The government is likely to consider including medium enterprises for the protection granted under the MSME Development (MSMED) Act, 2006, to resolve payment disputes.
MSME stands for micro, small, and medium enterprises.
The government is considering amendments to definitions in the MSMED Act, two people aware of the matter said, at a time when industry stakeholders have demanded the inclusion of medium enterprises in the definition of “supplier” in the law.
Consultations regarding amendments to certain definitions in the MSMED Act are ongoing, one of the officials mentioned above told Mint, requesting anonymity. Only micro and small businesses are currently covered by the protection.
Medium enterprises are defined under the law, but not included in the definition of “supplier”. The MSMED Act defines all three enterprises – micro, small, and medium. The definition of “supplier”, however, includes only micro and small businesses.
An email query seeking confirmation of this development to the ministry of micro, small, and medium enterprises sent on Thursday evening remained unanswered till press time.
Micro enterprises are those that have an investment of under ₹1 crore and a revenue of under ₹5 crore; small enterprises are those with an investment of under ₹10 crore and revenue of under ₹50 crore; and medium enterprises have and investment of under ₹50 crore and revenue of less than ₹250 crore, as per definitions revised by the union government in June 2020.
“A majority of Indian MSMEs are a part of the services sector, and currently discussions are underway to also promote those in the manufacturing sector. We have made multiple demands towards amendments to the MSMED Act. But all of it is likely to take at least six more months before we see a draft,” said Anil Bhardwaj, secretary general, Federation of Indian Micro and Small & Medium Enterprises (FISME).
Stakeholders such as FISME have asked for the inclusion of medium enterprises in the definition of “supplier” as roughly 10,000-15,000 such businesses are currently beyond the ambit of the law.
The impact of changes potentially made to the definition of “supplier” can be best assessed by looking at the most ubiquitous problem that MSMEs face — delayed payments from big businesses.
The MSMED Act addresses this issue by creating the Micro and Small Enterprises Facilitation Councils (MSEFCs), a forum for suppliers under the law to raise delayed payment disputes.
When micro and small businesses approach the MSEFC, they can raise a dispute and resolve it using conciliation, mediation, and arbitration — out-of-court dispute resolution processes. The one catch, as per section 15 of the MSMED Act, is that only “suppliers” can seek action from MSEFCs, thus excluding medium enterprises in the dispute resolution process.
MSEFCs created under the law have so far registered 88,786 cases where the amount payable to micro and small businesses totals ₹27,578 crore. While MSEFCs have resolved over half of these cases, the amount paid to micro and small enterprises via this method is less than a third of the due amount, indicating inefficiencies within the ecosystem.
Mint reported on 17 July that amendments to the MSMED Act are likely to empower MSEFCs to resolve issues such as accessibility to dispute resolution, delays in the mediation-plus-arbitration method, and delays in legal enforcement of arbitral awards.
The consultation over inclusion of medium enterprises follows the government’s efforts to provide affordable dispute resolution to stakeholders in the India International Arbitration Centre (IIAC), the only arbitration institution directly funded by the government, in June this year. In June, the IIAC revised its rules for MSME dispute resolution, providing discounts on fees and expedited awards.
