Micro & Small Medium Enterprises

The Micro, Small and Medium Enterprises Development Act, 2006

Agriculture is considered to be one of the main sector of the Indian economy.  Simultaneously there are other sectors which contribute for Indian economy like industry and service sector.  Due to globalization and growing needs in the competitive world the emphasis has shifted from industry to ‘Enterprises’.

The Central Government has enacted an act, called The Micro, Small and Medium enterprises, Development Act, 2006 on 16^th June 2006 which came into force on 02.10.2006.  The Act aims at development and promotion of micro, small and medium enterprises.

The objective of the act is to define and classify the ‘enterprise’.  Establishment of board, a high-level forum.  Providing guidelines and instructions for development of ‘enterprise’.  Timely and smooth flow of credit.  Overall it is for the development and strengthening the small, micro and medium enterprises to compete with big enterprises.

The word ‘Enterprises’ is vide enough to include all kinds of establishments, organizations engaged in manufacture or production of goods or providing services.  ‘Enterprise’ has been defined and classified under the act, as under;  

‘Enterprises’ means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the industries (Development and Regulation) Act, 1951 or engaged in providing or rendering of any service or services.

The classification of the ‘Enterprise’ as to micro, small and medium is determined from the following criteria’s.

Note: Cost of pollution control, research and development, industrial safety devices and such other items as my be notified shall be excluded in calculating the investment in plant and machinery.

Thus the word ‘Enterprise’ has been defined in such a manner that, it is vide enough to include all kinds organizations or establishments engaged in any activity like systematic, continuous, purposeful, commercial in nature with a view to earning an income.  It includes every trade occupation, profession.

Important Definitions

‘Buyer’ means whoever buys any goods or receives any services from a supplier for consideration

‘Goods’ means every kind of movable property other than actionable claims and money.

‘Suppler’ means a micro or small enterprises, which have filed a memorandum with the authority as notified by the State or Central Government.

Comment

 ‘Service’ has not been defined under the Act.

Who can avail the benefits under this act?

Any person who intends to establish and such enterprises falls under the category of micro, small and medium enterprises as defined under the act, at his discretion can file a memorandum before the specified authority.

If the enterprise already exists before the commencement of this act, shall within 120 days from the date of commencement of this act, shall file memorandum.  [commencement of act, 02.10.2006]

Facilities and Advantages Available under the Act

1.      Assistance and guidelines from Central Government in the following:

Development of skill in the employees

Technology upgradation

Marketing assistance

Infrastructure facility

2.      Financing:

To ensure timely and smooth flow of credit provides credit facilities through RBI guidelines or instructions.  An enterprise can also avail finance by way of grants created by funds under this Act. 

3.      Policy for procurement of goods and services:

Formulating policies for procurement of goods and services produced and provided by micro and small enterprises.

4.      Measures for delayed payments

It is duty and obligation of the buyer of micro and small enterprises to make payments against receipt of goods or services availed within the agreed period.  However the Act imposes 45 days time for making payment within ‘the day of acceptance’ of the goods or services.  In case any default in making payment

a)      aggrieved ‘supplier’ can make a reference before the ‘Micro and Small Enterprises Facilitation Council’ for recovery of amount due along with interest*¹ at three times the bank rate [at present the bank rate is 13% per annum].

b)      Interest paid by the buyer to the micro and small enterprise supplier shall not a deductible expenditure under the Income Tax Act, 1956.

c)       Further it is mandatory of the buyer to specify and furnish the information about amount due along with interest in the annual statement of accounts.

d)      Any buyer who fails to furnish the details of unpaid amount and interest thereon shall be punishable with a fine which shall not be less than rupees ten thousand.  This penalty may extend to more than rupees ten thousand.

Comment

The provision does not provide any opportunity to plead reason for non-furnishing of information.

Note: The jurisdiction shall be the place of the supplier located in India.

*¹ Provision relating to interest

5.      Disposable of Cases

Every reference made under this act, shall be decided within a period of 190 days from the date of making reference.

The dispute shall be disposed in a manner by conducting conciliation or seeking assistance from any institution or referring cases to centre or conducting conciliation as per provisions of section 65 to 81 of the Arbitration and Conciliation Act. 1996.

6.      Further Appeal

The aggrieved person [either the supplier or the buyer] can make appeal to the court.  In case where the appellant is buyer appeal shall be entertained unless the buyer deposits 75% of the amount of decree or award as the case may be as mentioned in the order.

Repeal of Act: By enacting this law ‘The Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 has been repealed.