This Act is enacted to facilitate the promotion, development and enhancement of the competitiveness of the micro, small and medium enterprises and to address the matters connected therewith or incidental thereto.

This Act came into force from 16th June, 2006.

Classification of Enterprises

The classification of enterprises into the three categories of micro, small and medium can be of proprietorship, Hindu undivided family, association of persons, co-operative society, partnership firm, company or undertaking, by whatever name called.

Protection to Micro and Small Enterprises for delayed payments by the buyer of goods or services

Liability of Buyer to make the payment

The payments to micro and small enterprises by the buyers of goods or services from such enterprises should be made on or before the date agreed in writing or where there is no agreement then on the appointed day. However in no case the period agreed upon in writing between the parties shall exceed 45 days from the day of acceptance or the day of deemed acceptance. (Section 15)

In case of delay in payment, date from which and rate at which interest is payable

Where the buyer fails to make payment as mentioned above, the buyer shall notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on the amount outstanding from the appointed day or, as the case may be from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank. (Section 16)

Recovery of amount due

For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the amount with interest thereon as provided above. (Section 17)

Reference to Micro and Small Enterprises Facilitation Council

If there is any dispute between the parties as to the amount due towards the goods supplied or services rendered as well as the interest charged as mentioned above then a reference can be made to the Micro and Small Enterprises Facilitation Council. (Section 18)

Requirement to specify unpaid amount with interest in the annual statement of accounts

Where any buyer of goods or services from Small, Micro and Medium Enterprises is required to get his annual accounts audited under any law for the time being in force, such buyer shall furnish the following additional information in his annual statement of accounts

1. the principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier as at the end of each accounting year;
2. the amount of interest paid by the buyer, along with the amounts of the payment made to the supplier beyond the appointed day during each accounting year;
3. the amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under this Act;
4. the amount of interest accrued and remaining unpaid at the end of each accounting year; and
5. the amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under section 23 of this Act.

Interest not to be allowed as deduction from Income as per Income-tax Act, 1961

Notwithstanding anything contained in the Income-tax Act, 1961, the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act, shall not, for the purposes of computation of income under the Income-tax Act, 1961, be allowed as deduction.