Biswajit Sarkar Blog >Civil Law> Supporting MSME

Supporting MSME

December 19, 2023 Biswajit Sarkar - IP Law Firm India Post time: 5:18 pm

Introduction

The MSME sector stands as a cornerstone within India’s economic framework, contributing significantly to its industrial landscape and supply chain. Renowned as a prolific job creator, this sector plays a pivotal role in fostering widespread employment opportunities, particularly in rural and underdeveloped regions. It serves as a catalyst for economic stability, propelling growth and facilitating export expansion. Moreover, it champions inclusive growth, capitalizing on cost-effective labour and streamlined management structures for enterprises. Integral to the “Make in India” initiative, the MSME sector remains a key driver in advancing the nation’s manufacturing prowess.

Definition of MSME

The MSME Development Act, established in 2006, witnessed a significant overhaul in its definition within the Atmanirbhar Bharat package on May 13, 2020. This revision elevated the thresholds for Micro, Small, and Medium enterprises. Specifically, for Micro manufacturing and services units, the investment limit rose to Rs. 1 crore with a turnover of Rs. 5 crores. Small units saw an increase to Rs. 10 crores for investment and Rs. 50 crores for turnover, while Medium units limits were raised to Rs. 20 crores for investment and Rs. 100 crores for turnover. Subsequently, on June 1, 2020, the Government of India opted for further enhancements, particularly for Medium enterprises, setting the investment cap at Rs. 50 crores and turnover at Rs. 250 crores.

Importance of MSME

MSMEs are instrumental in India’s economic landscape, generating a massive 120 million jobs across diverse industries.
They make a significant contribution, accounting for over 29% of the GDP and powering half of the country’s total exports.
As India aims for a $5 trillion economy, the MSME ministry sets ambitious goals, aiming to elevate their GDP contribution by up to 50% by 2025.
These enterprises drive inclusive growth by providing employment opportunities, particularly benefiting individuals from marginalized backgrounds in rural areas.
Their presence in tier-2 and tier-3 cities facilitates greater access to banking services and products, amplifying the overall impact of MSMEs on the economy.
MSMEs foster innovation by nurturing aspiring entrepreneurs, encouraging the development of innovative goods that enhance market competitiveness and fuel sustained growth.

Advantages of MSME

Access to loans without the need for collateral, easing financial barriers for MSMEs.
Subsidies offered for Patent and Trademark (in selected categories) registration, encouraging innovation and protecting intellectual property.
Exemption from interest rates on overdrafts, reducing financial burdens on businesses.
Safeguards in place against delayed payments, ensuring smoother cash flow for MSMEs.
Subsidies provided based on NSIC (National Small Industries Corporation) performance and credit scores, incentivizing good business practices.
ZED Certification Scheme availability, signifying quality adherence and enhancing market credibility. The goal of this scheme is to encourage MSMEs to embrace Zero Defect and Zero Effect (ZED) manufacturing practices, emphasizing their certification through ZED Assessment. It aims to achieve this by promoting the adoption of quality tools and systems while advocating for energy-efficient manufacturing methods.
Subsidies available for fulfilling capital requirements, assisting in business expansion and growth for MSMEs.

Registration of MSME

Before commencing operations, any micro, small, or medium enterprise has the option to submit a Udyog Aadhaar Memorandum (UAM) in Form-I. This memorandum can be conveniently filed online via the Ministry of Micro, Small and Medium Enterprises’ official website, facilitating the instantaneous issuance of a unique Udyog Aadhaar Number (UAN). Alternatively, a hard copy of Form I, duly completed, may be submitted to the respective District Industries Centre (DIC) or the Office of the Micro, Small and Medium Enterprise-Development Institute (MSME-DI) under the Development Commissioner, MSME. Following this submission, a Udyog Aadhaar Registration Certificate in Form II will be generated and sent to the enterprise’s provided email address.

