Samadhan - An Initiative To Safeguard MSMEs From Dying Debts

Delayed payments impact a MSME more severely than any other industry, as they reduce cash flow and lead to working capital complications.

Delay in payments and recovery leads to a decrease in the presence of MSMEs in the market due to unproductive work, fewer sales, and lower profits. This ultimately leads to the untimely demise of a small business, i.e., MSME. It makes it imperative for a mechanism whereby the MSME can recover its delayed payments without much hassle or additional burden as to the cost.

Since MSMEs account for a good chunk of entrepreneurs in India, the government has ensured that special steps are taken to protect such industries. One such step, lauded by all industry specialists, is the passing of the MSME Development Act of 2006. This is a law that caters specially to MSMEs and lays down the process for the recovery of dues from an MSME.?

The provisions of the MSME Act relating to the recovery of outstanding dues apply to a transaction for the sale of goods or the supply of services between a ‘supplier’ and a 'buyer'. Who will be considered a "supplier" under the MSME Act? Only a micro- or small enterprise that has filed the Entrepreneurs Memorandum/Udyog Aadhar with the concerned authority will be called the "supplier" for all purposes under the MSME Act.

Under the MSME Act, if the buyer causes a delay in the payment for more than 45 days after accepting the products or services, then the buyer is liable to be charged compound interest on the outstanding amount, which is usually?three times the bank rate notified by the RBI. The government, while passing the MSME Act, kept all things in mind that may benefit an MSME, starting right from easy and swift recovery to ensuring recoupment of the loss suffered by an MSME due to delayed payment.

To aid in the recovery of delayed payments, the MSME Act provides for establishing a Micro and Small Enterprise Facilitation Council (MSEFC) in each state to take up matters where payments have been delayed by the buyer. An MSME can get the matter of delayed payment referred to the Council.

The process for recovery of delayed payments under the MSME Act has been made very simple so that the MSMEs don’t face any troubles. All the MSME has to do if there is a delay in payment is go to the?MSME Samadhan portal?and lodge a complaint or grievance against the buyer with the MSEFC. The MSEFC will then assess the complaint and proceed according to the provisions of the MSME Act.

After this, the council informs the parties electronically for a chance at mutual settlement through conciliation. If the conciliation fails, the council, acting as arbitrator, decides upon the dispute and assesses the evidence presented by the parties to pass an award, which is executed by the civil court.

The whole mechanism is greatly simplified, transparent, and focused on the recovery of the seller's dues, i.e., the MSME. Furthermore,?it is the fastest and most affordable process for recovering delayed payments by an MSME.

What is more, if the buyer wants to challenge the arbitral award passed by the Council, it has to first deposit 75% of the awarded amount (principal + interest to the date of filing) as per the MSME Act, and only then will its application be entertained. Additionally, the MSME Act also provides that the court can, at its own discretion, release any or all of the 75% pre-deposit to the seller. This protects the MSME by ensuring it doesn’t face any shortage of liquidity during the pendency of the case.

The MSMED Act helps the MSMEs sustain themselves in the market with constant cash flow and working capital.

Be a step forward towards financially stabilizing MSMEs during these tough economic times by contacting the top professional undersigned.

Aruna Rajput (CRM)
Mobile: 8448459140