Setting Up of Business, Industrial and Labour Laws · Micro, Small and Medium Enterprises

Scheme for Closure of Business of MSMEs under Section 25

Updated 11 October 2026 · Fact-checked

Section 25 of the MSMED Act, 2006 lets the Central Government notify a scheme to make closure of business easier for a micro, small or medium enterprise. It does not apply to a company registered under the Companies Act, 1956. The scheme had to be notified within one year of the Act's commencement.

Understand Scheme for Closure of Business of MSMEs

Starting a business is easy to think about. Closing one is harder. An enterprise may have creditors, dues and old registrations. Parliament wanted a simple route for small units to wind up. Section 25 is the provision for that.

The section gives power to the Central Government. It may notify a Scheme to facilitate closure of business by a micro, small or medium enterprise. The purpose is stated in the section itself: "facilitating closure of business".

The section opens with "Notwithstanding anything contained in any law for the time being in force". This means the scheme can operate even if another law says something different. It is an overriding clause.

There are two limits you must remember. First, the scheme is not for an enterprise that is a company registered under the Companies Act, 1956. Second, the Central Government had to notify it within one year from the date of commencement of the Act. The Act came into force on 2nd October, 2006 (Section 1, as per the footnote to the official text).

The section says the Government "may" notify. It is an enabling power, not a duty to close any particular unit. Also, the closure is by the enterprise. Section 25 does not compel a business to close.

Key rules to remember

Who may notify the scheme: Central Government (Section 25); Not the State Government and not the Advisory Committee.
Purpose: Facilitating closure of business by a micro, small or medium enterprise; Applies to all three classes of enterprise.
Exclusion: Not a company registered under the Companies Act, 1956; Such a company cannot use this scheme.
Time limit for notifying: Within one year from the date of commencement of the Act; The Act commenced on 2nd October, 2006 (Section 1).
Overriding effect: "Notwithstanding anything contained in any law for the time being in force"; The scheme prevails over other laws that conflict.
Commencement (Section 1): Date appointed by the Central Government by notification; different dates may be appointed for different provisions; Notified date: 2nd October, 2006, vide S.O. 1154(E) dated 18th July, 2006.

How to solve Scheme for Closure of Business of MSMEs questions

For any question on Section 25 or the short title and commencement provisions, use the ICSI answer pattern: provision, application, conclusion.

1Identify what is asked: power to notify a closure scheme, who is excluded, time limit, or commencement.
2State the provision in plain words: the Central Government may notify a Scheme for closure of business by a micro, small or medium enterprise (Section 25).
3Note the overriding clause: it applies notwithstanding anything in any other law for the time being in force.
4Check the facts against the exclusion: is the enterprise a company registered under the Companies Act, 1956?
5Check the time element if given: the notification was to be made within one year from commencement of the Act.
6Link to Section 1 if commencement is asked: the Act is named as the MSMED Act, 2006 and came into force on 2nd October, 2006.
7Write a clear conclusion that answers the exact question, citing Section 25.

Quickest way: Four-point recall for Section 25

When to use it: Use for short notes and 2 to 4 mark questions where you have only a few minutes.

Who: Central Government notifies a Scheme.
What: to facilitate closure of business by a micro, small or medium enterprise.
Not for: a company registered under the Companies Act, 1956.
When: within one year from commencement of the Act; overriding clause applies.

Common mistakes in Scheme for Closure of Business of MSMEs

Saying the State Government notifies the closure scheme.
Many MSME provisions, such as the Facilitation Council and rules under Section 30, belong to the State Government.
Fix: Link Section 25 with the Central Government. The State acts under other sections, such as Sections 8(4), 11, 20, 21 and 30. Section 11 is shared with the Central Government.
Saying the scheme covers every enterprise including all companies.
Students forget the exclusion in the section.
Fix: Write that it does not cover a company registered under the Companies Act, 1956.
Saying the scheme closes businesses compulsorily.
The word closure sounds like an order from the Government.
Fix: Say the scheme is meant for facilitating closure by the enterprise. It is an enabling provision.
Leaving out the one-year time limit or giving a wrong period.
Students remember the scheme but not the time condition.
Fix: Remember: within one year from the date of commencement of the Act.
Confusing the date of the Act with the date of commencement, or treating one date as fixed for every provision.
The Act is 2006 and the commencement notification is also in 2006, but the dates differ. Students also forget that Section 1(2) allows different dates for different provisions.
Fix: Section 1(2) lets the Central Government appoint the date by notification, and different dates may be appointed for different provisions. A reference to commencement in a provision means the coming into force of that provision. The official footnote records 2nd October, 2006 as the notified date. For Section 25, read "commencement" as the coming into force of that provision, and do not state 2nd October, 2006 as its date without this qualification.
Treating Section 25 as a classification or registration provision.
The chapter has many provisions on investment limits and memoranda.
Fix: Section 7 is classification and Section 8 is the memorandum. Section 25 is only about closure.

