THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, (MSMED) 2006
November 18, 2019
The Micro, Small and Medium Enterprises development (MSMED) Act, 2006 is a single comprehensive act for development and regulation of small enterprises which came into effect in October, 2006. The act came with an aim to free the enterprises from plethora of laws and regulations. The Abid Hussain Committee and the study group under S.P. Gupta has made recommendations to provide a legal framework for small sectors to relieve it from the requirements of compliance with multiple rules and regulations. The objective of the Micro, Small and Medium Enterprise Development Act, 2006 is to facilitate the natural mobility of small enterprises to middle ones through appropriate policy interventions and legal framework. The government came up with the Micro, small and medium enterprises development act to promote, develop and enhance the competitiveness of micro, small and medium enterprises.
MSME Registration as Micro, Small and Medium Enterprise (MSME) under the Act:
Udyog Aadhaar Registration in India under the Act for the Micro, Small and Medium enterprises engaged in the business of providing or rendering services is discretionary. But, the SSI Registration for medium enterprises engaged in the manufacture of goods is mandatory under the act. The first schedule to the Industries (Development and Regulation) Act, 1951 specifies mandatory requirement of registration for the medium enterprises which are engaged in the manufacture of goods pertaining to any industry.
The important points under the MSME act are:-
- The Act formed National Board for Micro, Small and Medium Enterprise for overseeing and regulating the development of SSIs in India.
- The MSME Act simplified the process of obtaining Udyog Aadhaar Certificate.
- The Act provides for provisions to help the supplier of the goods and services by imposing penalties on buyers for late payments.
- The act provides for a future policy called the “Closure of Business or Exit policy” to regulate the close of sick or weak units.
- The act provides a MSME registration portal for online registration of MSMEs. The micro, small and medium enterprises are required to register online on the MSME registration portal in order to obtain SSI certificate.
Chapter I deals with the preliminary aspects of the act like definition of the act, date of commencement, days of acceptance and deemed acceptance and certain terms like buyer, seller, enterprise etc.
Chapter II provides for provisions for setting up of micro, small and medium enterprises. Also, the act provides functions of the board, powers and functions of the member secretary of the board. The members in the office include:-
- A minister at the centre
- Six ministers of the state government
- Members of the Parliament
- One administrator of Union Territory
- Secretaries of the Indian government
- Representatives of Industry, Finance, Food processing, Labour and planning
- Chairman of the board of directors of the National Bank
- Chairman & MD of SIDBI
- Chairman of IBA
- Twenty persons to represent micro, small and medium enterprises
- Three persons of eminence from the fields of economics, industry and science and technology
- Two representatives of Central Trade Unions
- One ex-officio member-secretary of the board will be from the central government having administrative control of the small and medium enterprises
The act has made clear distinction between the enterprises engaged in the manufacture or services sector:-
- A micro enterprise will be one where the investment in Plant & Machinery not exceeding Rs. 25 Lac.
- A small enterprise will be one where the investment in Plant & Machinery is more than Rs. 25 Lac but less than Rs. 5 crores.
- A medium enterprise will be one where the investment in Plant & Machinery is more than Rs. 5 crores but less than Rs. 10 crores.
- A micro enterprise will be one where the investment in equipment not exceeding Rs. 10 Lac.
- A small enterprise will be one where the investment in equipment is more than 10 Lac but less than 200 Lac.
- A medium enterprise will be one where the investment in equipment is more than Rs. 200 Lac but less than 500 Lac.
Also, the act provides for constitution of advisory committees for giving advice on level of employment, nature and level of investment, promotion and diffusion of entrepreneurship etc.
Chapter IV provides procedure and methodology for the establishment of a micro, small and medium enterprises. Also, the procedures to be followed by a person already having a micro, small or medium enterprise.
Chapter V provides for provisions of market facilities, grants of funds by the central government, procurement policy, administration and utilization of funds along with measure for promotion, development and enhancement of competitiveness of micro, small and medium enterprises.
Chapter VI provides provisions related to liability of buyer to make payments, measures to prevent delayed payments by the buyer to the micro, small and medium enterprises and rate at which interest is payable. This chapter also provides reference to micro and small Entrepreneurs’ Facilitation Council. Also, the act provides provisions for making application for setting aside decree, interest on delayed payment, overriding effect for closure of business of micro and small enterprises.
Chapter VII provides for provisions related to appointment of officers and other employees, imposition of penalties, procedure for formulation of rules by the central and the state government and the powers to make amendments in the act.
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