Do you own MSME ? Get to know the special provisions to recover dues

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3rd July 2020

Know the basics
MSME stands for Micro, Small, and Medium Enterprises. The intention of the Government to bring in the MSME Act was to provide large scale employment opportunities at comparatively lower capital costs than large industries.

The Act provides for delayed and defaulted payments to Micro and Small Enterprises. The Procedure for dispute resolution under the Act is as under:

Step 1:
The state government has established the Micro and Small Enterprise Facilitation Council (MSEFC) for settlement of disputes under the MSME Act 2006.

Step 2:
The suppliers or manufacturers who are medium or small enterprises under the Act shall have the right to receive payments from the buyer of its products or services within 45 days of receiving the goods or services.

Step 3:
If the buyer fails to make payment within 45 days, the buyer is required to pay compound interest @ three times the rate notified by the Reserve Bank of India till the time payment is made.

Step 4:
The suppliers/manufacturers can refer the dispute to the MSME Facilitation Council, in case the buyer fails to pay the amount with compound interest.

Step 5:
The Facilitation Council shall perform the conciliation process by itself or it can seek the assistance of another conciliation organization.

Step 6:
If the conciliation between the parties fails, the Facilitation Council shall either take up the dispute by itself or it can refer the matter to an Arbitrator for resolution of the dispute by way of Arbitration under the Arbitration & Conciliation Act, 1996.
Under the Arbitration Act, the process of Arbitration is required to be completed within a period of 90 days.

Who can Act as an Arbitrator?
The Facilitation Council can itself act as an Arbitrator or can refer the dispute to some other Arbitral Tribunal.

Does Arbitral order have equal value like a Civil court order?
Yes, the order passed by the Arbitrator is binding upon both the parties and has effect as that of the decree of the Civil Court.

Can the order passed by the Arbitrator or Facilitation Council be challenged?
Yes, the order passed by Facilitation Council or an Arbitrator can be challenged by the supplier or the buyer against whom such order is passed in the appropriate civil court.
The Party challenging the order has to deposit 75 % of the amount granted by the Council/ Arbitrator.

What does the Facilitation Council consist of?
The Facilitation Council consists of the Director of Industries as Chairman, office holders of the MSME association, representatives of banks and financial institutions, and individuals with exceptional knowledge of the industry, finance, law, and trade.

How to refer the dispute to the Facilitation Council?
The aggrieved party can register itself online on the Government Website of MSME Samadhaan for filing the application. Any MSME, having a valid Udyog Aadhaar Memorandum (UAM) can make an application via this portal. After an application is made by the MSME, the Council shall examine the case and then issue directions to the defaulter for payment of the due amount along with the interest.

Authors- Adv.Gauravi Adhikari and Adv.Aishwarya Tambe with the help of Adv.Amit A.Tungare

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