Corporate and Economic Laws · Specific Legal Provisions related to MSME Sector

Filing of Memorandum and Procurement Preference Policy under MSMED Act

Updated 11 October 2026 · Fact-checked

Under the MSMED Act, 2006, Section 8 says who files a memorandum, and with which authority. Section 11 lets the Central or State Government notify preference policies for buying goods and services from micro and small enterprises. To answer a question, identify the enterprise type, apply the right limb of Section 8, and apply Section 11.

Understand Filing of Memorandum and Procurement Preference Policy

The MSMED Act, 2006 first classifies enterprises (Section 7) as micro, small or medium. Classification alone does not give an enterprise its legal identity under the Act. For that, the enterprise files a memorandum under Section 8.

Who must file and who may file is the key exam point. A person who intends to establish a micro or small enterprise may file at his discretion. A person who intends to establish a medium enterprise engaged in services may also file at his discretion. A person who intends to establish a medium enterprise engaged in manufacture or production of goods pertaining to an industry in the First Schedule to the Industries (Development and Regulation) Act, 1951 is covered by clause (c), which has no "at his discretion" wording. Read the three limbs carefully: the Act uses the word "may" with a discretion only in (a) and (b).

The filing authority differs by size. A medium enterprise files with the authority the Central Government specifies by notification (Section 8(3)). A micro or small enterprise files with the authority the State Government specifies by notification (Section 8(4)). The form and procedure are notified by the Central Government after obtaining the recommendations of the Advisory Committee (Section 8(2)), and both sets of authorities follow that procedure (Section 8(5)).

Filing matters because the Act's definition of supplier refers to a micro or small enterprise that has filed a memorandum under Section 8(1). It also includes bodies such as the National Small Industries Corporation and State small industries development corporations. Benefits tied to being a supplier, such as the delayed-payment protection, depend on this.

Section 11 deals with procurement preference. To promote micro and small enterprises, the Central Government or the State Government may, by notified order, issue preference policies for procuring goods and services produced and provided by micro and small enterprises. These apply to its Ministries or departments, its aided institutions and public sector enterprises. The section is enabling: it says "may" and leaves the content of the policy to the notified order. Medium enterprises are not covered by Section 11.

Key rules to remember

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.

How to solve Filing of Memorandum and Procurement Preference Policy questions

Use this order for any question on memorandum filing or procurement preference.

1Identify whether the enterprise is in manufacturing or services, and note the investment figure given.
2Classify it as micro, small or medium using Section 7, unless the question gives the classification.
3Decide the Section 8(1) limb: (a) micro/small, (b) medium services, or (c) medium manufacturing of a First Schedule industry.
4State whether filing is at the person's discretion (limbs a and b) or covered by clause (c).
5Name the filing authority: State Government's specified authority for micro/small, Central Government's for medium.
6If the question is about buying by government bodies, apply Section 11: preference policy by notified order, for micro and small enterprises only.
7Conclude with a clear answer and cite the section.

Quickest way: Three-line recall: Size, Limb, Authority

When to use it: For 2-mark MCQs and short case-based questions where you have a minute.

Size: micro, small or medium?
Limb: micro/small and medium services are discretionary; medium manufacturing falls under clause (c).
Authority: State for micro/small, Central for medium; for procurement, think Section 11 and micro and small only.

Common mistakes in Filing of Memorandum and Procurement Preference Policy

Saying medium enterprises also get procurement preference under Section 11
Students treat MSME as one group.
Fix: Section 11 speaks only of micro and small enterprises.
Saying filing is optional for every enterprise
Students remember the words "at his discretion" from limbs (a) and (b) and apply them to all.
Fix: Clause (c) for medium manufacturing enterprises has no discretion wording. Read all three limbs.
Naming the Central Government as the authority for a small enterprise's filing
Confusing who notifies the procedure with who specifies the authority.
Fix: Central Government notifies the procedure; State Government specifies the authority for micro and small enterprises.
Stating a fixed percentage of procurement as written in Section 11
Students recall policy figures from news or notified orders.
Fix: The section only enables policies by notified order. Do not attribute a percentage to the Act itself.
Treating Section 11 as compulsory for government
Students overlook the word "may".
Fix: Write that the Government may notify preference policies.

Worked examples

Example 1

Sharma Textiles intends to set up a small manufacturing enterprise in Surat. Advise whether it must file a memorandum and with whom.

Show the solution

It is a small enterprise, so Section 8(1)(a) applies.
Under Section 8(1)(a), a person who intends to establish a micro or small enterprise may file the memorandum at his discretion.
Under Section 8(4), the filing authority is the one specified by the State Government by notification.
The form and procedure are those notified by the Central Government (Section 8(2) and 8(5)).

Answer: Filing is at the discretion of Sharma Textiles, and the memorandum goes to the authority specified by the State Government.

Example 2

A public sector enterprise wants to buy office furniture. Mehta Furnishings, a medium enterprise, and Rao Interiors, a micro enterprise, both bid. Does Section 11 require the PSU to prefer both?

Show the solution

Section 11 permits the Central or State Government to notify preference policies for procurement from micro and small enterprises.
Public sector enterprises are within the buyers covered by such policies.
Rao Interiors is a micro enterprise, so it falls within the section.
Mehta Furnishings is a medium enterprise, so Section 11 does not cover it.
The section is enabling. Any actual preference depends on the notified order.

Answer: Section 11 does not extend to Mehta Furnishings as a medium enterprise. Only Rao Interiors can benefit, and only to the extent a notified preference policy provides.

Exam tips

Be ready for a statement-based MCQ on whether filing is optional or compulsory. Check which limb of Section 8(1) applies.
Remember the split: State Government specifies the authority for micro and small, Central Government for medium.
When asked about Section 11, write "may" and "by order notify"; avoid inventing percentages or conditions.
In case questions, classify the enterprise first, then apply the section. This gives the marks for application.
Link filing to the definition of supplier in Section 2(n) to show why the memorandum matters.

Practice questions from Specific Legal Provisions related to MSME Sector

Filing of Memorandum and Procurement Preference Policy: frequently asked questions

Is filing a memorandum compulsory under the MSMED Act, 2006?

For micro and small enterprises, and for medium enterprises in services, the Act says a person may file at his discretion. Clause (c), for medium enterprises in manufacturing of First Schedule industries, has no discretion wording. Read the limb that matches the enterprise.

Who files the memorandum and with which authority?

A medium enterprise files with the authority specified by the Central Government. A micro or small enterprise files with the authority specified by the State Government. Both follow the procedure notified by the Central Government.

What does Section 11 of the MSMED Act provide?

It allows the Central or State Government to notify preference policies for procuring goods and services produced by micro and small enterprises. These apply to its Ministries or departments, aided institutions and public sector enterprises.

Does the Act itself fix a 25 percent procurement target?

No percentage appears in Section 11. The section only empowers governments to notify preference policies. Any specific target comes from a notified order, so do not attribute it to the Act.