Supporting the MSME Sector: Initiatives by MCA

The Government has made mandatory for companies registered with MCA having a turnover of more than Rs. 500 Crore and all Central Public Sector Enterprises to adopt the Trade Receivable Discounting System Platform (TReDS) and file MSME-1 form for outstanding payments.

The Government has also directed all the companies who get their supplies from micro and small enterprises to submit a half yearly return to the Ministry of Corporate Affairs (MCA) if the payment exceeds 45 days from the date of acceptance.

1. What is MSME Form 1?

All companies getting goods and services from the MSME enterprises have to file MSME Form 1 to furnish initial returns for the payments due.

The return should include the amount of the payment due and the reasons for its delay. This filing of return is applicable for both private and public companies which are to be done in two parts MSME-1 which is for the initial returns and half-yearly return MSME-2.

Due Date to file MSME-1

Initially, MCA specified that the companies need to file MSME Form 1 within 30 days of from the date of publication of the notice, i.e. 22 January 2019 however; it later revised the date to be considered when the form is available online on MCA 21 portal.

The due date for filing MSME Form 1 for the period from April to September is by 31st October and for the period from October to March the last day is 30th April. 

Filing Process for MSME-1

  • The companies need to identify all their registered MSME suppliers and ask for their registration certificate.
  • The detail of all such suppliers whose payment is due for more than 45 days from the date of acceptance needs to be filed in the form.
  • Any other such information if required such as the name of the supplier, PAN of the supplier, date from which the payment is due and the reasons for the delay.

Exceptions for Companies

There are certain exceptions for companies who do not require filing the MSME-1 form.

  • Companies who do not have any outstanding amount to the micro and small enterprises.
  • Companies who have an outstanding amount for less than 45 days.
  • Filing of MSME-1 is not applicable for medium enterprises, i.e. who have an investment of more than Rs. 5 Crore but less than Rs. 10 Crore in the manufacturing sector and more than Rs. 2 Crore but less than Rs. 5 Core in the service sector.
  • If the payment for the goods or services exceeds 45 days, but the suppliers/creditors give a declaration that they do not fall in the Micro or Small Enterprise.

Advantages of MSME-1 form

This initiative from the Ministry of Corporate Affairs has helped the Micro and Small Scale Enterprises to receive their required share of payment from the companies who demand goods from them.

Earlier, due to lack of finances and limited resources, these enterprises had a hard time running their operations in the market. As a result, most of them had to shut their businesses after running into losses.

Enterprises are hoping that this notification from MCA will help them improve their financial cycle and boost their business, however; there are possibilities that companies will try to avoid any business relations with these enterprises to avoid filing any extra form or fulfilling any compliance.

Penalty for Non-Compliance

If any company is found furnishing incorrect or wrong information or not complying with the prescribed provisions, then the company shall be punished with a fine which may be up to Rs. 25000 and every officer of the company who is found to be a defaulter could be punished with imprisonment of up to 6 months or fine between Rs. 25000 to Rs 3 Lakh or both. 

2. Trade Receivable Discounting System (TReDS)

The Central Government of India has instructed all the companies that are registered with the Ministry of Corporate Affairs under the Companies Act, 2013 with a turnover of more than Rs.500 Crore and all the Central Public Sector Enterprises need to adapt to the Trade Receivables Discounting System (TReDS) platform.

This scheme is to set up and operate the institutional mechanism to facilitate the trade receivables of MSME from all the corporate entities and other buyers like Public Sector Undertakings (PSU’s) and the Government Departments.

TReDS will ease the discounting of bills of exchange and both invoices. A one-time agreement is to be made between the financier and TReDS mentioning the terms and conditions for dealing between the two parties and also between the buyer and TReDS.

The Registrar of Companies shall monitor that companies fulfil these compliances in each state under its jurisdiction and for the Central Public Sector Enterprises; the Department of Public Enterprises will be responsible.