Delhi High Court on Intent of MSMED Act, 2006 ~ Creates a Statutory Liability upon the Buyers to make Payments to Suppliers

In the Matter of UNISEVEN ENGINEERING AND INFRASTRUCTURE PVT. LTD vs MICRO AND SMALL ENTERPRISES FACILITATION (MSEF) COUNCIL DISTRICT (SOUTH) AND ANR.(W.P.(C) 11233/2021 and CM APPL. 34581), the Delhi High Court has observed :-

(Para 22) A perusal of the above SOAR (Statement of Objects and Reasons) would show that the entire focus of the legislation was a law to support small-scale industries, engaged in the manufacturing and extending the said support in a comprehensive manner to the Services sector. It is of specific relevance to point out that insofar as the chapter V of the MSMED Act, 2006 relating to the delayed payments is concerned, the same was based on the provisions of the Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (hereinafter, ‘Delayed Payments Act, 1993’).

(Para 23) The Delayed Payments Act, 1993 was meant to create a statutory liability upon the Buyers to make payments to Suppliers under the said Act.

(Para 25) Chapter V of the MSMED Act, 2006 deals with delayed payments to Suppliers who are Micro and Small Enterprises.

(Para 26) Section 15 of the MSMED Act, 2006 provides that if any supplier i.e., a Micro or Small Enterprise supplies any goods or renders services to a Buyer the payment for the same shall be made as agreed between the parties. As per the said section the maximum period for payment to the Supplier, which is a Micro or Small Enterprise, cannot exceed 45 days, as stipulated therein.

In case of delay in payments, Section 16 the MSMED Act, 2006 provides for interest at a rate much higher than that provided by banks. Further, Section 17 of the MSMED Act, 2006 stipulates that the buyer would be liable to pay the interest in terms of Section 16.

(Para 27) A perusal of Section 16 of the MSMED Act, 2006 makes it clear that the provision contemplates the following:

(i) payment of compound interest;

(ii) with monthly rests;
(iii) at three times the bank rate.

The benefit of interest under Section 16 to Suppliers which are Micro/Small Enterprises under Section 16, is substantial. Further, as per Section 16 and 17 of the MSMED Act, 2006 the liability thereto is upon the Buyer to release payments to the Supplier as also to pay interest in case of failure to make timely payment.

(Para 32)

1. The MSMED Act, 2006 is a beneficial legislation for the Micro, Small and Medium sector
2. The Obligation of the Buyer is to make Prompt Payment
3. That in case of Delay, the liability is to pay interest to Supplier at three times of the Bank rate.