In India, MSMEs are even considered a backbone by few scholars as it accounts for almost 8% of the country’s GDP, 45% of manufacturing output, and over 40% of exports. In addition to this, MSMEs are a vital part of the Indian economy and have contributed to the country’s socio-economic growth. It creates job possibilities and contributes to the development of the country’s backward and rural areas. MSMEs are widely recognized as a source of economic growth and foster equitable development across the world. They are recognized for having the highest rate of economic growth. MSMEs have propelled India to new heights because of their low investment needs, flexibility in operations, and ability to produce relevant local technology. Following the Micro, Small and Medium Enterprises Development Act of 2006, the Indian government has established the enterprises such as Micro, Small and Medium Enterprises, which specialize in the manufacturing, processing, or storage of products and commodities. MSME’s are divided into two categories under the MSMED Act, 2006 –
1) Manufacturing Enterprises:
Businesses that make or produce items for any of the industries listed in the first schedule of the industries (Development and Regulation) Act of 1951. Manufacturing companies are classified according to the amount of money they invest in plants and machinery.
2) Service Enterprises:
Businesses that provide or perform services and are characterized in equipment investment.
Micro-Enterprise – Investment in Machinery (upto 25 Lakhs) & Equipment (upto 10 Lakhs)
Small Enterprise – Investment in Machinery (beyond 25 Lakhs and upto five crores) & Equipment (beyond 10 Lakhs and upto two crores)
Medium Enterprise – Investment in Machinery (beyond five crores and upto ten crores) & Equipment (beyond two crores and upto five crores)
The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2018, proposes to redefine MSMEs by classifying them as manufacturing or service-providing businesses depending on their yearly turnover. There would be no need for periodic inspections to assess the investment in plant and machinery under the proposed reclassification or new classification. In addition, ’MSMEs’ activities would be transparent, non-discriminatory, and objective. Alongside, the Government of India’sIndia’s ‘’Atma Nirbhar Bharat Abhiyan, a scheme developed for self-reliance has given MSMEs a new definition. The following are some of the most notable characteristics of new MSMEs: MSMEs can get loans with no collateral, increased credit agreement for MSMEs worth Rs. Three lac crores, manufacturing and service MSMEs are treated as the same. Additionally, MSM has been given a 48-month payback period, and they are guaranteed a credit rating of 100 per cent. The Act had connoted legislative definitions for each type of enterprise while also enabling the provision for creating a National Small and Medium Enterprises Board, a high-level forum comprised of stakeholders that will evaluate and make suggestions on policies in a participatory manner. The National Board was created under section 3 of the MSMED Act 2006. The MSMED Act’s Key Features are for the establishment of a National Board to examine the variables impacting the promotion and growth of micro, small, and medium firms, as well as the Central government’s policies and programmes in this regard; make recommendations for enabling the growth and development of micro, small, and medium firms, as well as increasing their competitiveness and advice on the utilization of the Fund or Funds established under Section 12 of the Act to the Central Government.Micro/small/medium enterprises involved in supplying or rendering services should be registered. However, it is optional. A medium-sized business involved in the manufacture or production of products, on the other hand, is required to register under the Act. Given the benefits provided by the Act, it is suggested that every business, whether small, medium, or large, shall register. Any person who wishes to create a micro, small, or medium enterprise may do so at their discretion by filing a micro, small, or medium enterprise memorandum with such authority.
Registration of these enterprises provides the following benefits:
Banks are willing to lend money without requiring collateral, buyers payment delays are protected, as is the right to interest on late payments, preference when it comes to procuring government contracts, benefits from Stamp Duty, enterprises in production sector are subjected to reservation regulations, a reduction in the cost of power, manufacturing strategies based on conciliation and arbitration which also aid in resolving issues with buyers promptly, ISO Certification Expenses Reimbursement and the Act repeals the Interest on Delayed Payments. In the event of a disagreement over any sum owing due to late payment: Under the Act’s provisions, businesses may approach the Micro and Small Enterprises Facilitation Council, which will then conduct conciliation in the matter. Suppose the conciliation is unsuccessful and the parties cannot reach an agreement. In that case, the council will either take up the dispute for arbitration or refer it to any institution or censure board. In a dispute between a supplier located within the jurisdiction and a buyer located anywhere in India, the Council of the Centre providing alternate dispute resolution services shall have the same jurisdiction to act as an arbitrator or conciliator under this section. The Act further stipulates that any reference made under this section must be resolved within 90 days of the day the reference was made. According to section 19 of the Act, no application for setting aside any decree/award made by the Council/referred Institution shall be heard by any court unless the appellant (who is not the supplier) has paid with it 75% of the sum due under the decree/award. Besides, awaiting the court’s decision on the application to set aside the decree, the court may order that such proportion of the deposit be paid to the provider as it deems appropriate, subject to any restrictions it deems necessary. Furthermore, it shall be determined that the requirement for a pre-deposit is not in violation of Article 14 of the Constitution because the unequal treatment of purchasers and sellers is justified. The purpose of section 19 is to assist and profit these enterprises. As can be noted from the phrasing of this provision, no authority has the power to waive or lower the amount of depositing 75% but might enable the pre-deposit to be paid in instalments only if required. The Central Government approves the rule of authority may issue rules to carry out the Act’s provisions by issuing a notification. The State Government may also adopt rules to carry out the Act’s provisions by issuing a notification. For instance – in cases of delayed payments to micro and small businesses, they shall be processed in 45 days as per the Act. The State government has to institute Micro and Small Enterprises Facilitation Councils by notification to monitor delayed payments. Since the main purpose of the Act was to enable the growth and development of such industries, the measures taken to improve the competitiveness of these enterprises include providing financing to micro, small, and medium-sized businesses, funding for the central government and micro and small businesses receive preferential treatment in the purchase of products and services. However, due to uncertainties in the Act, some of these businesses cannot make use of the Act’s benefits. In recent years, Indian courts have issued a slew of decisions to clarify the Act and ensure that it is carried out in its entirety.
An extensive legislation was often proposed for the growth and regulation of small enterprises, liberating them from many rules and regulations and inspections, which had to deal with limited awareness and resources while also reiterating the same significance on various occasions. The Abid Hussain Committee of 1997 and even the Study Group under Dr S.P. Gupta presented suggestions to establish an appropriate legal framework for the small sector to relieve it of the obligations to comply with various laws and regulations. While small-scale industries remained vital to the economy, small-scale services have grown as a key sector contributing significantly to the economy and employing millions of people in recent years. As a result, it became essential, as is customary across the world, to address the issues of both small-scale organizations and services at the same time and to classify them under types of enterprises. The natural migration of small businesses to medium businesses in a fast-growing economy like ours must be encouraged via proper policy interventions and legal framework. With these goals in mind, the government enacted the MSMED Act, 2006, dedicated to micro, small, and medium enterprises. The MSMED 2006 Act is valuable legislation that is intended to make it easier to promote, develop, and enhance the competitiveness of micro, small, and medium enterprises and deal with problems related to or incidental to them. Supplementarily, the Act governs to guarantee prompt payment of debts; the Act establishes a two-stage system for resolving claims by micro and small businesses, which includes conciliation and arbitration