Centre considering amendments to MSME Development Act to ensure timely payments to small businesses

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The Centre is looking at further enabling provisions to ensure award of delayed payments to micro, small and medium enterprises (MSMEs) by possible amendments in the MSME Development Act, 2006.

Under current norms, in case of payment which is delayed by over 45 days after receiving a product from the supplier or MSME, the buyer has to the buyer has to pay compound interest with the monthly rests to the supplier on the amount at thrice the notified bank rate. In case the payment gets stuck further, every state has a facilitation council for settlement of disputes and filing of payments by issuing directions to the buyer.

However, these provisions have often not provided adequate recourse to MSMEs and cases can drag on for years as the buyer may choose to appeal the award in a higher court or simply default on the payment. An estimated Rs 10.7 lakh crore is seen to be stuck in such dues.

Keeping these concerns in mind, the ministry of MSME is understood to be looking at an overhaul of the provisions to streamline procedures and ensure faster execution of payments. Further, it is also keen on bringing an enabling provision to ensure that the award by the facilitation council actually gets implemented and MSME gets its payments.

Further, with the passage of the Mediation Act, 2023, the ministry is also looking at the possibility of including mediation as one of the means for settlement of dues outside of court. Most contracts between MSMEs and their buyers tend to have an arbitration clause but that too can be time taking.

According to sources, the issues are currently under discussion and the ministry will undertake consultations with stakeholders before finalising the provisions. The overall objective is however, to lay the groundwork for the move so that these can be taken forward when the new government is elected.

“Any amendments to the MSME Development Act will be taken forward by the next government. As of now, the ministry is working on these proposals,” said the source

Litigation can tend to be a costly and time consuming affair and improving the payment cycle can help MSMEs improve their productivity and efficiency.

To ensure timely payments to small businesses, the government had also amended the Income Tax Act, 1961 and introduced a new clause under which, if a company does not pay an MSME within a 45-day period, the due amount would be added to its profit and the company would have to pay corporate tax on it. The provision will be implemented from April 1 this year.

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