MSME FACILITATION COUNCIL

[Mr. M. GOVINDARAJAN]

Definition of MSME

In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes:

• Manufacturing Enterprises-The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) Act, 1951) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery.
• Service Enterprises:-The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.

Limit

The limit for investment in plant and machinery / equipment for manufacturing / service enterprises, as notified, vide S.O. 1642(E) dtd.29-09-2006 are as under-

Manufacturing sector-

• Micro Enterprises - Does not exceed twenty five lakh rupees;
• Small Enterprises - More than twenty five lakh rupees but does not exceed five crore rupees;
• Medium Enterprises - More than five crore rupees but does not exceed ten crore rupees.

Vide Notification No. S.O. 1702 (E), dated 01.06.2020, the Central Government notified the following criteria for classification of micro, small and medium enterprises, namely-

• a micro enterprise, where the investment in Plant and Machinery or Equipment does not exceed one crore rupees and turnover does not exceed five crore rupees;
• a small enterprise, where the investment in Plant and Machinery or Equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees;
• a medium enterprise, where the investment in Plant and Machinery or Equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.

Service sector

• Micro Enterprises - Does not exceed ten lakh rupees:
• Small Enterprises - More than ten lakh rupees but does not exceed two crore rupees
• Medium Enterprises - More than two crore rupees but does not exceed five crore rupees

Liability of buyer to make payment

Section 15 of the Act provides that where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment there for on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day.  In no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.

Interest

Section 16 of the Act provides that where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank.

Recovery of amount due

Section 17 of the Act provides that for any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon.

MSME Facilitation Council

Section 20 of the Act provides that the State Government shall, by notification, establish one or more Micro and Small Enterprises Facilitation Councils, at such places, exercising such jurisdiction and for such areas, as may be specified in the notification.

The Micro and Small Enterprise Facilitation Council shall consist of not less than three but not more than five members to be appointed from amongst the following categories-

• Director of Industries, by whatever name called, or any other officer not below the rank of such Director, in the Department of the State Government having administrative control of the small scale industries or, as the case may be, micro, small and medium enterprises; and
• one or more office-bearers or representatives of associations of micro or small industry or enterprises in the State; and
• one or more representatives of banks and financial institutions lending to micro or small enterprises; or
• one or more persons having special knowledge in the field of industry, finance, law, trade or commerce.

Director of Industries shall be the Chairperson of the Micro and Small Enterprises Facilitation Council.

The composition of the Micro and Small Enterprises Facilitation Council, the manner of filling vacancies of its members and the procedure to be followed in the discharge of their functions by the members shall be such as may be prescribed by the State Government.

Jharkhand MSME Facilitation Council

The Jharkhand State framed its own rule for MSME Act in the year 2006 which has amended during 2017.  Vide Rule 4 the State fixed the minimum number of members of the Facilitation Council as five and maximum number of members 9 which is in not consistent with the provisions of the Act which provides minimum number of member is 3 and maximum is 5. 

Electro Steels Limited, Bokaro, filed a writ petition before the High Court challenging the number of members in Jharkhand MSME Facilitation Council which contains nine members which is inconsistent with the provisions of the Act.  The High Court considered the arguments put forth by the petitioner and found that provisions of rule in relation to number of members are inconsistent with that of the Act.  In the meantime the Jharkhand Government amended the rule and fixed the minimum number and maximum numbers as per the Act.   However the High Court, vide their order dated 03.05.2020 quashed the order passed by the Council.

Constitution of Council

The Jharkhand Government constituted the Facilitation Council as containing 5 members as detailed below-

• Director, Industries or designated officer by the State Government under Section 21 (1) (i) of the Act.
• Coordinator, State Level Bankers Committee.
• Representative, Micro/Small Enterprises Association, Jharkhand, Ranchi.
• Legal specialist
• Chartered Accountant/Cost Accountant appointed by the Department/Directorate as consultant.

The Members other than the Chairman can hold post maximum up to two years from the date of appointment.  Any member of the council can abdicate from the Council by giving one month written prior notice to the government. The power to accept member's resignation will be vested in the government.   If the post of a member becomes vacant due to any reason, then the State Government can appoint a person to fill that vacancy.

