Mandatory Reporting of Dues to Micro/Small Suppliers


Mandatory Reporting of delayed payments to Micro & Small Enterprises Creditors

On 2 November 2018, the Union government issued a notification under the Micro, Small and Medium Enterprises (MSMEs) Development Act, 2006 ostensibly to ensure timely and smooth flow of credit to MSMEs and minimise sickness among them.

The Act strengthens the provisions relating to delayed payments to the MSMEs 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.

The question is whether such notifications will actually foster the growth of the MSME sector.

Subsequent to the Notification given by the Ministry of MSME on 02nd November 2018, now the Ministry of Corporate Affairs have issued a gazette notification dated 22nd January 2019 mandating all the “Specified Companies” shall file details of all outstanding dues to Micro or small enterprises suppliers existing on the date of notification of this order within thirty days from the date of publication of this notification with ROC.

However, first let us understand the current provisions relating to delayed payments under the MSME Development Act, 2006 before we go to the disclosure requirement under ROC:

Currently it’s the Liability of Buyer to make payment

Section 15 of the MSME Development Act 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 mentioned in the agreement 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.

Further, as per Section 16 of the MSME 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 for 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.

From the date of launch of the MSME Samadhaan portal, i.e., 30 October 2017, MSMEs have filed 2,927 applications related to delayed payments. These cases involve an amount of Rs744.65 crore. This portal has also helped in getting the delayed payments settled mutually between seller and buyer.

About 105 mutual settlements have been made, involving Rs8.87 crore.

Applications are getting converted to cases by MSE-Facilitation Councils in the respective states. Some 264 applications have been converted to cases as on 31 January 2018. This has empowered the MSMEs to file their delayed payment cases directly. This is being monitored by the respective ministries/ central public sector enterprises (CPSEs) and state governments. (All the data have been taken from https://msme.gov.in/sites/default/files/MSME-AR-2017-18-Eng.pdf)

For your information, Micro enterprise are enterprises engaged in the manufacture or production of goods, where the investment in plant and machinery does not exceed Rs. 25 Lakhs, whereas in case of Small enterprises it is more than Rs. 25 Lakhs but does not exceed Rs. 500 Lakhs.  Whereas, Micro enterprise are enterprises engaged in providing services, where the investment in plant and machinery or equipments does not exceed Rs. 10 Lakhs, whereas in case of Small enterprises service providers it is more than Rs. 10 Lakhs but does not exceed Rs. 200 Lakhs.  


These Micro and Small enterprises include Proprietorships, HUFs, Association of Persons, Cooperatives, Partnership firms and Companies.

So let us understand how Companies (Public or Private) shall proceed to adhere to these compliance with the ROC:

1.     Declaration:
Companies should seek declaration from their Creditors, whether their entity falls under Micro or Small or not.  They should ideally seek their PANs and Balance confirmations as of 22nd Jan 2019 and then half yearly on a regular basis.

2.     Which Companies required to file the disclosures:

Every Company “Public or Private”, which receives goods or services from Micro or Small enterprises and payment to such enterprises is due/unpaid till 46 days & more.

3.     Types of Returns to be filed with ROC:

Two Type of Returns required filing by “Specified Companies” like:

One Time Return – by 20th Feb 2019 of dues outstanding as on 22nd Jan 2019
Half Yearly Return – For April to September – by 31st Oct
                                  & For October to March – by 30th April

While these compliances are being enforced by the Ministry of MSME and Corporate affairs to see MSME entity survivals, challenges are posed by certain other laws like the Insolvency and Bankruptcy code (IBC) where if a Buyer of MSME goods/services goes into liquidation, the MSME creditors being operation creditors are usually at the bottom of the waterfall structure for distribution of assets.  The IBC has to comply with no other law once a company is in liquidation and hence in such circumstances the interests of MSME are less protected.

We will be happy to answer any questions of queries you might have with respect to these compliances.  You may write to us at info@gjmco.in.

Thanks & Best regards,
Knowledge Base Team
GJM & Co.
Chartered Accountants
www.gjmco.in

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