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Company Rules Update: Reporting for delayed payment to micro and small enterprises

Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order 2019

The order comes into effect from January 22, 2019

Ministry of Micro, Small and Medium Enterprises (MSME) had issued notification number S.O. 5622(E) dated 2nd November, 2018 directing all companies who get supplies of goods or services from micro and small enterprises where the payment to them is outstanding for more than 45 days from the date of acceptance/ deemed acceptance of goods or services to submit half yearly return to Ministry of Corporate Affairs (MCA) stating the amount of payment due and reasons of delay. Before the issue of November 2018 notification, companies were required to make payment to MSMEs within 45 days but there was no reporting requirement in case of delay in payment.

MCA, on January 22, 2019, has given a legal basis to the above requirement by issuing a notification under the Companies Act, 2013 through the Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order, 2019 stating that:

  1. Every specified company shall file in MSME Form I, details of all outstanding dues to Micro or small enterprises suppliers existing on the date of notification of this order within thirty days from the date of publication of this notification;[1]
  2. Every specified company shall file a return as per MSME Form I annexed to the Order, by 31st October for the period from April to September and by 30th April for the period from October to March.

Analysis:

  • The requirement of filing of return in case of delay in payment along with the reason for such delay and presenting the same in statement of accounts is likely to make this an important item for the Board of Directors of the Companies.
  • The initial reporting of all outstanding dues is to be done within 30 days from the date of publication of this notification i.e., by 21st February, 2019. Thereafter, the reporting will be done on a half yearly basis.
  • The Order is applicable to all Companies (including startups) who take supplies from micro or small enterprises and the payment to them is due beyond 45 days.
  • No fine/penalty has been provided on the Companies for non-filing of the Form. However, if the information filed in the Form is incorrect or incomplete, in any material respect, then the Company may be penalized as per 405(4) of the Companies Act, 2013.[2]
  • The notification does not clarify the applicability of the Order in case the amount outstanding for a period exceeding 45 days in a particular half year is settled in that half year itself.

 

[1] While the MCA notification refers to specified companies, the MSME order is applicable to companies and the MCA notification is also applicable to all companies.

[2] S.405 (4): If any company fails to comply with an order made under sub-section (1) or subsection (3), or knowingly furnishes any information or statistics which is incorrect or incomplete in any material respect, the company shall be punishable with fine which may extend to twenty-five thousand rupees and every officer of the company who is in default, shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to three lakh rupees, or with both.

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