CONTENTS

 Policy Framework Laws and Regulations for MSMEs:

 Detailed analysis of MSME Development Act 2006
 Amendment to MSMED Act 2006 in 2020,
 Changing Policy Framework & MSME Strategies

 Registration of MSME Unit – Procedure

 Udyam Registration Detail Procedure igible for Udyam
RegistrationPractical Operation of the Portal, Who Are Registrable
and Non – Registrable,
 NIC Codes, Manufacturing & Services El

CA.Marathe-CMRS
Introduction
 MSME = Micro, Small & Medium Enterprises

 Popularly know as SMEs or SSIs

 These are Manufacturing & Service units (Trading not

included).

 Mudra, Startup, Stand up, Loan Restructuring, Interest

subvention - all for MSMEs.

CA.Marathe-CMRS
Strength…
 6.5 crores units which include Home, cottage, village, tiny
units (69%)

 11 cr + workforce, Second biggest after Agri.

 6,000+ products

 Contributes about 30% to GDP, 45% to the total

manufacturing output and 40% to the exports

 They are backbone of economy, the priority sector, close to

the Govt.

CA.Marathe-CMRS
 MSMED CMEGP
Cluster GeM Act TReDS

How do I How do I fund

Y CGTMSE increase my new Orders? 59 Min
CLCSS
business?

Are there any How do I

incentives? Manage Credit
Period?
E
PSI Start Samadhaan

Sub up
Debt India

S
I am a MSME

CA.Marathe-CMRS
 Formalization process of MSME Sector
2003 2021

Classification into Categorization – Simplified

Formation of
Rural and Urban Micro, Small, Registration
MSME Ministry
Units Medium process

Dispute Regulating the Regulating the

Reporting Credit
prevention dispute
Requirement Period/liquidity
mechanism resolution

MCA circular on
Enabling MCA circular to
reporting of Audit Reporting
provisions 500 Cr + Corps
MSME o/s
CA.Marathe-CMRS
 Detailed analysis of
Important Provisions of
Micro Small & Medium Enterprises
Development (MSMED)
Act 2006
[6 Chapters – 32 Sections]

CMRS-Marathe
Preamble: An Act to provide for facilitating the promotion and
development and enhancing the competitiveness of micro, small and
medium enterprises and for matters connected therewith or incidental
thereto.

Specifically to address:

longer Credit Periods

Lengthy litigations

CMRS-Marathe
CREDIT PERIOD

CMRS-Marathe
S15: Buyers Liability to make Payment
Where any supplier supplies any goods/services, the buyer shall make
payment thereof on or before the date agreed upon between him and
the supplier in writing.

Where there is no agreement in this behalf, before the appointed day;

In no case the period agreed upon between the supplier and the buyer
in writing shall exceed forty-five days from the day of acceptance or
the day of deemed acceptance.

CMRS-Marathe
 Appointed Day: the day following immediately after the expiry of the period of
fifteen days from the day of acceptance

 Day of Acceptance: the day of the actual delivery of goods/rendering of

services.
In case of written objection (within fifteen days) - the day on which such
objection is removed by the supplier

 Day of Deemed Acceptance: The day of the actual delivery of

goods/rendering of services

CMRS-Marathe
 Credit period interpreted
Appointed Day, Day of Acceptance, Day of Deemed Acceptance
Payable within Credit
SN Scenario Deciding date (days) Period
No agreement, no
S1 Query Day of delivery (deemed acceptance) 15 of delivery 15

No agreement, but 15+15 days i.e. 30

S2 Query Day of acceptance (15 days from delivery) days from delivery 30
Agreement, but no
S3 Query Max 45 days from delivery 45 days of delivery 45

Max 45 Days from deemed acceptance (15

S4 Agreement & Query days from delivery) 15 days+ 45 days 60
CMRS-Marathe
S16: Interest on Delayed Payments
Where any buyer fails to make payment to the supplier as per Section 15 –
he is liable to pay Compounded interest with monthly at three times of
the bank rate
Present Bank rate - 4.25% hence ROI u/s 16 is 12.75%

S17: Payment with Interest

Buyer shall be liable to pay the amount with interest thereon as provided
under section 16.

S23: Interest not deductible under Income Tax Act.

CMRS-Marathe
 Interest Paid by Corporates
(Disclosed in Annual Reports) Rs. Cr
COMPANY 17-18 18-19 19-20 Total
Delayed Delayed Delayed
Amt Interest Amt Interest Amt Interest

TATA Motors 95 2.6 56 3.5 87.5 2.8 8.9

M&M 1169 6.9 918 4.8 555 2.36 14

BAJAJ Auto 0 0 0 0 0 0 0
CA.Marathe-CMRS
 Corporate Thinking
Corporate Buyers have two lines of thinking towards payments to MSME

 Considering the importance of MSMEs for the overall economy,

renegotiate and pay within 45 days (CSR)

 Provide the interest, build the provision and write it off at the end of 3rd
year – this treatment amounts to non-compliance of section 17.

