MICRO ,SMALL AND MEDIUM ACT 2006

MICRO ,SMALL AND MEDIUM ENTERPRISE DEVELOPMENT ACT 2006
The micro, small and medium enterprises sector comprises 50% of India's total manufactured exports,45% of India's industrial employment, and 95% of all industrial units in the country. Despite its importance, the MSME sector has long faced extreme obstacles in accessing finance and markets. Therefore in order to facilitate promotion and development and enhancing the
competitiveness of the MSME sector the Micro, Small and Medium Enterprises Development Act 2006 was enacted which became operational from Oct 2006.The salient features of this Act are as follows:
1. Definition of MSMEs: It defines 'Enterprise' instead of 'Industry' to give due recognition to the service sector. The Category of an enterprise is dependent on the level of investment in Plant and Machinery/Equipment. (Sec.7)
Manufacturing Service Sector
Sector Investment in
Enterprise Investment in Equipment
Category P&M

Micro Upto 25 lacs Upto 10 lacs

Small More than 25 lacs More than 10 lacs
but less than but less than
5 crores 2 crores

Medium More than 5 crores More than 2 crores
but less than but less than
10 crores 5 crores
2. National Board for Micro, Small and Medium
Enterprises: A National Board has been constituted with its head office at Delhi for overseeing and regulating the development of MSMEs.

3. Filing of Memorandum: The earlier timeconsuming
registration process has been replaced by a simpler system of filing of memoranda by the enterprises. The enterprises just need to file a memorandum with the District Industry Centers (DICs) as follows: (Sec.8)
Type of enterprise Mfg/ Service Mandatory/optional
Micro and Small Both Mfg. and service Optional
Medium Service Optional
Medium Mfg. Mandatory

4. Credit facilities: The policies and practices for extending credit to MSME shall be progressive as per the guidelines issued by RBI. This will ensure timely and smooth flow of credit to such enterprises, minimize the incidence of sickness and enhance the competitiveness of such enterprises. (Sec.10)
5. Procurement Preference Policy: For facilitating promotion and development of micro and small enterprises the govt. will notify preference policy in respect of procurement of goods and services produced and provided by micro and small enterprises, by its Ministries, departments or its allied institutions and PSU.
6. Mechanism to check delayed payment: a. Where any micro or small enterprise (not the medium enterprise) supplies goods or services to any buyer, the buyer is required to make payment to the supplier on or before the agreed date between buyer and supplier. But in any case the credit period for payment agreed between the supplier and buyer shall not
exceed forty five days.(Sec.15)
b. If the buyer does not make payment as per the agreed terms of payment (maximum 45 days) he shall be liable to pay to the supplier compound interest with monthly rests at three times the bank rate notified by RBI. (Sec.16)
c. For recovery of the above amount due with interest, any party to dispute may make a reference to the Micro and Small Enterprises Facilitation Council who hall act as Arbitrator or Conciliator under Arbitration and Conciliation Act 1996.
d. The amount of interest payable or paid by any buyer in accordance with the provisions of this Act shall not be allowed as a deductible expenditure under the Income Tax Act 1961. (Sec.23)
7. Disclosure in audited accounts

a. Where any buyer is required to get his annual accounts audited under any law, such buyer is
required to furnish following additional information in annual statement of accounts:
i. Principal amount and interest due thereon remaining unpaid to any such supplier;
ii. The amount of interest paid by the buyer in terms of section 16, alongwith the amounts of
the payment made to supplier beyond the agreed day;
iii. The amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the agreed day during the year) but without adding interest specified
under the Act;
iv. The amount of interest accrued and remaining unpaid at the end of each accounting year;
v. The amount of further interest remaining due and payable even in succeeding years, until such date when the interest dues as above are actually paid to the small enterprise. (Sec.22)
b. The corresponding amendment to the Schedule VI of the Companies Act 1956 in line with e above has been made w.e.f. 29th Nov 2007 vide Notification no. G.S.R. 719(E) dated 16.11.07. The earlier requirement of giving names of SSIs to whom company owes any
sum together with interest outstanding for more than 30 days has been dispensed with
8. Penal provisions: Contravention of section 8 (filing of memoranda) or 26 (furnishing of information on requisition) would entail a fine upto Rs.1000 on first conviction and a fine of Rs.1000 to 10000 for any second or subsequent conviction. Where a buyer contravenes
provisions of section 22 he shall be punishable with a minimum fine of Rs.10000. (Sec.27)
9. Repeals: The Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act 1993 is repealed on enactment of this Act. (Sec.32)