The government is poised to restructure the Micro, Small and Medium Enterprises Facilitation Councils (MSEFCs) to address the perennial issue of delayed payments. This significant reform will be enacted through an amendment to the Micro, Small and Medium Enterprises Development Act, 2006, as revealed by sources familiar with the development.
The restructuring will endow these councils with enhanced powers, strengthening their capacity to resolve payment disputes. MSEFCs, constituted at the state level under the MSMED Act, serve as arbitrators or conciliators in disputes between suppliers within their jurisdiction and buyers across India. Upon reviewing a case, these councils direct buyers to settle dues with interest, calculated at three times the bank rate, within 45 days of accepting services.
The current system, however, is overburdened and inefficient, prompting the need for an overhaul. The revamped MSEFCs will be fortified to enforce their orders more effectively, addressing the backlog and ensuring swift resolution of disputes. According to the ‘MSME Samadhan’ portal, out of 198,453 applications filed, only 38,037 cases have been resolved, with a substantial number still pending or rejected.
One proposal under consideration is the mandatory inclusion of legal professionals in these councils to mitigate the loopholes often exploited in higher courts. Vinod Kumar, President of the India SME Forum, underscores the necessity of clearly defining the roles of these councils to encompass reconciliation and mediation, and transforming the MSME-Samadhan system into a comprehensive online dispute resolution platform.
Anil Bhardwaj, Secretary General of the Federation of Indian Micro and Small & Medium Enterprises (FISME), highlights the protracted execution of arbitral awards, which significantly hampers the financial stability of MSMEs. He emphasizes the need for a more expedient process to ensure timely benefits from arbitral awards.
Krunal Modi, founding member and manager of Presolv360, advocates for delegating disputes to specialized institutions to enhance efficiency. He points out the lack of guidelines from state governments that currently hampers this delegation, despite the provisions under the MSMED Act.
In a bid to amend the law, the MSME ministry is collaborating with various stakeholders, including the ministry of law and justice and National Law Universities, to refine the Act’s provisions to better serve MSMEs. The MSME Development Act mandates payment within 45 days for transactions backed by a written agreement and within 15 days otherwise.
Furthermore, the Finance Act of 2023 introduced a clause in section 43 B of the Income Tax Act, allowing the deduction of payments to micro and small enterprises as an expenditure only in the year of actual payment if delayed beyond the stipulated time. This provision aims to ensure timely payments but is under review to prevent unintended consequences, such as larger businesses avoiding smaller firms to circumvent stringent tax treatments.
The government’s initiative to restructure MSEFCs and amend related laws is a decisive step towards creating a more robust framework for resolving delayed payments, thus fostering a more conducive environment for the growth and stability of MSMEs.
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