In a recent development, traders who have registered themselves as MSMEs on the Udyam portal are not eligible to access Facilitation Councils for delayed payment provisions under the Micro, Small, and Medium Enterprises Development (MSMED) Act[1]. This article aims to provide an in-depth understanding of this decision and its implications for traders and MSMEs.
Background:
The Office Memorandum dated 2nd July 2021 issued by the Ministry of MSME decided to include retail and wholesale traders as MSMEs, allowing them to register on the Udyam registration portal. However, the benefits available to these traders are restricted to Priority Sector Lending only.
The Udyam registration was granted for NIC code numbers 45, 46, and 47, which cover retail and wholesale activities. The decision to exclude traders from accessing Facilitation Councils was made after some traders approached these quasi-judicial mechanisms set up by the States under the MSEMD Act to ensure timely payment due to Micro and Small Enterprises (MSEs).
Reasons for Exclusion:
Dr. D. Gandhikumar, Member of Facilitation Council, Chennai, and former President of the Federation of Indian Micro and Small & Medium Enterprises (FISME), has stated that applications filed by traders registered as MSMEs against cases of delay in payments by their buyers are summarily rejected. The reason being that the registration of traders is solely for the limited purpose of allowing them access to priority sector lending by banks as mentioned in the Office Memorandum of 2nd July 2021.
Furthermore, Dr. Gandhikumar explained that the delayed payment provisions were specifically designed to assist small scale industries in the 1990s, which were later termed as MSEs under the MSMED Act 2006. This was done to ensure these small units received their dues on time, as many were facing financial difficulties due to a shortage of working capital.
Industry experts also believe that allowing traders to tap into the delayed payment mechanism would overwhelm the already burdened Facilitation Councils.
Conclusion:
In conclusion, while the registration of traders as MSMEs on the Udyam portal allows them access to priority sector lending, they remain ineligible to access Facilitation Councils for delayed payment provisions under the MSMED Act. This decision aims to protect the interests of genuine small scale industries and prevent the overburdening of Facilitation Councils. By focusing on the original intent of the delayed payment provisions, which was to support small scale industries facing working capital shortages, the decision ensures that these MSEs receive the much-needed assistance in a timely manner.
As a result, traders, although classified as MSMEs, are advised to explore alternative avenues for resolving payment disputes and seeking financial assistance. This differentiation between traders and other MSMEs under the MSMED Act acknowledges the unique challenges faced by small scale industries and allows Facilitation Councils to function more efficiently in their core mission of supporting genuine Micro and Small Enterprises.
It is essential for both traders and other MSMEs to be aware of these distinctions in order to understand the benefits and limitations of their respective registrations. By doing so, they can better navigate the legal and financial landscape while pursuing growth and success in their respective sectors.
Legal Disclaimer: The information contained in this blog post is for general information and educational purposes only. Nothing contained in this blog post should be construed as legal advice from The Aran Law Firm or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter.
