New Delhi, Mar 7 (KNN) One of the key problems forcefully turning the MSME suppliers into NPAs is the vicious cycle of bad payments by their large buyers and their run against time to fight the cases in the court and at the same time struggle to repay loans to the banks before they term them as ‘bad loans’.

While the Government has made adequate legal provisions under the MSME Development Act, 2006 to enforce payment to micro and small enterprises on time, very few entrepreneurs  ask for the legal measures due to the enormous delay in the legal process.

A MSME entrepreneur, suffering the aftermath of payment defaulted by his buyer, said, “Small scale units suffering from bad payments are not able to fight the cases in courts and are also not in a position to provide further guarantees to court to get money deposited by the buyers when the deposit is not made within six months of the dispute as Banks would have converted them in to NPAs or would have applied credit Squeeze.”

He pointed that many such cases are filed in the Supreme Court but they drag for more than 10 years in strict statutory terms enacted.

The big buyers use their financial muscles to drag the cases in lower and higher courts and prolong   the payment even after appropriate court orders.

The MSMEs are now holding their breath for the Supreme Court ruling on a land mark case which will decide how much time a corporate buyer can be given for depositing 75 per cent of the amount, awarded by arbitration to a MSME supplier, if it wants to contest the award in a court of law.

SC will also decide on whether writ petitions seeking to prevent implementation of award decided in favour of an MSME vendor is maintainable.

Interestingly, this time the Government of India has also become a party in the case of  Annapurna Electronics Vs Crompton Greaves..  An affidavit was filed by the Ministry of MSME in the Supreme Court to also hear the Government’s position.

The Ministry has opined that the buyers with the malafide intention to delay the execution of the awards are resorting to different kinds of litigations by filing Sec. 34 applications and writ petition without depositing 75% as mandated at Section 19 of MSMED Act. Government has  also learnt to be submitted to the court that  such applications and writ , against the orders/awards made by the respective Facilitation Councils set up under the Act in different States are not maintainable. 

The buyers by resorting to the aforesaid illegal and unlawful tactics are not only delaying the release of payment but are also defeating the very purpose behind the enacting of MSMED Act of timely payment and penalty awards, the Ministry has opined.

The Ministry said the present matter and other similarly situated cases, pending before Supreme Court, are the glaring examples, as to how the buyers escape away from the mandatory provisions of Section 19 of the MSMED Act and able to avoid the timely payment to the suppliers.

Under the section 19 of the Act, MSME sellers have to be paid within 45 days from the date of supply. Failing that, they are entitled to penal interest, which would be three times the bank rate fixed by the Reserve Bank of India.

Moreover, there is no deduction applicable for penal charges paid by companies under the Income-Tax Act, which further increases the financial burden on them.  

In case the MSME supplier is not paid within 45 days, it can go to the state government’s arbitration set up named as MSE Facilitation Council. If the buyer wants to challenge an award decided in favour of the MSME in a court of law, it will have to deposit at least 75 per cent of the award amount upfront.

The provision is meant to ensure that an MSME’s viability is not impacted during pendency of the case.

The MSME industry is waiting for the SC’s verdict, as it continues to face delays in payment for goods and services supplied to corporate buyers despite the Micro, Small and Medium Enterprises Development (MSMED) Act 2006 stipulating a hefty penalty.

 The delayed payment to MSME suppliers, which might not be a big amount for the buyers, blocks the entire capital flow to the MSMEs financial ecosystem making it difficult for them to even repay their loans. Thus most of the units stuck in the bad cycle of delayed payments get declared as NPAs by the banks.

The MSMEs have urged Law minister and Attorney General’s intervention for speedy disposal of MSME cases for implementing the legislator intent by courts while interpreting the MSMED Act provisions. (KNN Bureau)