CMRS-Marathe
 Legal Opinion
A listed company has an accumulated Int provision of Rs. 65 laks - Legal
opinion sought on whether the company can write back the same by
obtaining a no due undertaking from the supplier:
Supreme court advocate opined –
1. Such undertaking may run contrary to provisions of Sec 16 and could
be held void in law.
2. As the audited financials already state the payables the said
undertaking would prove to be false.
3. All provisions are mandatory and aimed at fortifying the SMEs in
their transactions with large entities.
4. Writeback or adjustment is not advisable

CMRS-Marathe
DISPUTE RESOLUTION

CMRS-Marathe
 S18: Arbitration and Conciliation
 Dispute with regard to any amount due under section 17, to be referred
to the MSE Facilitation Council.

 The Council shall conduct conciliation - Arbitration Act, 1996.

 Where the conciliation fails, dispute shall be taken up for arbitration as

if the arbitration was in pursuance of an arbitration agreement referred
to in sub-section (1) of section 7 of that Act.

CMRS-Marathe
 Provisions conti….
 Every reference made under this section shall be decided within a
period of 90 days

 No appeal in any court unless the appellant (not being a supplier) has
deposited with it 75% of the amount

 Pending disposal of appeal, the court shall order a % of the amount

deposited shall be paid to the supplier.

CMRS-Marathe
 Overriding Provisions

S24 – Overriding Effect

The provisions of sections 15 to 23 shall have effect notwithstanding
anything inconsistent therewith contained in any other law for the
time being in force.
[Whether these provisions hinder buyer’s Constitutional Rights]

CMRS-Marathe
 Case law
1) M/S. Eden Exports Company & other vs Union Of India on Aug-
2010 - Madras High Court.

 Writ: To declare Sections 15 to 24 of Chapter V of the MSMED Act, 2006

as unconstitutional and strike down the same.

 Judgment: The contentions raised in the writ petitions are

misconceived and lack in merits. Accordingly, they deserve to be
dismissed.

CMRS-Marathe
IMP PARA OF JUDGMENT: It must also be noted that the previous 1993 Act
providing for 120 days outer time limit for credit facilities was not working
satisfactorily and the Micro and Small enterprises were driven to the point of
extinct. Therefore, outer time limit of 45 days was fixed. In normal
circumstances, when goods are delivered and services are rendered, payments
are to be made instantaneously. It is by agreement credit facilities can be
worked out between the parties and such agreements are controlled by the
Contract. The Parliament has ample power to restrict such contract. The fixing of
time limit is to save the Micro and Small Enterprises from going out of existence
due to wanton delay in payments by the buyers. To that extent, right to enter
into contract can be curtailed. Such curtailment cannot be said to be either
arbitrary or unconstitutional.

CA.Marathe-CMRS
 Amendment to
MSMED Act 2006
And other Recent
Developments
 MCA Notif – 500Cr+
 MCA Notif – MSME 1
 Sch – III

CA.Marathe-CMRS
 New Definition of MSME – w.e.f - 1st July, 2020

Manufacturers &
MICRO SMALL MEDIUM
service providers

Investments in
Upto Rs. 10 Upto Rs. 50
Plant & Machinery Upto Rs. 1 crore
crores crores
or Equipment

Upto Rs. 50 Upto Rs. 250

Turnover Upto Rs. 5 crores
crores crores

CA.Marathe-CMRS
Exclusions from Investments
 Pollution control, R&D, industrial safety devices
 Tools, jigs, dies, molds, spare parts & consumables
 installation and transportation cost of P&M
 Generator, Extra transformer
 Gas producer Plants
 Cost of Know-how for P&M
 Fire fighting Equipment
 VAT and Cenvat

CMRS-Marathe
The change
 Definition (Limits) changed after 14 long years. .

 Earlier, amendments to MSMED Act were proposed 2 times in

2015 and 2018 – could not be notified

 Increased limit of Invt in Plant & Machinery (4 Times for Mnf

to 10 times for Services)

 Added criteria linked to Turnover

 No distinction between Manufacturer & Service Provider.

 Almost 99% of entities will now be MSME, only 1% to be
large.

CA.Marathe-CMRS
Registration Process
IS NOW

www.udyogaadhaar.gov.in

www.udyamregistration.gov.in
CA.Marathe-CMRS
Calculation of Investment in Plant & Machinery or
Equipment:

 Definition: Same as IT Act, include all Tangible Assets (other

than Land & Building, Furniture & Fixture)

 Investment = P&M gross block (Invoice Value), linked to the

ITR of the previous years filed under the IT Act.

