CMA Final · Corporate and Economic Laws

Specific Legal Provisions related to MSME Sector: formula sheet

Full chapter guide

Key formulas

Manufacturing: micro enterprise: Investment in plant and machinery ≤ ₹25,00,000; Section 7(1)(a)(i). Applies to goods in First Schedule industries of the 1951 Act.
Manufacturing: small enterprise: ₹25,00,000 < Investment in plant and machinery ≤ ₹5,00,00,000; Section 7(1)(a)(ii). Lower limit is excluded; upper limit is included.
Manufacturing: medium enterprise: ₹5,00,00,000 < Investment in plant and machinery ≤ ₹10,00,00,000; Section 7(1)(a)(iii).
Services: micro enterprise: Investment in equipment ≤ ₹10,00,000; Section 7(1)(b)(i).
Services: small enterprise: ₹10,00,000 < Investment in equipment ≤ ₹2,00,00,000; Section 7(1)(b)(ii).
Services: medium enterprise: ₹2,00,00,000 < Investment in equipment ≤ ₹5,00,00,000; Section 7(1)(b)(iii).
Appointed day: Appointed day = day after the 15 days from the day of acceptance or deemed acceptance; Section 2(b). Acceptance is actual delivery or rendering, or the day a written objection made within 15 days is removed by the supplier. Deemed acceptance is the day of actual delivery or rendering where no written objection is made within 15 days.
Exclusions from investment: Exclude cost of pollution control, research and development, industrial safety devices and other notified items; Explanation 1 to Section 7(1). It applies in calculating investment in plant and machinery.
Establishment and head office: Board established by notification (Section 3(1)); head office at Delhi (Section 3(2)); Name: National Board for Micro, Small and Medium Enterprises.
Chairperson and Vice-Chairperson: Chairperson = Minister in charge of MSME (ex officio); Vice-Chairperson = Minister of State or Deputy Minister, if any, else a person appointed by the Central Government; Section 3(3)(a) and (b).
Key numbers in Board composition: 6 State Ministers; 3 MPs (2 Lok Sabha + 1 Rajya Sabha); 4 Secretaries to GoI; 20 association representatives; 3 persons of eminence; 2 trade union representatives; Association representatives include at least 3 from women's enterprises and at least 3 from micro enterprises.
Member-Secretary: Officer not below Joint Secretary in the MSME Ministry, appointed by the Central Government, ex officio; powers and functions as prescribed (Section 6); Also ex officio Member-Secretary of the Advisory Committee (Section 7(3)).
Meetings: Board meets at least once in every three months in a year (Section 3(6)); Chairperson invites State Ministers, UT Administrators and association representatives to at least two meetings a year (Section 3(8)); Associated persons may take part in discussions but cannot vote (Section 3(7)).
Validity of Board acts: No act is invalid merely due to a vacancy, defect in constitution, defect in appointment of a member, or procedural irregularity not affecting the merits (Section 3(5)); Section 3(9): being a Board member does not disqualify one from Parliament.
Advisory Committee: Chairperson: Secretary to GoI in the MSME Ministry; up to 5 Central officers; up to 3 State Government representatives; one representative each of MSME associations (Section 7(2)); Central Government must obtain its recommendations before classifying enterprises (Section 7(4)).
Matters the Advisory Committee considers: Employment level; investment in plant and machinery or equipment; need for higher investment; promoting entrepreneurship; international standards for classifying SMEs (Section 7(8)); Section 7(9) lets the Centre vary the investment criterion and consider employment or turnover criteria.
Section 8(1)(a): micro or small enterprise: Intends to establish micro/small enterprise → may file memorandum, at his discretion; Filing is optional for micro and small enterprises.
Section 8(1)(b): medium enterprise in services: Intends to establish medium service enterprise → may file memorandum, at his discretion; Also optional.
Section 8(1)(c): medium enterprise in manufacturing: Medium enterprise making goods of a First Schedule (IDR Act, 1951) industry → shall file memorandum; The clause has no discretion wording; do not call it optional.
Filing authority: Medium: authority specified by Central Government (S. 8(3)); Micro/Small: authority specified by State Government (S. 8(4)); Form and procedure notified by Central Government after Advisory Committee recommendations (S. 8(2), 8(5)).
