THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

CHAPTER I
PRELIMINARY

An Act to provide for facilitating the promotion and development and enhancing the competitiveness of micro,
small and medium enterprises.

Section Heading Details

No.
1. Short title and -
commencement
2. Definitions -

CHAPTER II
NATIONALBOARD FOR MICRO, SMALL AND MEDIUM ENTERPRISES

3. Establishment 1. Central Government may, by notification, appoint, there shall be established, for
of Board the purposes of this Act, a Board to be known as the National Board for Micro,
Small and Medium Enterprises (NBMSME).
2. The head office of the Board shall be at Delhi
3. The Board shall consist of the various members appointed ex officio, by central
government, Member of Lok sabha.
4. The Minister in charge of the Ministry of MSME is the ex-officio Chairman of
the NBMSME.

Note –
i. Jitan Ram Manjhi is the current Minister of Micro, Small and Medium
Enterprises (MSME) in India.
ii. The National Board for Micro, Small and Medium Enterprises (NBMSME) has
47 members, including 18 ex-officio members and 29 members with a two-
year tenure.

4. Removal of The Central Government may remove a member of the Board from it, if he—
member from
Board a) is, or at any time has been, adjudged as insolvent; or
b) is, or becomes, of unsound mind and stands so declared by a competent
court; or
c) refuses to act or becomes incapable of acting as a member of the Board; or
d) has been convicted of an offence which, in the opinion of the Central

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Chartered Accountant
 Government, involves moral turpitude; or
e) has so abused, in the opinion of the Central Government, his position as a
member of the Board as to render his continuance in the Board detrimental
to the interests of the general public.

Note - grounds specified in clauses (c) to (e) - give a reasonable opportunity of being
heard in the matter before removal.

5. Functions of The Board shall, subject to the general directions of the Central Government,
Board perform all or any of the following functions, namely

a) examine the factors affecting the promotion and development of micro,

small and medium enterprises and review the policies and programmes of
the Central Government.
b) make recommendations on matters referred to in clause (a) or on any other
matter referred to it by the Central Government.
c) advise the Central Government on the use of the Fund or Funds constituted
under section 12.

6. Powers and The Member-Secretary of the Board shall exercise such powers and perform such
functions of functions as may be prescribed.
Member-
Secretary of
Board.

CHAPTER III
CLASSIFICATION OF ENTERPRISES, ADVISORY COMMITTEE AND
MEMORANDUM OF MICRO, SMALL AND MEDIUM ENTERPRISES

Section Heading Details

No.
7. Classification of Classification of enterprises - An enterprise shall be classified as a micro, small or
enterprises. medium enterprise on the basis of the following criteria, namely:--

1. a MICRO enterprise, where the INVESTMENT in PLANT and MACHINERY or

equipment does not exceed 1 CRORE rupees AND TURNOVER does not
exceed 5 CRORE rupees;

2. a SMALL enterprise, where the INVESTMENT in PLANT and MACHINERY or

equipment does not exceed 10 CRORE rupees AND TURNOVER does not

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 exceed 50 CRORE rupees; and

3. a MEDIUM enterprise, where the INVESTMENT in PLANT and MACHINERY

or equipment does not exceed 50 CRORE rupees and TURNOVER does not
exceed 250 CRORE rupees.

Ministry of Micro, Small and Medium Enterprises and the Reserve Bank of India (RBI)
has clarified that the value of plant and machinery or equipment for all purposes of
Classification of enterprises as MICRO, SMALL and MEDIUM shall mean the Written
Down Value (WDV) as at the end of the Financial Year as defined in the Income Tax
Act, 1961 and NOT cost of acquisition or original price.

The Central Government shall, by notification, constitute an Advisory Committee

• the Secretary to the Government of India in the Ministry or Department of

the Central Government having administrative control of the small and
medium enterprises who shall be the Chairperson, ex officio;

The Central Government shall, prior to classifying any class or classes of enterprises
as MICRO, SMALL and MEDIUM, obtain the recommendations of the Advisory
Committee.

