The Indian government is contemplating amendments to the Micro, Small, and Medium Enterprises (MSME) Development Act, 2006, aimed at ensuring prompt payment to small businesses. The move comes in response to longstanding concerns over delayed payments to MSMEs, which have often led to financial strain on these enterprises.
As per current regulations, if a payment is delayed by more than 45 days after the receipt of goods or services from an MSME supplier, the buyer is liable to pay compound interest with monthly rests to the supplier. Despite these provisions, the resolution of disputes and payment recovery procedures have been protracted, with cases sometimes extending over several years. This has resulted in a staggering estimated sum of Rs 10.7 lakh crore stuck in pending dues owed to MSMEs.
To address these challenges, the Ministry of MSME is contemplating a comprehensive overhaul of existing provisions to expedite payment execution and ensure the effective implementation of awards granted by facilitation councils. Additionally, there is a consideration to incorporate mediation as an alternative dispute resolution mechanism, following the enactment of the Mediation Act, 2023.
Sources familiar with the matter have revealed that discussions are ongoing, with the ministry intending to solicit feedback from stakeholders before finalizing the proposed amendments. However, any legislative changes to the MSME Development Act will be pursued by the succeeding government, with the current efforts aimed at laying the groundwork for future reforms.
Recognizing the adverse impact of prolonged litigation on MSMEs, the government recently amended the Income Tax Act, 1961. The amendment introduced a provision whereby if a company fails to make payments to an MSME within 45 days, the outstanding amount would be treated as taxable income, subjecting the company to corporate tax liabilities. This provision is slated to come into effect from April 1 of this year.
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