Section 11: procurement preference: Central or State Government may notify preference policies for goods and services of micro and small enterprises; Applies to Ministries/departments, aided institutions and public sector enterprises. Enabling provision; medium enterprises not covered.
Classification limits (Section 7): Manufacturing: micro ≤ ₹25 lakh; small > ₹25 lakh to ₹5 crore; medium > ₹5 crore to ₹10 crore (plant and machinery). Services: micro ≤ ₹10 lakh; small > ₹10 lakh to ₹2 crore; medium > ₹2 crore to ₹5 crore (equipment); These are the figures in the Act's text supplied here. Section 7(9) lets the Central Government vary the investment criterion and consider employment or turnover criteria, so check the current notified position if a question gives one.
Payment deadline (section 15): Pay on or before the agreed written date; if no agreement, before the appointed day; A written agreed period can never exceed 45 days from acceptance or deemed acceptance.
Appointed day (section 2(b)): Appointed day = day after 15 days from the day of acceptance or deemed acceptance; Applies when there is no written agreement. Count 15 days, then the next day is the appointed day.
Interest on delay (section 16): Compound interest with monthly rests at 3 × bank rate notified by RBI; Runs from the appointed day, or the day after the agreed date. Overrides any agreement or law to the contrary.
Tax treatment (section 23): Interest payable or paid under the Act is not deductible in computing income; Applies whether the interest is merely payable or actually paid. The Act's text refers to the Income-tax Act, 1961.
Disclosure (section 22): Audited buyer shows unpaid principal and interest separately, interest paid, interest accrued and unpaid; Applies to a buyer required to get annual accounts audited.
Who may refer (s.18(1)): Any party to a dispute → reference to MSEFC, for any amount due under section 17; Either supplier or buyer can refer. Section 17 deals with the buyer's liability to pay the supplier.
Two-stage procedure (s.18(2)-(3)): Reference → Conciliation (ss. 65-81 of the 1996 Act) → if unsuccessful and terminated, Arbitration (1996 Act applies as if under s.7(1)); The Council may act itself or refer to an ADR institution or centre at each stage.
Jurisdiction (s.18(4)): Supplier located within the Council's jurisdiction + buyer located anywhere in India; Location of the supplier decides which Council, not the buyer's location.
Time limit (s.18(5)): Decision within 90 days from the date of making the reference; Applies to every reference under section 18.
Pre-deposit (s.19): Application to set aside decree, award or order: appellant (not being a supplier) must deposit 75% of the amount; Court will not entertain the application without the deposit. Pending disposal, the court orders a reasonable part of the deposit to be paid to the supplier.
Council size (s.21): Members: minimum 3, maximum 5; Chairperson = Director of Industries or officer not below that rank; Established by State Government notification under section 20.
Overriding effect (s.24): Sections 15 to 23 apply notwithstanding any inconsistent law; Covers the delayed payment and dispute resolution provisions.
Penalty for contravention of Section 8(1) or Section 26(2) - first conviction: Fine up to ₹1,000; Applies to intentional contravention, attempt or abetment. Section 27(1)(a).
Penalty for contravention of Section 8(1) or Section 26(2) - second or subsequent conviction: Fine of ₹1,000 minimum, up to ₹10,000; Section 27(1)(b). Here the floor is ₹1,000 and the ceiling is ₹10,000.
Penalty on a buyer contravening Section 22: Fine not less than ₹10,000; Section 27(2). Only a minimum is stated. The text gives no upper limit.
Power to remove difficulties: Central Government order in Official Gazette; none after two years from commencement; laid before each House of Parliament; Section 31. Orders must not be inconsistent with the Act.
Commencement: Notified date: 2nd October, 2006; Section 1(2). Different dates may be appointed for different provisions.
Rule-making powers: Central Government: Section 29. State Government: Section 30; Central rules are laid before each House of Parliament for 30 days. State rules are laid before the State Legislature.
Overriding effect: Sections 15 to 23 prevail over inconsistent law; Section 24.

