Dispute Resolution through MSME Act

Author - Nishant Nigam

MSMEs serve as the backbone of India's economy. The significant organizations were traditionally only considered possible economic boosters, but now the situation has changed. Small and medium-sized companies (SMEs) are seen as the Indian economy's growth driver. There are more than 5.5 crore small businesses that drive our Indian economy through produce, export, import, exchange, etc. The SME market, besides, has been active in providing job opportunities in both formal and informal sectors. The number of opportunities for jobs is expected to increase, despite the increasing achievements of this sector.

MSME Act 2006

The Micro, Small and Medium Enterprises Development Act 2006 or MSME Act 2006 is a single comprehensive act for micro and medium enterprise growth and regulation. The Act's broad aim is to encourage the promotion, growth and enhance the competitiveness of micro, small and medium-sized enterprises and related incidental matters.

MSME Dispute Resolution 

The Government enacted the 2006 MSME Act and introduced Chapter V expressly dealing with overdue payments to MSME. The Chapter contains section 15 to section 25, which addresses the issue of delayed payments to MSME in length. Section 15 of the MSME Act provides for the legitimate right of the manufacturer of products and services to obtain payment within 45 days of the delivery of goods or services. Section 16 of the said Act stipulates that if any purchaser fails to make payment after the 45-day supply period, they are liable to pay compound interest @ three times the rate notified by the Reserve Bank of India. The supplier can refer the matter to the MSME Facilitation Council in case of failure of the buyer to pay the sum with compound interest u/s 18. The Council shall either perform the conciliation itself or seek the assistance of another conciliation organization.

However, if the conciliation between the parties is ineffective, the Council shall either take up the arbitration dispute or refer the matter to another tribunal for the 1996 Arbitration & Conciliation Act. The Council itself has the power to serve as an arbitrator or conciliator for any dispute within its power even if the purchaser may be located in India. This Section also demands that any reference u / s 18 be determined within 90 days of the date the referral is filed.

Reference to Council in case dispute regarding payment

Under Section 19 of the Act, the award of the MSME Facilitation Council can be challenged by the Designated Court. Still, the request to set aside the award shall not be entertained by the Court until the applicant has deposited 75 % of the amount awarded by the Council. It is a requirement for accepting and retaining the appeal against MSME order Facilitation Council. It will also be the Court's right to pay the buyer whatever amount it finds appropriate. Sections 20 & 21 stipulate that these Facilitation Councils shall be formed by the Government of the State and shall consist of the Director of Industries as Chairman, office holders of the MSME association, representatives of banks and financial institutions and individuals with exceptional knowledge of the industry, finance, law, trade or trade.

While the MSME Act has been in effect for the last 13 years, not much has been done as regards overdue payments to MSME. On 2 November 2018, the Government of the Union released a notification under the MSME Act, 2006 to ensure timely and smooth credit flow to MSMEs and to reduce sickness in the MSME market. The Government has directed all companies that purchase goods or services from micro and small businesses and whose payments to these suppliers exceed forty-five days from the date of delivery of goods and services to the Ministry of Corporate Affairs on a half-yearly return specifying the sum of payments due and the reasons for the delay.

The Government also introduced an online delayed payment monitoring program called the MSME Samadhan review MSME Act to promote the submission of an MSEFC application. Any MSME which has a valid Udyog Aadhaar Memorandum (UAM) can apply via this portal. Once the MSME makes a request, the MSEFC shall examine the case and issue instructions to the purchaser unit for payment of the due sum along with interest.

Conclusion

Ministry Micro, Small and Medium Enterprises (MSME) have made tremendous contributions to the country's socio-economic growth over the last five decades. MSME has a large share of jobs, development and exports. They contribute almost 8% (per cent) of the country's GDP, 45% (per cent) of the manufacturing production and 40% (per cent) of the exports. The Government's efforts have led to the growth of the MSME and enabled them to counter delayed payments.