All about MSMED ACT, 2006

Kalpana Borjha| Kalinga University| 7th June 2020

Introduction

Micro, Small and Medium Enterprises Development Act, 2006 has legislated and enacted on 16 June, 2006. MSMEs are (micro, small and medium) manufacturing and service enterprises. The government has set the investment amount of each of these enterprises as follows:-

The MSMED Act provides an ease for promotion and development of these enterprises and enhance their competitiveness. The Act contains 32 Sections divided into VI Chapters.

Chapter I: Definition and extent of the Act.

According to the provision of the MSMED Act, 2006, the micro, small and medium enterprises (MSME) can be classified into two categories:-

a. Manufacturing Enterprises: Enterprises engaged in production or manufacturing of good pertaining to the industries specified in the first schedule of the Industries (Development and Regulation) Act, 1951. Such enterprises are defined in terms of investment in plant and machineries.

b. Service Enterprise: As the name itself suggests that these are enterprises engaged in providing services and are defined in terms of investment in equipment.

Chapter II: National Board for MSME.

National Board for micro, small and medium enterprises has been established under Section-3 of the Act. The head office of the board is located at Delhi. The members of the Board comprises of Ministers, MPs, persons representing Indian Bank Association, RBI, associates of MSMEs, etc. Any member who is adjudged to be insolvent, unsound mind, refuses to act as a member, abused the position or has been convicted of any offence involving moral turpitude (any conduct contrary to justice, honesty and good morals), can be removed by the Central government. The function of the Board is to examine factors affecting promotion and development of MSMEs, reviewing and recommending government policies regarding the enhancement of competitiveness of MSMEs and advising the government for proper use of Funds constituted under Section-12 of the Act.

Chapter III: classification of enterprises, advisory committee and memorandum of MSME.

MSMEs can be classified as Manufacturing enterprises and Service Enterprises. The Central government can form an Advisory committee by notification, consisting of Secretary of Government of India, three members of the State government, one member from each micro, small and medium enterprise and Member Secretary of the Board. Advisory Committee can recommend the Central or State Government for various matters such as, Filing Memorandum with authorities as prescribed in Section 8 of the Act and the authority for the same is prescribed by the State Government. Filing of Memorandum is optional for micro and small enterprises whereas compulsory for the Medium enterprises and the authority is prescribed by the Central Government.

Chapter IV: Measures for Promotion, Development and enhancement of competitiveness of MSMEs.

• The Central Government can organize programs for skill development, management, entrepreneurs, technological upgradation, market assistance, etc to facilitate the promotion of the MSMEs.
• Policies and practices with respect to credit shall be progressive and may be specified in the guidelines for the MSMEs.
• The Central or the State Government can notify the procurement preference policies of goods and services, produced and provided by the MSMEs or its aided institutions and public sector enterprises.
• There shall be constitution of funds and grants to be credited to MSMEs by the Central Government.
• The Central Government has power to administer and utilize the collected fund.

Chapter V: Delayed payments to MSMEs and their recovery

It is the liability of the buyer to make payment within 45 days, to the MSMEs for supply of goods or services rendered. If any buyer fails to do so, he will be liable to pay interest three times of the bank rate notified by the Reserve Bank of India. In case of any dispute, the party may refer the dispute to Micro and Small enterprises Facilitation Council. The Council may either itself conduct conciliation or seek assistance of Arbitration and Conciliation Act, 1996 (Section-65 to 81). If conciliation is not successful, it is to be referred to institutions providing alternate dispute resolving system and is to be decided within 90 days. The State Government is responsible to establish such Councils, which consists of Directors of industries, representative of association of MSMEs, bank, financial institutions lending the MSME, person having special knowledge in the field of industry, finance, trade or commerce, and the procedures may be prescribed by the Central Government.

Chapter VI: Miscellaneous topics related to the MSMEs.

• The central or the State Government can appoint officers and other employees who may have power and have to function in accordance with this Act.
• Whosoever violates or tries to violate or abets for violation of any of the provisions of the MSMED Act shall be fined upto Rs.1000 in case of first conviction, Rs.1000 to Rs.10,000 in case of second or subsequent convictions and a fine of not less than Rs.10,000 for violation of Section-22 (Requirement to specify unpaid amount wit interest in the annual statement).
• Cases related to MSME disputes will go to no court inferior to the Metropolitan or First Class Magistrate.
• The Central Government can make rules to be placed before LokSabha and RajyaSahba (both house of the Parliament) for 30 days and the State Government can make rules to be placed before each house of the State Legislature.
• The Central Government can remove any difficulty which affects any of provisions of the MSMED Act by publishing about the same in the Official Gazette.

Registration of MSMEs

All kind of enterprises (Hindu Undivided Family, Partnership Firm, Proprietorship, Co-operative society, Associations, Company or Undertaking) can apply for the registration and get qualified for the benefits provided under the MSMED Act, 2006. Any individual or group of individuals who intent to establish an MSME may willingly file Memorandum of enterprise with authorities as specified by the State or the Central Government. The MSMEs should get their supply order sheet, MSMED registration, allotted Entrepreneurs Memorandum Number, invoices, bills and other related documents, so as to remain an identification of MSME supplier.

Benefits of Registration of MSME

• Easy availability of finance from Banks without collateral requirements.
• Preference while procuring Government tenders.
• Time bound resolution of disputes with buyers through conciliation and arbitration.
• Reservation policies for production sector enterprises.

Conclusion

Worldwide, the MSMEs have been accepted as an engine of the economic growth. With low investments, operational flexibility and capacity to develop appropriate indigenous technology, MSMEs have the power to propel India to new heights. The role of the Ministry of MSME and its organization is to encourage assist the State Government and their efforts to encourage entrepreneurship, livelihood opportunity and employment and enhance the competitiveness of the MSMEs in current and future economic scenarios. And so is the objective of the MSMED Act, 2006.