 Plant and machinery or equipment shall have same meaning

as assigned in the IT rules and shall include all tangible
assets (other than land and building, furniture and fittings).

CA.Marathe-CMRS
 Issues?? Gross Block Vs. WDV – Portal capturing WDV?

 MSMED Act has no reference to WDV, ref to Investment in P&M

 Entire notification has no reference to WDV

 Office Memorandum issued by ministry justifies WDV.

 Referring WDV is questionable and is not in line with spirit of law

 Even a large enterprise will become MSME in subsequent years

due to WDV

CA.Marathe-CMRS
Office Memorandum – Value of P& M

CA.Marathe-CMRS
 Very Important to Note (For CA Certificate)
All units with GSTIN listed against same PAN shall be clubbed &
collectively treated as one enterprise.

Turnover and investment figures for all of such entities shall be

aggregated

Only aggregate values considered for deciding the category as

Micro, Small Or Medium Enterprise.

The bottom line - One PAN, One URN

Multiple Units, Multiple Activities – One URN

CA.Marathe-CMRS
 Changing Policy Framework & MSME Strategies
MCA Notifications
Sch – III requirements
MSME Enablers

CA.Marathe-CMRS
Companies with > 500 cr turnover to enroll on
TReDS platform – Nov 2108
 All companies with a turnover > Rs. 500 crore and all Central PSEsshall be
required to get themselves onboarded on the Trade Receivables
Discounting System platform, set up as per the notification of RBI.

CA.Marathe-CMRS
MSEs o/s > 45 days reporting half yearly
MCA Notification - 22 January, 2019
 All companies, who get supplies of goods or services from MICRO AND
SMALL ENTERPRISES and whose payments to micro and small
enterprise suppliers EXCEED FORTY FIVE DAYS from the date of
acceptance or the date of deemed acceptance of the goods or services as
per the provisions of section 9 of the MSMED Act - hereafter referred to
as “Specified Companies”

CMRS-Marathe
 Filing Requirement
 Filing of half yearly return of dues to MICRO OR SMALL
ENTERPRISES suppliers by 31st October for the period from April to
September and by 30th April for the period from October to March.

 Information to be submitted in Form MSME-1

 If this classification is not done – Reporting?

CMRS-Marathe
Schedule III amendment – 1st April 2021
Trade Payables:
(A) total outstanding dues of micro & small Entp; and
(B) total outstanding dues of creditors other than micro & small Entp.
 Additionally, following ageing schedule shall be given

CA.Marathe-CMRS
Clause 22 of 3CD
Amount of interest inadmissible under section 23 of MSMED Act 2006

 Identify the MSE suppliers

 Verify if credit period is < 45 days
 If there is delay whether entity has provided interest
 If Yes – Report the same
 If not – Reporting?

CA.Marathe-CMRS
Audit Procedure
 Documentation of process to verify whether the auditee has identified its
MSE suppliers.

 If auditee is a company with 500cr + turnover whether its registered with

TReDS and if is it paying its MSE suppliers through TReDS

 Reporting the non compliance (MSEs not paid on time)

 MRL - NIL MSEs, Delay in payment, interest provision

CA.Marathe-CMRS
Qualification in Audit report?
 Report on Other Legal and Regulatory Requirements:
Company has not identified units covered under MSMED Act 2006 and
hence disclosure as required under Companies Act 2013 and MSMED Act
2006 is currently not ascertainable. (Refer Point _____ of standalone
financial statements).

 Qualification to be quantified?
The financial impact of the non provision of interest on Profit of the
company is Rs. _______/is not ascertainable in the absence of data.

CA.Marathe-CMRS
Recovery SAMADHAAN
Approach the
realted Under MSME
buyer P
DISPUTE? Act-2006
A
Y
P
M
A
E
Y
MSME N
M
Samadhaan T
E
N
N
T
E O
N T
R FC
D
E Hearing R
C
E
E
C
I
E
V
I
E Execution V
D petition E
D

CA.Marathe-CMRS
The concept
 TReDS is an Electronic Platform facilitating the financing of trade
receivables of MSMEs through multiple FIs.
 Receivables can be from Corporates And Other, including Govt. Depts & PSUs.
 This a well regulated form of Bill Discounting, initiated by MSME ministry.

BANKS/FI
(LENDERS)

TReDS
PLATFORM
CORPORATE MSME
(BUYER) (SELLER)

CA.Marathe-CMRS
A CRISIL study says if SMEs get paid as per the provisions of
MSMED Act, their profitability will go up by 15%

Lets be solution providers

ThanQ ?
camarathe@cmrs.in
8055566683
CA.Marathe-CMRS