SALIENT FEATURES OF THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

1. This law is enacted with an object of promotion and development and enhancing the competitiveness of Micro, Small and Medium Enterprises ( “MSME”)

2. This Act has improved and repealed earlier legislation viz. Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertaking Act, 1993.

3. This Act has applicability of Arbitration and Conciliation Act, 1996.

4. This Act provides for definition of the “Small Enterprise” and “Medium Enterprise” which were not statutorily defined earlier.
Section 2 (g) & (m)

5. The Act, 2006 provides for establishment of National Board for Micro Micro, Small and Medium Enterprises, which is statutory body having high level forum for making policy decisions and programs for development of MSME’s.
Section 3 to 6

6. The Act provides for classification of Micro, Small and Medium Enterprises on the basis of investment in plant and machinery, or equipment and establishment of an Advisory Committee to recommend on related matter.
Section 7 & 8
The statutory classification of the Enterprises under the Act is as under:

7. The Act further empowers Central Government to notify programs, guidelines or instructions for facilitating the promotion and development and enhancing the competitiveness of Small and Medium Enterprises, which include credit facilities, funds, grants by Central Government and Administration and Utilization Funds.
Section 9 to 14

8. The Act provides for an improvement in Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertaking Act, 1993 and provides protection to MSME’s in significant manner in its Chapter V.

9. The Act provides for composition of Facilitation Council which shall consist of not less than three but not more than five members.
Section 20 & 21

10. Measures for protection to the MSME’s provided under Chapter V are as under:

a. Liability of Buyer to make payment within 45 days of acceptance or deemed acceptance of supply of goods or services rendered
Section 15

b. In case of default in payment within 45 days, buyer is liable to pay compound interest with monthly rests to the supplier on the amount payable from the date of delivery of goods or the service rendered at three times of the bank rate notified by RBI
Section 16

c. Supplier can file Reference to MSE Facilitation Council which conducts conciliation as per Section 65 to 81 of Arbitration and Conciliation Act which is referred to MSE Facilitation Council.

d. If the dispute is not settled by way of conciliation, the Council shall decide the dispute by exercising powers of Arbitrator.

e. Supplier can file his reference within his territorial Jurisdiction wherein buyer can be from anywhere in India.

f. Speedy disposal of reference. The reference made by MSE shall be decided within period of ninety days.
Section 18

11. Judgment or Award passed by the Council shall have effect of Arbitration Award.

12. If the Buyer wishes to challenge the decree, award or order of the Council before the Competent Court, he requires to deposit 75% of the amount awarded before the Court then only Court can entertain the application of Buyer.
Section 19

13. The supplier is entitled to withdraw said amount deposited by the Buyer on the reasonable conditions imposed by the Court.
Section 19

14. The Buyer shall specify unpaid amount with interest in the annual statement of account. Failing which Buyer can be punished with fine for not less than rupees Ten Thousand.
Section 22 & 27

15. The amount of interest as payable or paid by the Buyer as per this Act shall not be allowed as deduction under the Income Tax Act.
Section 23

16. The State Government can make separate rules under the said Act as empowered under Section 30 for the proper enforcement of the Act.

Conclusion

The Act of 2006 is a single legal framework for the SME’s governing and providing protection to 12.8 Million Small Industries and its 31 Million employees throughout India. The National Board established under the Act has implemented various schemes and policies for upliftment of the SME Sector and as a result SME sector is contributor of 40% of India’s Industrial Production and 35% of Exports such as Agro, Marine, Chemical & Pharma, Engineering & Electrical, Bio & Rubber, Sports, Leather and Textile products.
The Act of 2006 was necessity of the vibrant and dynamic sector of the Indian economy and which has resulted as benediction to the unprotected SME’s.