Default in payments to MSMEs: Compliance Predicaments

By May 17, 2019 December 20th, 2019 No Comments
The Ministry of
Corporate Affairs (“MCA”) had, vide
its notification dated January 22, 2019, issued “
Companies (Furnishing of information about payment to micro and small
enterprise suppliers) Order, 2019” (the “Order”).  In terms of the Order, every company which has
delayed payment
to micro and small enterprise for more than 45 (forty-five) days in terms of
the Micro, Small and Medium Enterprises Development Act, 2006 (“MSME Act”)
is required to file form the e-form MSME-I (“MSME Form”) with the Registrar
of Companies (“ROC”) within 30 (thirty) from the date of the Order.
to non-availability of e-form on MCA website, the time period for filing the
same with ROC was extended and was to be reckoned from the date of availability
of the e-form i.e. May 01, 2019.
the MSME Form finally available for filing, the companies are now required to
report the details of the outstanding payments. 
However, the following aspects may leave the companies intending to file
the MSME Form in a baffled state:
the companies need to report all outstanding payments to micro and small
enterprises for the relevant period?
While, a plain
reading of order 2 of the Order indicates that the companies are required to
report details of all outstanding dues to micro and small enterprises, a
combined reading of the Order and provisions of the MSME Act (specifically
section 15) indicates that the Order is intended to require the companies to
report breaches of Section 15 of the MSME Act and thus payments which have not
been outstanding for more than 45 days are not required to be reported.
outstanding payments which, as on the date of compliance are no longer due, to
be reported?
As aforesaid, the
objective of the Order is to ensure reporting of breaches of the provisions of
the MSME Act and thus, once a breach has been committed, the companies are
required to be report it irrespective of whether such a breach is continuing at
the time of reporting or not.
of a cut-off date for reckoning the payments to be reported
While the date of
filing of the MSME form was extended, no clarity was provided as to the cut-off
date for ascertaining the dues, which are to be reported.  As a consequence, there is an ambiguity as to
whether instances of non-payments are to be reported as of January 22, 2019
(i.e. the date of the Order) or May 01, 2019 (i.e. the date of publication of
the MSME Form).
In our view, since
the Order prescribed a common date for ascertaining the outstanding payments
and for reckoning the time period for filing the MSME Form, it is prudent to
assume that since the MSME Form was notified on May 01, 2019 (i.e. the date for
reckoning the time period for filing of the MSME Form), the details of
outstanding payments as on the said date will need to be reported. 
In any case, if a
contrary view is taken, the payments which crossed the threshold of 45 days
after January 22, 2019 but were cleared on or before March 31, 2019 will not
need to be reported (as in view of order 3 of the Order, the subsequent filing
would cover the period commencing on April 01, 2019) thereby defeating the
objective of the provisions of the MSME Act and the Order.

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