For existing MSMEs, the filing of the Memorandum must be completed within One Hundred and Twenty (120) days from the Act’s commencement. The UAM/Memorandum operates as a streamlined, one-page online registration system for MSMEs, relying on self-certification. This groundbreaking initiative simplifies the registration process, replacing the Entrepreneurs’ Memorandum (EM part-I & II), significantly enhancing the ease of doing business for MSMEs in India.

Provisions of Claim Settlement under MSME Act, 2006

When pursuing legal action to recover owed funds for services or goods supplied, the process often seemed daunting due to prolonged litigation, jurisdictional complexities, and the cumbersome enforcement of court decrees. This made it intricate and perplexing for litigants, especially small business owners reliant on consistent cash flow. The advent of commercial suits provided some relief, yet MSMEs sought better solutions for their money recovery challenges.

With the enactment of the MSME Act,2006; an effective mechanism has emerged, enhancing the MSME claim settlement procedure and striving to make it more accessible. Section 15 of the MSME Act mandates timely payments by buyers for goods or services supplied. If no specific payment date is agreed upon, adherence to the MSME payment timeline within 45 days becomes imperative.

In instances where buyers fail to make timely payments, Section 16 imposes statutory interest rates on the principal amount owed, compounded monthly. This prescribed rate, thrice the RBI-notified bank rate, is non-negotiable, prevailing over any existing agreements or laws.

If disputes arise regarding overdue amounts, Section 18 outlines the procedural steps to be followed. Importantly, any cases referred under Section 18 must be resolved within a strict 90-day timeframe. Furthermore, if the buyer chooses to contest a court’s decision, Section 19 mandates a 75% deposit of the decreed amount.

To recover outstanding dues, suppliers can seek recourse under Section 16 by filing a claim with the Micro and Small Enterprises Facilitation Council (MSEFC). This avenue ensures that buyers settle their debts, inclusive of interest as per Section 16, failing which the council intervenes to facilitate resolution.

Implementation

The provisions under the Act are implemented by the MSEFC chaired by the Director of Industries of the State /UT having administrative control of the MSE units. State Government/UTs are requested to ensure that the MSEFC holds meetings regularly and delayed payment cases are decided by the Councils within a period of 90 days as stipulated in the MSMED Act, 2006.

MSME SAMADHAAN

MSME Samadhaan serves as an online platform empowering MSMEs to submit applications addressing delayed payments. Suppliers from Micro and Small Enterprise units can utilize this portal to file against buyers of goods or services, directing their applications to the respective MSEFC in their state or union territory.

Developed by the Ministry of MSME, the MSME Samadhaan portal, while receiving applications, doesn’t independently act on them. Instead, it serves as a conduit, forwarding these applications to the relevant MSEFC for appropriate action. It’s important to note that while the portal streamlines the process, MSEFCs also consider physical applications, providing businesses with both online and offline avenues for grievance redressal regarding delayed payments.

Prerequisites for Making a Claim before MSEFC

To submit a complaint to the MSEFC, the concerned enterprise must possess a Udyog Aadhar Memorandum (UAM) or Udyam Registration before entering into a dispute or contract with the Supplier. Additionally, the MSME should have a substantial and valid claim against the Buyer, supported by documentation such as a written purchase agreement and a valid invoice post-UAM or Udyam registration.

The process of filing complaints on the MSME Samadhaan Portal involves mandated document verification, including work orders, agreements, invoices, etc. However, a significant challenge arises as many MSMEs often lack proper records of these essential documents. For MSME borrowers, it’s crucial to adhere to the prescribed procedure while making claims and settlements, ensuring compliance with MSME guidelines throughout the process.

Empowering MSMEs: Synergizing IPR Protection, Incubation, and Design for Innovation

The inception of the MSME Innovative Scheme by the Government of India signifies a pivotal move towards harnessing the power of Intellectual Property Rights (IPR) within the MSME landscape. This strategic amalgamation of IPR protection, Incubation, and Design interventions is poised to redefine the competitive edge of MSMEs, positioning them as formidable contenders on both national and global fronts.

