Micro and Small Enterprises Facilitation Council
Micro and Small Enterprises Facilitation Council
Micro and Small Enterprises Facilitation Council (MSEFC) was initiated by the respective state governments. It is commonly known as the ‘MSME Court.’ The MSEFC acts as an Arbitrator for settlement of any dispute regarding the payment between the MSME units. The MSEFC will examine the case filed by the supplier MSME unit for delayed payment and then facilitate the buyer unit to pay the due amount along with the penal interest. In this article, we will look at the details of Micro and Small Enterprises Facilitation Council (MSEFC).
Micro Small & Medium Enterprises Development Act (MSMED), 2006
According to the Micro Small & Medium Enterprises (MSME) Development Act 2006, if the supplier MSME unit supplies any goods to the buyer, the buyer unit is required to make a payment on or before the prescribed date. In the event of detained payment, the buyer unit is responsible for paying a penal interest. In case of any dispute concerning the payment of penal interest, a reference will have to be furnished regarding the reason for the delay to the Micro and Small Enterprises Facilitation Council (MSEFC).
MSMED Act governs the following provisions related to delayed payments to the MSMEs by specifying the credit period and penal interest for delayed payment:
Liability of Buyer Unit to Make Payment
According to Section 15 of the Micro Small & Medium Enterprises (MSME) Development Act, the buyer is liable to make payment to the supplier (micro or small enterprise) for purchasing goods on or before the date mentioned in the agreement.
- If there is no agreement, the buyer is required to make the payment on the appointed date.
- The period of credit provided by the seller unit should not exceed 45 days from the acceptance day or the date of deemed acceptance.
- As per the MSMED Act, a maximum period allowed for payment is 45 days from the date of delivery of goods or services.
Penal Interest on Delayed Payment
According to section 16 of the MSMED Act, the buyer required to pay penal interest for delayed payment to an MSME enterprise. The buyer will be liable to pay penal interest with monthly interest rests on the outstanding amount.
The interest rests on the outstanding amount will be calculated from the prescribed date of payment or fifteen days from the acceptance of services or goods
Calculation of Penal Interest
- The penal interest chargeable for delayed payment will be computed from the appointed date.
- The penal interest rate will be calculated at three times the bank rate as notified by the Reserve Bank of India.
No Income Tax Allowance for Penal Interest
The penal interest is not allowed as a deduction under section 80 C of the Income Tax Act. The tax saving option is not allowed for the penal interest paid by the buyer or payable by the buyer.
Reference to MSEFC in case of Delayed Payment
As stated above, in case of any dispute regarding the payment of penal interest between the supplier and the buyer unit, a reference will have to be made to the Micro and Small Enterprises Facilitation Council (MSEFC).
File Application via MSME Samadhaan
The Government of India has launched an MSME Samadhaan portal for monitoring the delayed payment. This MSME Samadhaan is used for applying to the Micro and Small Enterprises Facilitation Council (MSEFC).
The micro or small enterprises have to file the following particulars in the application:
- Particulars of the supplier unit
- Status of the supplier unit
- Details of supplied goods or services
- Terms of Payment
- Actual payment received
- Date of actual payment received
- Amount Due
- Interest calculated under section 16 of the MSED Act
The supplier unit has to attach the following documents along with the application:
- Court fee Stamp
Examination of Cases by MSEFC
- The prescribed authority of the Micro and Small Enterprises Facilitation Council (MSEFC) may require any petitioner to furnish further particulars of the claim or any relevant documents in support of the claim
- The petitioner needs to furnish the additional documents within fifteen days of announcement to MSEFC.
- The petitioner (supplier) is needed to send a copy of the reference to the buyer against whom the reference is directed.
- The MSEFC will examine the case filed by MSME for delayed payment and then facilitate the buyer unit to pay the due amount along with interest.
Note: According to MSMED, the MSEFC will examine the case within 90 days from the date of application.
- On receipt of a reference, the Chairperson of the Micro and Small Enterprises Facilitation Council (MSEFC) will examine the buyer’s responsibility for the delayed payment.
- The MSE facilitation council will conduct conciliation in each reference placed. The buyer and the supplier are required to appear in front of the council for verification.
If the conciliation does not lead to settlement of the dispute, the MSEFC acts as an Arbitrator for the final settlement of the dispute or refer the case to an institute.
- The supplier MSME unit, the buyer unit or through his lawyer registered with any court shall present the payment case before the MSEFC Councilor or the institute during the arbitration process.
- The institute has to furnish its report to the MSEFC within the stipulated time.
- The decision of the Council for delayed payment will be made at the Micro and Small Enterprises Facilitation Council.
- The MSEFC will make an arbitral award in accordance with the Arbitration and Conciliation Act 1996. The arbitral award will be formed within seven days of the filing of an application through the MSME Samadhaan portal.