Removal of member

Any member can be removed from the post by the Government:-

• If is of unsound mind and stands so declared by the competent court; or
• If becomes bankrupt or insolvent or suspends payment to his creditors; or
• If he is convicted for any offence, which is punishable under Indian Penal Code (Act 45/1860); or
• If he abstains himself / herself from three consecutive meetings of the council without the leave from Chairperson, and in any case from five consecutive meetings; or
• If he acquires such financial or other interests as is likely in the opinion of Government to affect pre-judicially his functions as a member.

Reference of the dispute to Facilitation Council

Section 19 of the Act provides that any party to a dispute may, with regard to any amount due, make a reference to the Micro and Small Enterprises Facilitation Council.  On receipt of a reference the Council shall either itself conduct conciliation in the matter or seek the assistance of any institution or centre providing alternate dispute resolution services by making a reference to such an institution or centre, for conducting conciliation and the provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 shall apply to such a dispute as if the conciliation was initiated under Part III of that Act.

Where the conciliation is not successful and stands terminated without any settlement between the parties, the Council shall either itself take up the dispute for arbitration or refer it to any institution or centre providing alternate dispute resolution services for such arbitration and the provisions of the Arbitration and Conciliation Act, 1996 shall then apply to the dispute as if the arbitration was in pursuance of an arbitration agreement referred to in sub-section(1) of section 7 of that Act.

The Micro and Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an Arbitrator or Conciliator under this section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India.

Every reference made under this section shall be decided within a period of 90 days from the date of making such a reference.

Procedure under Jharkhand rule

The procedure in regard to settle the dispute under the Jharkhand MSME Rules is as detailed below-

• An aggrieved micro or small enterprises supplier will submit their reference in the application form with the complete details of UAM (Udyog Aadhar Memorandum), mobile no., e-mail ID along with full detail of the buyer and its enterprise, material or service supplied, the fixed time limit for payment between supplier and buyer, mentioning the complete statement of outstanding amount and interest calculated in accordance with Section 16 of the Act, which shall be submitted through the affidavit with non-judicial stamp (Non Judicial court fee stamp) of ₹ 20.00 (twenty) affixed or attached. It would be clearly mentioned in the affidavit that no lawsuit is pending before the Civil Court related to this dispute.
• The reference process charges shall be 1% of the amount claimed by the supplier regarding the delayed payment will be deposited in the form of fees, which will be minimum Rs. one thousand rupees and maximum of five thousand rupees.
• On receipt of the reference, data regarding the applicant and the defendant will be filed by the office of the Council on the MSME Portal maintained by the Government of India.
• After entry of data, the acknowledgment receipt will be sent to the applicant immediately through mail or SMS by the council office.
• After satisfaction, by verifying the fee, fixed stamp, company identification, regarding micro, small, enterprises, Udyog Aadhar memorandum, etc. submitted with reference received by council office, it will be placed before next Council meeting.
• If the context or the details recorded in it are not found satisfactory by the Council, then the reference can be rejected.
• The Council shall either itself conduct conciliation in the matter or seek the assistance of any institute for conducting the conciliation and if it decides to do so, shall refer the parties to the institute.
• The institute to which the issue is referred make effort to bring out conciliation and it shall submit its report to Council as soon as possible within 15 days from reference to the council.
• Where the solution is not successful and decision terminated without any settlement between the parties, the Council shall either itself take up the dispute for further action, i.e., arbitration or refer to an institute for the same.
• If the matter is referred to an institute, the institute shall arbitrate the issue as per the provisions of the Arbitration and Conciliation Act, 1996 and refer the award to the Council.
• The Council after finalizing the award or receiving the award from the institute shall consider the case and pass the appropriate final order in this matter.

Decisions of the Council

 Any decision of the council shall be made by a majority of its members present in the meeting of the council.  No application for setting aside any decree, award or other order made either the council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the council, shall be entertained by any court unless the appellant (not being a supplier) has deposited with it seventy-five percent of the amount in terms of the decree, award or, as the case may be, the other order in the manner directed by such court.

Recovery of the amount

If the purchaser does not appeal under Section 19 of the Act against the award of the Council or the Institution, or the appeal has been rejected, then the declared awardees can apply for recovery to the Collector of the respective district and the Collector will recover the amount as like land revenue arrear. In other circumstances, the awardees can file a law suit in a competent court.