.
Filing the Suit: MSME suppliers can initiate the legal process by filing a suit under Section 18(1) of the MSMED Act against the defaulting buyer in the appropriate civil court.
Required Documents: To strengthen their case, MSME suppliers must ensure the submission of the following documents:
a. Copy of the invoice(s) raised for the goods or services provided.
b. Copy of the agreement or contract, if any, between the supplier and the buyer.
c. Proof of delivery of goods or completion of services.
d. Communication records indicating demand for payment and subsequent reminders, if any.
e. Any other relevant documents supporting the claim for payment.
Legal Representation: Engaging the services of an experienced lawyer specializing in MSME payment recovery cases can significantly enhance the chances of success in civil court proceedings.
Section 18(2): Reference to the Conciliation
(2) On receipt of a reference under sub-section (1), the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to such a dispute as if the conciliation was initiated under Part III of that Act.
Alternate Dispute Resolution Mechanism:
Reference of disputes to the conciliation process, promoting a speedy and amicable resolution between the parties involved.
Appointment of Conciliation Officer:
The MSEFC appoints a Conciliation Officer, who assists the parties in reaching a mutually agreeable settlement through negotiations.
Binding Effect of Settlement:
If the parties reach a settlement during the conciliation proceedings, it becomes binding on both parties, providing a legally enforceable mechanism for payment recovery.
Recent Judgements and Precedents:
Steel Authority of India Ltd. vs. R.K. Saboo:
In this case, the Supreme Court held that the provisions of the MSMED Act are mandatory and must be complied with strictly. It emphasized the importance of timely payments to MSMEs and highlighted the role of compound interest in compensating for delayed payments.
D.S. Construction vs. National Hydroelectric Power Corporation:
The Delhi High Court held that once a buyer accepts the goods or services rendered by the MSME supplier, the payment must be made within the prescribed timeline. Failure to do so would attract liability under the MSMED Act, including the payment of compound interest.
Leveraging MSMED Act for Effective Recovery:
Timely Filing of Complaints:
MSME suppliers should promptly file complaints with the MSEFC upon non-payment or delayed payment issues, invoking the provisions of Section 15.
Seeking Conciliation:
Parties involved in payment recovery disputes should consider utilizing the conciliation process, facilitating a quicker resolution and preserving business relationships.
Engaging Legal Experts:
MSMEs can benefit from engaging experienced legal professionals who specialize in MSME payment recovery litigation disputes. These experts can provide valuable guidance and representation throughout the legal proceedings.
General FAQs Related to MSME Payment Recovery:
What is the timeframe for filing a complaint under Section 15 of the MSMED Act?
Suppliers must file a complaint within 90 days from the date of the payment becoming due as per the agreed terms or the delivery of goods or services, whichever is later.
Is compound interest applicable in all payment recovery cases under the MSMED Act?
Yes, compound interest is applicable for delayed payment cases under the MSMED Act. The interest rate is three times the bank rate notified by the Reserve Bank of India.
Can a supplier file both a complaint under Section 15 and a suit under Section 18(1) simultaneously?
Yes, a supplier has the option to pursue both remedies simultaneously. However, it is advisable to consult with legal experts to determine the most appropriate course of action based on the specific circumstances of the case.
What is the rate of interest payable by the buyer in case of non-payment?
According to Section 16 of the MSMED Act, if a buyer fails to make payment to the supplier, the buyer becomes liable to pay compound interest with monthly rests at a rate of three times the bank rate notified by the Reserve Bank of India.
Can a buyer challenge the decision of the civil court regarding payment recovery?
Yes, a buyer has the right to challenge the decision of the civil court by filing an appeal in the appropriate higher forum within the prescribed time limit.
The MSMED Act serves as a crucial tool in addressing the challenge of delayed payments and non-payment faced by MSMEs. By leveraging these provisions and seeking timely redressal, MSMEs can protect their financial interests, ensure business sustainability, and contribute to the growth of the Indian economy.
