The MSME sector plays a crucial role in the Indian economy, contributing significantly to employment, innovation, and GDP growth. Recognizing the importance of MSMEs, the Indian government has implemented various measures to support and protect these enterprises. One such measure is the introduction of MSME Form 1 under the Companies Act, 2013.

In the year 2018, the Ministry of Micro, Small and Medium Enterprises, by notification dated November 2, 2018 directed all companies, that get supplies of goods or services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed forty-five days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of section 9 of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSME Act”), to submit a half yearly return to the Ministry of Corporate Affairs (“MCA”) stating (a) the amount of payments due; and (b) the reasons of the delay.

Thereafter, vide notification dated January 22, 2019, the MCA notified Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order, 2019 (“MSME Order”), where the half-yearly return in form MSME Form I (“Form”) was notified.

So as per the MSME Order, every specified company i.e., all companies which:

1. procure goods or services from micro and small enterprise suppliers; and
2. make payment to such suppliers beyond forty-five days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of section 9 of MSME Act,

shall have to file the Form twice during a financial year i.e., on or before 31st October for period covering April-September and by 30th April for period covering October-March. Please note that in the Form, the requirement to report delayed payment to medium enterprises is not there.

The MSME Order was completely silent on whether reporting is required for outstanding dues beyond forty-five days, or for payments made beyond forty-five days, or both. Due to this confusion, the companies reported both instances in the Form.

Recently, vide notification dated July 15, 2024, MCA has amended the MSME Order in the following manner:

1. Specified companies which are having payments pending to any micro or small enterprise for more than forty-five days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of section 9 of MSME Act, shall only file the Form; and
2. New MSME Form I has been introduced.

Let’s try to understand this notification.

Who are now required to file MSME Form I:  All companies which:

1. Procure goods and services from micro and small enterprise suppliers; and
2. which are having payments pending beyond forty-five days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of section 9 of MSME Act.

The words “which are having payment pending” clearly convey that only companies that have payments which are pending beyond forty-five days from the date of acceptance or the date of deemed acceptance of the goods or services and that pendency is still there at the end of the reporting period, are required to file the Form. A view that this will also include reporting of payments made beyond forty-five days but not pending as at end of the reporting period will defeat the purpose of the proviso, as that was the case prior to the amendment too. So, no reporting shall be required where payment has already been made on or before the end of the reporting period.

What is required to be reported in MSME Form I: Point (3) of the Form is titled as “Regular half yearly return of outstanding dues (more than 45 days) to Micro or Small Enterprise Suppliers”, with a note which says that please report all outstanding amount that are due for more than forty-five days or were liquidated after forty-five days of acceptance of goods/service. A simple reading of this requires reporting of all dues that are either outstanding or liquidated after forty-five days. This requirement is in complete contrast with the proviso added to the MSME Order as per which details of payments pending beyond forty-five days are only required to be reported.

Things become more interesting when we look into the details that are sought in connection with outstanding payments. The amended Form now requires the following additional details:

1. Payments made within 45 days, through TreDS and other modes
2. Payments made after 45 days
3. Payments outstanding for 45 days or less
4. Payments outstanding for more than 45 days

When the Form is required to be filed only by those whose payments are pending beyond forty-five days as at the end date of the reporting period, then details of such outstanding payments should only be filed; it is not clear why the details of payments made within forty-five days are required to be reported. For any large corporate, it will be a mammoth task to provide such details.

While the new Form’s structure suggests that it is intended to cover all dues beyond forty-five days regardless of whether it is paid or not, but this doesn’t go well with the new proviso added to the MSME Order. MCA needs to clarify this confusion around the new MSME Form I