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

MSMED Act 2006: Preliminary, Definitions and Classification

Q: When did the MSMED Act 2006 come into force?

Section 1 lets the Central Government appoint the date by notification, and different dates for different provisions. The Act was brought into force on 2 October 2006.

Q: Which Act did the MSMED Act 2006 repeal?

It repealed the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 under Section 32. Actions under that Act are deemed taken under the corresponding provisions of the 2006 Act.

Q: Does the Act classify enterprises by investment or turnover?

The Act text in Section 7(1) fixes limits based on investment in plant and machinery or equipment. Section 7(9) allows the Central Government to vary the investment criterion and consider employment or turnover. Check the current notification for exam questions that mention turnover.

Q: Who is a supplier under the Act?

A supplier is a micro or small enterprise that has filed a memorandum under Section 8(1). It also includes the National Small Industries Corporation, State Small Industries Development Corporations and certain bodies that sell goods or services of micro or small enterprises.

Updated 11 October 2026 · Fact-checked

The MSMED Act, 2006 came into force on 2 October 2006 and repealed the 1993 Act on delayed payments to small industries. Section 2 defines key terms. Section 7 classifies micro, small and medium enterprises by investment in plant and machinery (manufacturing) or equipment (services). You solve questions by finding the activity, then testing the investment limit.

Understand MSME Act 2006: Preliminary and Definitions

The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) promotes and develops these enterprises and sets rules for their payments, finance and dispute resolution. Before learning those rules, you must know the preliminary provisions and the definitions. Questions often test these directly.

Short title and commencement (Section 1). The Act is called the Micro, Small and Medium Enterprises Development Act, 2006. It comes into force on the date the Central Government appoints by notification. Different dates can be fixed for different provisions. The notified date was 2 October 2006.

Repeal (Section 32). The Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 is repealed. Anything done or any action taken under that Act is deemed to have been done or taken under the corresponding provisions of the 2006 Act. So old actions are not wiped out.

Definitions (Section 2). An enterprise is an industrial undertaking, business concern or any other establishment, by whatever name called, engaged in manufacture or production of goods pertaining to any industry in the First Schedule to the Industries (Development and Regulation) Act, 1951, or engaged in providing or rendering any service. Goods means every kind of movable property other than actionable claims and money. A buyer is whoever buys goods or receives services from a supplier for consideration. A supplier is a micro or small enterprise that has filed a memorandum under Section 8(1). It also includes the National Small Industries Corporation, a State Small Industries Development Corporation, and any company, co-operative society, trust or body registered or constituted under any law that sells goods made by micro or small enterprises or renders their services.

Classification (Section 7). The Central Government may classify enterprises by notification, after obtaining the recommendations of the Advisory Committee. The Act fixes investment limits by activity. The Central Government may vary the investment criterion from time to time and also consider employment or turnover criteria (Section 7(9)). This is why you will see investment and turnover in current classification, even though the Act text itself states investment limits. Section 2 says micro, small and medium enterprise mean those classified under Section 7(1).

Key rules to remember

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.

How to solve MSME Act 2006: Preliminary and Definitions questions

Use this order for any question on the preliminary provisions, definitions or classification.

1Read the facts and identify what is tested: commencement, repeal, a definition, classification or appointed day.
2For classification, decide whether the enterprise manufactures First Schedule goods or provides services. This decides plant and machinery or equipment.
3Compute the relevant investment. For plant and machinery, remove pollution control, R&D, industrial safety devices and other notified items.
4Compare with the limits. Remember upper limits are included and lower limits are excluded.
5For a definition question, check each element of the section. For supplier, check whether a memorandum was filed under Section 8(1) or whether it is one of the named bodies.
6For appointed day, fix the day of acceptance or deemed acceptance, then add 15 days, and take the next day.
7State the section, apply it to the facts, and write a clear conclusion.

Quickest way: Two-line classification check

When to use it: Use for MCQs that give an investment figure and ask for the category.