Worked examples

Example 1

Explain the power of the Central Government to notify a scheme for closure of business of micro, small and medium enterprises under the MSMED Act, 2006. Can a company registered under the Companies Act, 1956 use the scheme?

Show the solution

Provision: Section 25 allows the Central Government to notify a Scheme with a view to facilitating closure of business by a micro, small or medium enterprise.
Overriding effect: the section applies notwithstanding anything contained in any law for the time being in force.
Time limit: the Scheme was to be notified within one year from the date of commencement of the Act.
Exclusion: the enterprise must not be a company registered under the Companies Act, 1956.
Application: a company registered under the Companies Act, 1956 falls within the exclusion.

Answer: The Central Government may notify a closure scheme under Section 25 to facilitate closure of business by micro, small and medium enterprises. A company registered under the Companies Act, 1956 cannot use this scheme because the section excludes it.

Example 2

Write a short note on the short title and commencement of the MSMED Act, 2006, and say how it relates to the time limit in Section 25.

Show the solution

Short title: Section 1(1) says the Act may be called the Micro, Small and Medium Enterprises Development Act, 2006.
Commencement: under Section 1(2), the Act comes into force on the date the Central Government appoints by notification.
Different dates: different dates may be appointed for different provisions. A reference to commencement in a provision means the coming into force of that provision.
Date: the official footnote records 2nd October, 2006, vide notification No. S.O. 1154(E) dated 18th July, 2006, as the notified date.
Link to Section 25: the one-year period for notifying the closure scheme runs from the commencement referred to in that section. By Section 1(2), this means the coming into force of that provision. Do not assume it is 2nd October, 2006 without this qualification.

Answer: The Act is called the MSMED Act, 2006. It comes into force on the date notified by the Central Government under Section 1(2), and different dates may be appointed for different provisions. The footnote records 2nd October, 2006 as the notified date. The one-year period for notifying the closure scheme under Section 25 runs from the commencement of that provision, that is, its coming into force.

Exam tips

Write the section number 25 with the Central Government, the exclusion and the one-year limit. These three points earn most marks.
Use the exact phrase "facilitating closure of business" in your answer.
In a short note, add the overriding clause and Section 1 commencement for a complete answer.
Do not confuse the Central Government's powers (Sections 7, 8(2), 8(3), 25) with the State Government's powers (Sections 8(4), 20, 21, 30). Section 11 (procurement preference policy) belongs to both the Central and the State Government.
If a question asks about companies, state the exclusion for a company registered under the Companies Act, 1956 and then conclude.

Practice questions from Micro, Small and Medium Enterprises

Scheme for Closure of Business of MSMEs: frequently asked questions

What is Section 25 of the MSMED Act, 2006?

It allows the Central Government to notify a scheme for facilitating closure of business by a micro, small or medium enterprise. It applies notwithstanding any other law. It excludes a company registered under the Companies Act, 1956.

Who notifies the closure scheme under the MSMED Act?

The Central Government notifies it under Section 25. The State Government has no role in this section. It acts in other areas, such as specifying the authority for filing the memorandum of micro and small enterprises (Section 8(4)), procurement preference policies (Section 11, shared with the Central Government), the Facilitation Council (Sections 20 and 21) and rules under Section 30.

Is a company covered by the closure scheme?

A company registered under the Companies Act, 1956 is not covered. The section applies to other micro, small or medium enterprises. Always write this exclusion in your answer.

Within what time was the scheme to be notified?

Within one year from the date of commencement of the Act. Under Section 1(2), different dates may be appointed for different provisions, and a reference to commencement in a provision means that provision's coming into force. The official footnote records 2nd October, 2006 as the notified date, but state it for Section 25 only with this qualification.