Under MSME Act

Recovery of outstanding dues by micro- and small-scale enterprises under the MSME Act

Introduction

The Micro, Small, and Medium Enterprises Development Act, 2006 (‘MSME Act’) contains provisions regarding the time period for payment of outstanding dues, as well as remedial measures in the event of a delay in payment of outstanding dues to a micro or small-scale enterprise.

Applicable transactions

The provisions of the MSME Act relating to payment of consideration and recovery of outstanding dues apply to a transaction between a “supplier” and a “buyer” for the sale of goods or the supply of services. Section 2(b) of the MSME Act defines a “buyer” as anyone who purchases goods from a supplier for a fee. Section 2(n) of the MSME Act defines a “supplier” as a micro- or small enterprise that has filed the Entrepreneurs Memorandum/Udyog Aadhar with the relevant authority. It should be noted that for the purposes of the MSME Act, the term “supplier” does not include medium-sized enterprises. As a result, medium-sized businesses would be ineligible to benefit from the MSME Act’s provisions governing outstanding debts.

Time limit for payment of dues

Section 15 of the Act states that if the seller has provided a good or rendered a service, the buyer must pay the consideration within a specified time frame.

• If the parties have not agreed on a payment date, the buyer is obligated to make the payment within 15 days of the date of delivery of the goods or services. If the buyer raises an objection, he must pay within 15 days of the date when the supplier removes the objection.
• If the parties agreed on a payment date, the buyer must pay the balance within 45 days of receiving the goods or providing the service. When a buyer raises an objection, he must pay within 45 days of the date the supplier removes the objection.