The MSME sector has the potential to contribute more than 50% to India’s GDP, MSMEs are strife with a plethora of challenges like access to credit, skilled manpower, market access, etc.
that hinder their sustained growth. One such major challenge faced by many MSMEs is uncertain cash flows arising out of delayed payments from the buyers of their goods or services.
Realizing that delayed payments to MSMEs often lead to a domino effect of subsequent delays in payments to employees and vendors of such MSMEs, the Micro, Small and Medium Enterprise Development (MSMED) Act prescribes stringent provisions to deal with cases of delayed payments to MSMEs.
The Act mandates that the buyer is liable to pay compound interest with monthly rests to the supplier (MSME) on the unpaid amount at three times of the bank rate notified by RBI in case the buyer does not make payment to an MSME for the supplies of goods or services within 45 days of the day of acceptance/deemed acceptance of the said goods or services.
Every reference made to MSEFC shall be decided within a period of ninety days from the date of making such a reference as per the provisions laid in the Act.
If the Appellant (buyer) wants to file an appeal, no application for setting aside any decree or award by the MSEFC shall be entertained by any court unless the appellant (buyer) has deposited with it, 75% of the award amount. (Section 19).
To ensure speedy disposal of cases related to delayed payments of MSMEs, the government launched a dedicated Delayed Payment Monitoring Portal – MSME Samadhaan in October 2017 that quickly allows any MSME having a valid Udyog Aadhaar (UAM) to file an online complaint of delayed payment against the buyer of their goods or services.
The prerequisite for filing an application under MSME SAMADHAAN, your enterprises must be covered under the MSMED Act, 2006 and you have a valid Udyog Aadhar Number.
Registering A Case On The Samadhaan Portal
Registering a case of delayed payments on the Samadhaan portal is quick and easy. All that an MSME (supplier) has to do is:
- Register online with their Udyog Aadhaar
- Upload unpaid invoices along with the corresponding work order or agreement/contract copy
- Submit the details of the defaulting buyer.
Once the case is registered, it is automatically forwarded to the concerned state’s Micro and Small Enterprise Facilitation Council (MSEFC) that oversees the resolution of each case.
After a detailed scrutiny of each case, the MSEFC arrives at a verdict that is either in the favor of the supplier or the buyer. When the verdict is in the favor of the supplier, an “award” (formal order) is issued mandating the buyer to make the payment (unpaid dues plus interest) to the supplier within the stipulated time.
However, in many cases, despite the issuance of the award from the MSEFC, buyers delay in making the payment to the MSME. To prevent this never-ending circle of payment delays, the MSME Ministry has now interlinked the Samadhaan portal with National E-Governance Service Ltd. (NeSL)’s Information Utility (IU).
Details required when filing an application under MSME SAMADHAAN
- UAM Number of Entity who wants to file an application
- Mobile and mail accessibility, which is used at the time of the UAM Registration.
- Copy of Work Order/Purchase Order for which payment is under dispute
- Copy of Invoice under dispute along with proof of delivery/receipt from the buyer
- Complete address detail of buyer and supplier along with mail and mobile detail
After successful submission of application, concerned department issues notice both parties (buyer and supplier) and try to resolve the disputed matter with manual consent. If the dispute is not sorted with mutual consent then the concerned department will file a formal case against the buyer and further proceeding will be governed by the MSMED Act, 2006.
Beyond Samadhaan: NeSL IU
NeSL – A Union Government Company, is India’s first Information Utility (IU) that acts as a repository of legal evidence pertaining to any debit/claim submitted by a creditor.
Registered with the Insolvency and Bankruptcy Board of India (IBBI) that operates under the aegis of the Insolvency and Bankruptcy Code (IBC), 2016, NeSL provides verified information (that does not require any further authentication) to adjudicating authorities of National Company Law Tribunal (NCLT) about a debt/claim.
With the interlinking of Samadhaan and NeSL IU, MSMEs are now armed with a potent law of IBC by filing insolvency proceedings against the defaulting buyer.
Under the new initiative, all that an MSME has to do when registering its case on the Samadhaan portal is give its consent to share the same information with NeSL. Once NeSL receives this information, it gets in touch with the MSME and guides it to register on the NeSL IU portal and upload all unpaid invoices along with the concerned buyers’ details.
Upon successful upload of the unpaid invoices, NeSL IU automatically generates a ‘Demand Notice’ and sends it to the buyer on behalf of the MSME. Three reminders are sent to the buyer to ensure that the Demand Notice is confirmedly delivered to the buyer who then may accept or dispute the concerned MSME’s claim of unpaid dues.
If the buyer fails to respond to the Demand Notice within 14 days of receiving the ‘Demand Notice Authentication Request’, NeSL IU automatically generates a ‘Record of Default’ and triggers a ‘Default Alert’ that is broadcasted to all lenders of the concerned buyer.
The ‘Default Alert’ includes:
- the name of the defaulting buyer,
- the name of the MSME that has suffered the default by the buyer,
- the total default amount and
- the date from which the amount has defaulted.
Every single lender who has active loans with the buyer gets the ‘Default Alert’ that seriously impacts the creditworthiness of the defaulting buyer.
Apart from naming and shaming the defaulting buyer, the MSME (supplier) can use the ‘Record of Default’ document as a legal piece of evidence to initiate bankruptcy proceedings against the buyer under IBC, 2016.
Gone are the days when large entities could suppress MSMEs and delay their payments indefinitely. Backed with the MSMED Act‘s stringent mandate on timely payments and armed with new initiatives like the recent interlinking of Samadhaan and NeSL IU, MSMEs no longer need to be a worry when seeking timely payments from their clients.