The Advisory Committee shall, after considering the following matters,

communicate its recommendations or advice to the Central Government or, as the
case may be, State Government or the Board, namely:—

a) the level of employment in a class or classes of enterprises;

b) the level of investments in plant and machinery or equipment in a class or
classes of enterprises;
c) the need of higher investment in plant and machinery or equipment for
technological upgradation, employment generation and enhanced
competitiveness of the class or classes of enterprises;
d) the possibility of promoting and diffusing entrepreneurship in micro, small
or medium enterprises; and
e) the international standards for classification of small and medium
enterprises.

8. Memorandum Becoming a micro, small or medium enterprise

of micro, small
and medium 1. Any person who intends to establish a micro, small or medium enterprise
enterprises may file UDYAM Registration online in the Udyam Registration portal, based
on self-declaration with no requirement to upload documents, papers,

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 certificates or proof
2. On registration, an enterprise (referred to as ―”Udyam” in the Udyam
Registration portal) will be assigned a permanent identity number to be
known as ―Udyam Registration Number. (unique 19-digit alphanumeric
code)
3. An e-certificate, namely, ―Udyam Registration Certificate shall be issued on
completion of the registration process.

COMPOSITE criteria of investment and turnover for classification.

➢ If an enterprise crosses the ceiling limits specified for its present category in
either of the two criteria of investment or turnover, it will cease to exist in
that category and be placed in the next higher category but no enterprise
shall be placed in the lower category unless it goes below the ceiling limits
specified for its present category in both the criteria of investment as well as
turnover.

➢ All units with Goods and Services Tax Identification Number (GSTIN) listed
against the same Permanent Account Number (PAN) shall be collectively
treated as one enterprise and the turnover and investment figures for all of
such entities shall be seen together.

Calculation of investment in plant and machinery or equipment

➢ The calculation of investment in plant and machinery or equipment will be

linked to the Income Tax Return (ITR) of the previous years filed under the
Income Tax Act, 1961.
➢ In case of a new enterprise, where no prior ITR is available, the investment
will be based on self-declaration of the promoter of the enterprise

Calculation of Turnover.

➢ EXPORTS of goods or services or both, shall be EXCLUDED while calculating

the turnover of any enterprise whether micro, small or medium, for the
purposes of classification.

➢ Information as regards turnover and exports turnover for an enterprise shall

be linked to the Income Tax Act or the Central Goods and Services Act
(CGST Act) and the GSTIN.

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Chartered Accountant
 CHAPTER IV
MEASURES FOR PROMOTION, DEVELOPMENT AND
ENHANCEMENT OF
COMPETITIVENESS OF MICRO, SMALL AND MEDIUM ENTERPRISES

9. Measures for The Central Government may, from time to time, for the purposes of facilitating the
promotion and promotion and development of MSME with a view to strengthening backward and
development. forward linkages, specify, by notification, such programmes, guidelines or
instructions, as it may deem fit.

10. Credit facilities The policies and practices in respect of credit to the micro, small and medium
enterprises shall be progressive and such as may be specified in the guidelines or
instructions issued by the Reserve Bank, from time to time, to ensure timely and
smooth flow of credit to such enterprises, minimise the incidence of sickness among
and enhance the competitiveness of such enterprises.

11. Procurement Central Government or the State Government may, by order notify from time to
preference time, preference policies in respect of procurement of goods and services,
policy produced and provided by micro and small enterprises, by its Ministries or
departments, or its aided institutions and public sector enterprises.

12. Funds Constitute one or more funds - credited thereto by any grants made by the Central
Government under section 13.

13. Grants by The Central Government may, after due appropriation made by Parliament by law
Central in this behalf, credit to the Fund or Funds by way of grants.
Government.
14. Administration ➢ Central Government shall have the power to administer the Fund or Funds.
and utilisation ➢ Central Government shall be responsible for the coordination and ensuring
of Fund or timely utilisation and release of sums in accordance with such criteria as may be
Funds. prescribed.

CHAPTER V
DELAYED PAYMENTS TO MICRO AND SMALL ENTERPRISES

Section Heading Details

No.
15. Liability of ➢ Where any supplier supplies any goods or renders any services to any buyer, the
buyer to make buyer shall make payment therefor on or before the date agreed upon between

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Chartered Accountant
 payment him and the supplier in writing or, where there is no agreement in this behalf,
before the appointed day.

