Employing around 120 million people and contributing approximately 30% to India’s GDP, Micro, Small and Medium Enterprises (MSMEs) play a pivotal role in job creation and nation-building.
Acknowledging the tremendous potential of MSMEs to help India achieve the $5 trillion economy mark by 2025, the Hon. Union Minister for MSMEs, Shri Nitin Gadkari, recently unveiled his vision to increase MSMEs’ contribution to India’s GDP to over 50% from the current 29.7% in the next five years.
While the MSME sector definitely has the potential to contribute in excess of 50% to India’s GDP, MSMEs are strife with a plethora of challenges like access to credit, skilled manpower, market access, etc. that hinder their sustained growth. One such major challenge faced by many MSMEs is uncertain cash flows arising out of delayed payments from the buyers of their goods or services.
Realising that delayed payments to MSMEs often lead to a domino effect of subsequent delays in payments to employees and vendors of such MSMEs, the Micro, Small and Medium Enterprise Development (MSMED) Actprescribes stringent provisions to deal with cases of delayed payments to MSMEs.
The Act mandates that the buyer is liable to pay compound interest with monthly rests to the supplier (MSME) on the unpaid amount at three times of the bank rate notified by RBI in case the buyer does not make payment to an MSME for the supplies of goods or services within 45 days of the day of acceptance/deemed acceptance of the said goods or services.
To ensure speedy disposal of cases related to delayed payments of MSMEs, the government launched a dedicated Delayed Payment Monitoring Portal – MSME Samadhaan in October 2017 that quickly allows any MSME having a valid Udyog Aadhaar (UAM) to file an online complaint of delayed payment against the buyer of their goods or services.
Registering A Case On The Samadhaan Portal
Registering a case of delayed payments on the Samadhaan portal is quick and easy. All that an MSME (supplier) has to do is register online with their Udyog Aadhaar, upload unpaid invoices along with the corresponding work order or agreement/contract copy and submit the details of the defaulting buyer.
Once the case is registered, it is automatically forwarded to the concerned state’s Micro and Small Enterprise Facilitation Council (MSEFC) that oversees the resolution of each case.
After a detailed scrutiny of each case, the MSEFC arrives at a verdict that is either in the favour of the supplier or the buyer. When the verdict is in the favour of the supplier, an “award” (formal order) is issued mandating the buyer to make the payment (unpaid dues plus interest) to the supplier within the stipulated time.
However, in many cases, despite the issuance of the award from the MSEFC, buyers delay in making the payment to the MSME. To prevent this never-ending circle of payment delays, the MSME Ministry has now interlinked the Samadhaan portal with National E-Governance Service Ltd. (NeSL)’s Information Utility (IU).
Beyond Samadhaan: NeSL IU
NeSL – a Union Government Company, is India’s first Information Utility (IU) that acts as a repository of legal evidence pertaining to any debt/claim submitted by a creditor.
Registered with the Insolvency and Bankruptcy Board of India (IBBI) that operates under the aegis of the Insolvency and Bankruptcy Code (IBC), 2016, NeSL provides verified information (that does not require any further authentication) to adjudicating authorities of National Company Law Tribunal (NCLT) about a debt/claim.
With the interlinking of Samadhaan and NeSL IU, MSMEs are now armed with a potent law of IBC by filing insolvency proceedings against the defaulting buyer.
Under the new initiative, all that an MSME has to do when registering its case on the Samadhaan portal is give its consent to share the same information with NeSL. Once NeSL receives this information, it gets it touch with the MSME and guides it to register on the NeSL IU portal and upload all unpaid invoices along with the concerned buyers’ details.
Upon successful upload of the unpaid invoices, NeSL IU automatically generates a ‘Demand Notice’ and sends it to the buyer on behalf of the MSME. Three reminders are also sent to the buyer to ensure that the Demand Notice is confirmedly delivered to the buyer who then may accept or dispute the concerned MSME’s claim of unpaid dues.
If the buyer fails to respond to the Demand Notice within 14 days of receiving the ‘Demand Notice Authentication Request’, NeSL IU automatically generates a ‘Record of Default’ and triggers a ‘Default Alert’ that is broadcasted to all lenders of the concerned buyer.
The ‘Default Alert’ includes the name of the defaulting buyer, the name of the MSME that has suffered the default by the buyer, the total default amount and the date from which the amount is defaulted. Every single lender who has active loans with the buyer gets the ‘Default Alert’ that seriously impacts the creditworthiness of the defaulting buyer.
Apart from naming and shaming the defaulting buyer, the MSME (supplier) can use the ‘Record of Default’ document as a legal piece of evidence to initiate bankruptcy proceedings against the buyer under IBC, 2016.
To Sum It Up
Gone are the days when large entities could suppress MSMEs and delay their payments indefinitely. Backed with the MSMED Act‘s stringent mandate on timely payments and armed with new initiatives like the recent interlinking of Samadhaan and NeSL IU, MSMEs no longer need to be meek when seeking timely payments from their clients.
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