Quick revision

Supplier means a micro or small enterprise that has filed a memorandum, and includes bodies like NSIC and State small industries corporations.
Buyer means whoever buys goods or receives services from a supplier for consideration.
Goods means movable property other than actionable claims and money.
Appointed day is the day after fifteen days from the day of acceptance or deemed acceptance.
Day of acceptance is the day of actual delivery, or the day the supplier removes a written objection made within fifteen days.
If the buyer makes no written objection within fifteen days, deemed acceptance is the day of actual delivery.
Section 8: micro and small enterprises may file a memorandum at their discretion, as may medium service enterprises.
Section 8: a medium manufacturer in a First Schedule industry also files the memorandum under the Act.
Section 11: Central or State Government may notify preference policies for procurement from micro and small enterprises.
Section 5: the Board examines factors, reviews policies, makes recommendations and advises on the Fund under section 12.
Section 18: any party can refer a dispute about amounts due to the MSEFC, despite any other law.
The MSEFC conciliates first, using sections 65 to 81 of the Arbitration and Conciliation Act, 1996. If that fails, it arbitrates or refers to an ADR centre.
The MSEFC has jurisdiction where the supplier is located, against a buyer anywhere in India. A reference must be decided within ninety days.
Section 32 repeals the 1993 Act on interest for delayed payments to small industrial undertakings. Past actions are deemed done under this Act.

Common mistakes

Using plant and machinery limits for a service provider. Fix: First tag the activity. Services use equipment with limits of 10 lakh, 2 crore and 5 crore.
Treating the boundary value as the next category, such as calling ₹25 lakh a small enterprise. Fix: A micro enterprise is one where investment does not exceed ₹25 lakh, so exactly ₹25 lakh is micro.
Saying the Act lists the Member-Secretary's powers. Fix: Section 6 says the powers and functions are as may be prescribed, subject to the Act. Write exactly that.
Mixing up the Board and the Advisory Committee. Fix: The Board is under Section 3. The Advisory Committee is under Section 7 and is consulted before classification. Its Chairperson is the Secretary to GoI, not the Minister.
Saying medium enterprises also get procurement preference under Section 11 Fix: Section 11 speaks only of micro and small enterprises.
Saying filing is optional for every enterprise Fix: Clause (c) for medium manufacturing enterprises has no discretion wording. Read all three limbs.
Allowing a written agreement of 60 or 90 days Fix: The proviso to section 15 caps any written period at 45 days from acceptance or deemed acceptance.
Treating the appointed day as day 15 Fix: It is the day following the expiry of 15 days, so it is day 16 when counting from acceptance.
Saying only the supplier can make a reference. Fix: Section 18(1) says any party to a dispute may make a reference.
Jumping straight to arbitration. Fix: Conciliation comes first. Arbitration follows only when conciliation is unsuccessful and terminates without settlement.

Exam tips

Memorise the six investment limits as two sets of three, and write them in a small table in your rough work.
In MCQs, watch for boundary values and for deductions such as pollution control or R&D.
For definition questions, quote the key words of the section, such as 'by whatever name called' for enterprise, and apply them to the facts.
Link this topic with the memorandum and delayed payment topics: the supplier and appointed day definitions feed those answers.
Mention that the Central Government can vary criteria and consider employment or turnover under Section 7(9). It shows you know classification can change by notification.
Learn the composition as groups and remember the small numbers: 6, 3, 4, 20, 3, 2. MCQs often test one of them.
Distinguish ex officio from appointed members, since it is a common option trap.
Keep the Section 6 answer short and exact: powers and functions as may be prescribed, subject to the Act.