Rights and Protection given to MSMEs to recover payment from the debtors
People keep on asking us of benefits of taking MSME registration. Except few people, no one might know that under MSMED act, a protection has been given to MSMEs in recovering of dues from buyer of their goods or services.
Let us see the provisions as mentioned in the MSMED act:
Liability of Buyer to make payment
Section 15 of the Act provides that:
Where any supplier (MSME) supplies any goods or renders any services to any buyer, the buyer shall make payment therefore on or before the date agreed upon between him and the supplier in writing or. Where there is no agreement in this behalf, before the appointed day.
Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed 45 days from the day of acceptance or the day of deemed acceptance.
Date from which and rate at which interest is payable
Section 16 of the Act provides that:
Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer 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 may be from the date immediately following the date agreed upon, at 3 times of the bank rate notified by the Reserve Bank of India.
Recovery of amount due
Section 17 of the Act provides that:
For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided under section 16.
Reference to Micro and Small Enterprises Facilitation Council
Section 18 of the Act provides that:
Notwithstanding anything contained in any other law for the time being in force, any party to a dispute may, with regard to any amount due under section 17, make a reference to the Micro and Small Enterprises Facilitation Council.
Legal wordings might be hard for you to understand; therefore we now put the provision given in the act in easy language.
Delayed payment to Micro, Small and Medium Enterprises:
Where any supplier (MSME) supplies any goods or renders any services to any buyer, the buyer shall make payment therefore on or before the date agreed upon between him and the supplier in writing or. Where there is no agreement in this behalf, before the 15 days from the acceptance of goods or services by the buyer.
Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed 45 days from the day of acceptance or the day of deemed acceptance.
Penal Interest Payable by the Buyer to the MSMEs:
Where the buyer fails to make payment of the amount to the supplier, be liable to pay compound interest with monthly rests to the supplier on that amount from the 15 days from the acceptance of goods or services by the buyer or, as the case may be from the date immediately following the date agreed upon, at 3 times of the bank rate notified by the Reserve Bank of India.
Penal Interest payable by the buyer to the supplier is not allowed as expenses under Income Tax Act. Thus, it is strict penalty levied on everyone defaulting in making payment to MSMEs with the time allowed.
These provisions as mentioned in the MSMED Act has overriding effect on anything contained in any other law for the time being in force.