Pick the table: manufacturing (25 lakh, 5 crore, 10 crore) or services (10 lakh, 2 crore, 5 crore).
Find the first limit the investment does not exceed. That is the category. Above the top limit, it is outside the Act's classification.
Check any deduction for pollution control, R&D or safety devices before comparing.

Common mistakes in MSME Act 2006: Preliminary and Definitions

Using plant and machinery limits for a service provider.
Both tables look similar and students memorise only one.
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.
Students misread 'does not exceed'.
Fix: A micro enterprise is one where investment does not exceed ₹25 lakh, so exactly ₹25 lakh is micro.
Including pollution control, R&D and safety device costs in plant and machinery.
Students add all machine-related cost shown in the question.
Fix: Deduct these items under Explanation 1 before comparing with the limits.
Saying every enterprise is a supplier.
The word is used in everyday sense.
Fix: A supplier means a micro or small enterprise that has filed a memorandum, plus the named bodies. A medium enterprise is not covered by that definition.
Counting the 15 days from the order or invoice date for the appointed day.
Students link it to normal credit periods.
Fix: Count from the day of acceptance or deemed acceptance, then take the day following the 15-day period.
Saying the repeal of the 1993 Act cancelled earlier actions.
Repeal is assumed to erase everything.
Fix: Section 32(2) deems actions taken under the old Act to be taken under the corresponding provisions of the 2006 Act.

Worked examples

Example 1

Sharma Fabricators manufactures goods of an industry in the First Schedule to the Industries (Development and Regulation) Act, 1951. Its plant and machinery cost ₹4,60,00,000. Of this, ₹30,00,000 is for pollution control equipment and ₹10,00,000 is for industrial safety devices. Classify the enterprise under Section 7.

Show the solution

The enterprise manufactures First Schedule goods, so the test is investment in plant and machinery.
Under Explanation 1, exclude pollution control and industrial safety devices: ₹30,00,000 + ₹10,00,000 = ₹40,00,000.
Investment for classification = ₹4,60,00,000 − ₹40,00,000 = ₹4,20,00,000.
Compare: more than ₹25,00,000 but not more than ₹5,00,00,000.

Answer: It is a small enterprise under Section 7(1)(a)(ii).

Example 2

Mehta Consultants, a service provider, supplied a report to Kiran Ltd. on 3 March. Kiran Ltd. made no written objection within 15 days of delivery. Mehta Consultants has filed a memorandum under Section 8. Find the appointed day and say whether Mehta Consultants is a supplier.

Show the solution

No written objection was made within 15 days, so there is deemed acceptance.
The day of deemed acceptance is the day of actual delivery, 3 March.
The 15-day period runs after that day, 4 March to 18 March.
The appointed day is the day following the expiry of that period: 19 March.
Mehta Consultants is a micro or small enterprise on the facts assumed, and has filed a memorandum, so it meets the definition of supplier in Section 2(n). Its class depends on its equipment investment, which is not given.

Answer: The appointed day is 19 March, and Mehta Consultants is a supplier if it is a micro or small enterprise, as the facts indicate.

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.

Practice questions from Specific Legal Provisions related to MSME Sector

MSME Act 2006: Preliminary and Definitions: frequently asked questions

When did the MSMED Act 2006 come into force?

Section 1 lets the Central Government appoint the date by notification, and different dates for different provisions. The Act was brought into force on 2 October 2006.

Which Act did the MSMED Act 2006 repeal?

It repealed the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 under Section 32. Actions under that Act are deemed taken under the corresponding provisions of the 2006 Act.

Does the Act classify enterprises by investment or turnover?

The Act text in Section 7(1) fixes limits based on investment in plant and machinery or equipment. Section 7(9) allows the Central Government to vary the investment criterion and consider employment or turnover. Check the current notification for exam questions that mention turnover.

Who is a supplier under the Act?

A supplier is a micro or small enterprise that has filed a memorandum under Section 8(1). It also includes the National Small Industries Corporation, State Small Industries Development Corporations and certain bodies that sell goods or services of micro or small enterprises.