This innovative scheme orchestrates a holistic integration of the Ministry of MSME’s IPR Schemes, Incubation, and Design initiatives, aligning them into distinct yet interconnected verticals. The underlying objective is to underscore the critical role of IPR in fostering innovation within MSMEs. By knitting together these distinct facets, the scheme aims to cultivate a unified environment that not only promotes but prioritizes IPR protection as an essential catalyst for enhanced efficiency and innovation.

At its core, this pioneering approach for MSMEs represent a fusion of incubation, design intervention, and IPR safeguarding. The primary goal is to illuminate the significance of IPR within the MSME ecosystem, igniting a realization among these enterprises about India’s vast potential for innovation. By championing IPR, the scheme endeavors to empower MSMEs to not just thrive but emerge as pioneers in their respective domains. It stands as a centralized platform propelling innovation, facilitating the metamorphosis of concepts into viable business ventures, thereby bestowing direct societal advantages and fostering robust market viability.

In essence, the crux of the MSME Innovative Scheme rests upon the recognition and elevation of IPR’s significance within the MSME sphere. It acts as a beacon, guiding these enterprises towards a future where the protection and utilization of intellectual property form the bedrock for their growth, resilience, and competitive eminence in the dynamic landscape of business and innovation.

Conclusion

The MSME sector in India epitomizes resilience and dynamism, serving as an indispensable pillar of the country’s economic framework. Its unwavering contribution spans far and wide, fueling industrial growth, nurturing employment, and championing innovation. As a fundamental driver of economic stability, the sector’s significance cannot be overstated. Its multifaceted role in propelling India towards a $5 trillion economy is not just aspirational but intrinsically linked to the nation’s progress and global competitiveness.

One of the most critical aspects crucial for the sustenance and flourishing of MSMEs is the expedited resolution of claim settlements. The MSME Act of 2006 stands as a beacon of hope for these enterprises, streamlining the process and ensuring timely payments. The Act’s provisions, especially Sections 15, 16, 18, and 19, not only stipulate payment timelines but also safeguard against delayed payments, enforcing interest rates to encourage adherence to agreed-upon terms. The establishment of the MSEFC and the introduction of platforms like MSME Samadhaan have been instrumental in providing a robust mechanism for resolving payment disputes. This swift resolution directly impacts cash flow, operational continuity, and the overall sustainability of MSMEs.

Furthermore, the convergence of Intellectual Property Rights (IPR) protection, incubation, and design intervention initiatives under the MSME Innovative Scheme marks a pivotal moment for the sector. This amalgamation heralds a new era of growth and innovation, empowering MSMEs to harness their creative potential. By fortifying IPR protection, these enterprises gain the means to safeguard their unique ideas, fostering an environment conducive to innovation and creativity. The infusion of design intervention amplifies their product and service offerings, enhancing market competitiveness and resonance. Incubation initiatives provide the nurturing ground for these ideas, fostering their transformation into viable business propositions. This trifecta of IPR, design, and incubation stands as a catalyst for catapulting MSMEs onto a global platform, enabling them to compete on an international scale.

The implications of bolstering MSMEs through streamlined claim settlements and a focused approach on IPR cannot be underestimated. A thriving MSME landscape translates to a robust economy, brimming with employment opportunities, inclusive growth, and a surge in exports. It echoes the essence of ‘Make in India’ by fostering indigenous talent and propelling the nation towards self-reliance. Moreover, the MSME sector’s expansion augments financial inclusion, especially in rural areas, amplifying banking accessibility and economic prosperity.

The convergence of efficient claim settlement mechanisms, fortified IPR protection, and holistic support through incubation and design initiatives not only fortifies the MSME ecosystem but also augments India’s economic prowess. It lays the groundwork for a transformative journey where these enterprises evolve into champions of innovation, driving societal benefit, and contributing significantly to the nation’s economic growth. As we propel towards a future marked by innovation and resilience, empowering MSMEs remains a linchpin for a prosperous and sustainable economy.

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