NOTE ON IMPLICATION FOR NON-FILING OF MSME FORM I

An Article to clarify the doubt about non-filing MSME FORM I

At the outset, I would like to thank you all for giving overwhelming love and support all the time over different platforms. The present article is being written after reading number of articles and opinion from Stave Consultancy, Khaitan & Khaitan and other senior officers like Company Secretaries, Senior Advocates etc., who are having rich experiences in their respective field. I hope you will like this article like earlier ones.

Background:

Central Government has taken a remarkable initiative in order to build the root level of Micro, Small and Medium Enterprises ie., MSME. The step has been taken to further strengthen the MSME sector by helping them to get the capital on times which will definitely going to assist them to grow and sustain in long run. 

As we all knows that Central Government has issued Specified Companies (Furnishing of Information about Payment to Micro and Small Enterprise Suppliers) Order, 2019 (“Order”) on January 22, 2019.

The order has been issued under Section 405 of the Companies Act, 2013 (“CA 2013”) wherein the Central Government has been assigned power to direct companies to furnish information/details and/or records/documents with regard to their or its constitution or working, and within such time, as may be specified in the order.

Further, in the said order, the Central Government has directed all companies who get supplies of goods or services from MSME ie., Micro, Small and Medium Enterprises and whose payment to MSME suppliers exceeds 45 days from the date of Acceptance or date of deemed Acceptance of goods or services to file a half yearly return to Central Government stating the following:

a). the amount of payment due; and

b). reason of the delay.

The aforesaid information is required to be filled and filed in MSME Form 1 within 30 days from the date of the present order ie., 21st of February 2019 and thereafter as follows:

a). For the period April to September – on or before 31st October;
b). For the period October to March – on or before 31st April

The above information you must have read in most of the articles shared on various online portals already. Now, coming to the main objective of the article which is what will happened if I or anyone did not filed the MSME Form I or we can say what will be the implication under the different Acts. Going forward, the implication of non-filing of MSME Form I and not paying outstanding within time as stated under the Act are mentioned in the provisions of the MSME Act and Companies Act 2013. Let’s discussed them in detailed manner:

Consequences for not clearing the outstanding and filing of MSME Form I within the period:

A. Section 405(4) of the CA 2013 provides that in case the Company fails to comply with the order of the Central Government or knowingly furnishes any information or statistics which is incorrect or incomplete in any material respect, the company shall be punishable with fine:

a. which may extend to 25000/- and

b. every officer of the company who is in default, shall be punishable with imprisonment for a term which may extend to 6 months or with fine which shall not be less than 25000/- but which may extend to 3 lakh rupees, or with both.

The aforesaid provision is only applicable in our case if we fails to file the form only ie., MSME Form I within the date as stated in the order. Here, we also need to understand the relevant provisions of Micro, Small and Medium Enterprises Development Act,2006 (“MSMED Act”).

B. Section 15 of the MSMED Act states that where any supplier, supplies any goods or renders any services to any buyer, the buyer shall make payment therefore:

a). on or before the date agreed upon between him and the supplier in writing or,
b). where there is no agreement in this behalf, before the appointed day [Section 2(b)].

It is further provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.

Further, Section 16 of the MSMED Act penalise the buyer and provides that in case where he fails to make payment of the amount to the supplier, as required under Section 15, he shall, notwithstanding anything contained in any agreement between the him and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case maybe, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.

Our Understanding:

Section 15 talks about the payment to be made to the MSME supplier. It provides that payment is to be made within such time as may be agreed between the supplier and the buyer in written ie., a contract or written document  

Or

If not agreed, then it will be taken as on or before appointed date ie,. within 15 days.

However, proviso to this section clears that the time period is restricted to 45 days only this means that it does not matter if you have a period in your contract more than 45 days, you have to clear your outstanding within a period of 45 days.

Further, in the event the Buyer fails to make payment of the amount due to the supplier as provided in Section 15 the company shall be liable to pay compound interest with monthly rests to the supplier at three times of the bank rate notified by the Reserve Bank of India.

The interest shall be applicable after the date mentioned in the agreement or if there is no agreement then 45 (forty-five) days after the supply is complete.

Which provision will prevail?

This question may come to your mind that whether provisions of Companies Act will prevail over the provision of MSMED Act.

It is to clarify that aforesaid order issued by Central Government only states about filing of Form MSME 1 and disrespecting the same will held you liable under Section 405 of the Companies Act.

Further, Section 15 of the MSMED Act provides that payment should be made within time otherwise provisions of Section 16 will apply.

Hence, there is a clear cut understanding about filing and paying and accordingly, provisions of respective Act shall apply.

Other questions are always welcome

Please be in touch at info@trijuris.com 

In view of the above background, related sections of the Acts have been reproduced for your ease of references:

Section 2 (59) of the CA 2013- “officer” “includes any director, manager or key managerial personnel or any person in accordance with whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act”.

Section 2 (b) of MSME Act "Appointed day" means the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.

Explanation.- For the purposes of this clause,-

(i) ''the day of acceptance" means,-

(a) the day of the actual delivery of goods or the rendering of services; or

(b) where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which• such objection is removed by the supplier;

(ii) ''the day of deemed acceptance" means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services;

Section 2 (d) MSME Act "buyer" means whoever buys any goods or receives any services from a supplier for consideration;

Section 2 (n) MSME Act "supplier" means a micro or small enterprise, which has filed a memorandum with the authority referred to in sub-section (1) of section 8, and includes,-

(i) the National Small Industries Corporation, being a company, registered under the Companies Act, 1956;.

(ii) the Small Industries Development Corporation of a State or a Union territory, by whatever name called, being a company registered under the Companies Act, 1956; 1 of 1956.

(iii) any company, co-operative society, trust or a body, by whatever name called, registered or constituted under any la~ for the time being in force and • engaged in selling goods produced by micro or small enterprises and rendering services which are provided by such enterprises;

Section 7(1) MSME Act Notwithstanding anything contained in section 11 B of the Industries of enterprises. (Development and Regulation) Act, 1951, the Central Government may, for the purposes of this Act, by notification and having regard to the provisions of sub-sections ( 4) and. (5), classify any class or classes of enterprises, whether proprietorship, Hindu undivided family, association of persons, co-operative society, partnership firm, company or undertaking, by whatever name called,-

(a) in the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, as- 65 of 1951. as-

(i) a micro enterprise, where the investment in plant and machinery does not exceed twenty-five lakh rupees;

(ii) a small enterprise, where the investment in plant and machinery is more than twenty-five lakh rupees but does not exceed five crore rupees; or

(iii) a medium enterprise, where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees;

Section 7 (b) in the case of the enterprises engaged in providing or rendering of services,

(i) a micro enterprise, where the investment in equipment does not exceed ten lakh rupees;

(ii) a small enterprise, where the investment in equipment is. more than ten lakh rupees but does not exceed two crore rupees; or

(iii) a medium enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees.

Explanation 1.-For the removal of doubts, it is hereby clarified that in calculating the investment in plant and machinery, the cost of pollution control, research and development.

Read article on registration of MSME at https://www.trijuris.com/msme-registration/