Note - “appointed day” means the day following immediately after the expiry
of the period of 15 days from the day of acceptance or the day of deemed
acceptance of any goods or any services by a buyer from a supplier

Explanation

i. “the day of acceptance” means,—

a) the day of the actual delivery of goods or the rendering of services; or
b) where any objection is made in writing by the buyer regarding
acceptance of goods or services within 15 days from the day of the
delivery of goods or the rendering of services, the day on which such
objection is removed by the supplier;

ii. “the day of deemed acceptance” means, where no objection is made in

writing by the buyer regarding acceptance of goods or services within 15
days from the day of the delivery of goods or the rendering of services, the
day of the actual delivery of goods or the rendering of services;

➢ In NO CASE the period agreed upon between the supplier and the buyer in
writing shall exceed 45 days from the day of acceptance or the day of deemed
acceptance.

16. Date from which Where any buyer fails to make payment of the amount to the supplier, as required
and rate at under section 15, the buyer shall, notwithstanding anything contained in any
which interest is agreement between the buyer and the supplier or in any law for the time being in
payable force, be liable to pay compound interest with monthly rests to the supplier on that
amount from the appointed day or, as the case may be, from the date immediately
following the date agreed upon, at 3 times of the BANK RATE notified by the
Reserve Bank

17. Recovery of For any goods supplied or services rendered by the supplier, the buyer shall be
amount due liable to pay the amount with interest thereon as provided under section 16.

18. Reference to Any party to a dispute may, with regard to any amount due under section 17, make
Micro and Small a reference to the Micro and Small Enterprises Facilitation Council.
Enterprises
Facilitation ➢ the Council shall either itself conduct conciliation in the matter or seek the
Council assistance of any institution or centre providing alternate dispute resolution
services by making a reference to such an institution.

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 ➢ Where the conciliation initiated as per above mentioned provision is not
successful and stands terminated without any settlement between the
parties, the Council shall either itself take up the dispute for arbitration or
refer it to any institution or centre providing alternate dispute resolution
services for such arbitration
➢ Every reference made under this section shall be decided within a period of
90 days from the date of making such a reference.

19. Application for No application for setting aside any decree, award or other order made either by
setting aside the Council itself or by any institution or centre providing alternate dispute
decree, award resolution services to which a reference is made by the Council, shall be entertained
or order by any court unless the appellant (not being a supplier) has deposited with it 75% of
the amount in terms of the decree, award or, as the case may be, the other order in
the manner directed by such court.

20. Establishment The State Government shall, by notification, establish one or more Micro and Small
of Micro and Enterprises Facilitation Councils, at such places, exercising such jurisdiction and for
Small such areas, as may be specified in the notification.
Enterprises
Facilitation
Council
21. Composition of The Micro and Small Enterprise Facilitation Council shall consist of not less than 3
Micro and Small but not more than 5 members to be appointed from amongst the following
Enterprises categories, namely
Facilitation i. Director of Industries, by whatever name called, or any other officer not
Council below the rank of such Director, in the Department of the State Government
having administrative control of the small scale industries or, as the case
may be, micro, small and medium enterprises (Chairman of Council); and
ii. one or more office-bearers or representatives of associations of micro or
small industry or enterprises in the State; and
iii. one or more representatives of banks and financial institutions lending to
micro or small enterprises; or
iv. one or more persons having special knowledge in the field of industry,
finance, law, trade or commerce.

The composition of the Micro and Small Enterprises Facilitation Council, the
manner of filling vacancies of its members and the procedure to be followed in the
discharge of their functions by the members shall be such as may be prescribed by
the State Government.

22. Requirement to -
specify unpaid

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Chartered Accountant
 amount with
interest in the
annual
statement of
accounts.
23. Interest not to -
be allowed as
deduction from
income

Note - The Finance Act 2023 inserted Section 43B(h), which stipulates that any sum owed to Micro and Small
enterprises for goods supplied or services given may be deducted in the same year if it is paid within the deadline
stipulated by the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.

Prepared by: Raman Luthra

Chartered Accountant