New Thresholds Will Help Reduce MSME Dues, Experts Say
(Source: BloombergQuint)

New Thresholds Will Help Reduce MSME Dues, Experts Say

The revised thresholds announced by Finance Minister Nirmala Sitharaman for classifying industries as micro, small or medium enterprises will result in a higher number of businesses qualifying for the safeguards under the MSME law.

This means a larger universe of companies must ensure timely payments to such micro and small vendors or risk attracting penal interest prescribed under the law, experts said.

Nirmala Sitharaman has announced several measures for the MSME sector under the Prime Minister’s Atmanirbhar Bharat Abhiyan--a financial package to help restore economic growth and make India self-reliant.

According to the revised classification, businesses having investments below Rs 1 crore and turnover below Rs 5 crore will qualify as a micro industry, while businesses having investment and turnover up to Rs 10 crore and Rs 50 crore, respectively, are classified as small industries.

Any eligible business which registers itself with the specified authority is safeguarded under the law. Section 15 of the MSME Act says that a buyer must make payments within any contractually agreed time or 45 days from the acceptance of goods or receiving services from a micro or small vendor. Failure to do so attracts compound interest at three times the bank rate notified by the Reserve Bank of India.

The intent of the MSME Act is to protect the interests of small industries and courts have even extended relief to them even when they have failed to meet procedural requirements, Sameer Jain of PSL Advocates and Solicitors, said. Two years ago, in the Ramky Infrastructure case, the Delhi High Court had extended benefits under law to the company’s vendor even though it was an unregistered MSME, he said.

Khaitan & Co’s Atul Pandey said the revised thresholds may lead to an additional stress on the books of large-sized companies if their volume of trade with MSMEs is significant as more number of enterprises would now qualify for the safeguards. However, large-scale enterprises generally honour payment deadlines as the payments to MSMEs are minuscule in comparison to their total business operations, he said.

Companies must be very proactive in servicing their debts to the MSME Sectors, Jain said.

Apart from timely payments, the law also says that companies must disclose any outstanding dues beyond the period of 45 days along with the interest payable in their annual financial statements under the MSME Act, he said.

Also read: Rs 20 Lakh Crore Economic Package With Little Government Spend

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.