Effects of Section 43B(h) on Micro and Small Enterprises

The Micro, Small, and Medium Enterprises (MSME) sector is a vital contributor to the economic growth of any nation. To support and safeguard the interests of these businesses, various legal provisions have been established. One such provision is Section 43B(h) of the MSME Development Act, 2006, which specifically addresses the concerns of micro and small enterprises engaged in manufacturing or providing services. This guide provides an overview of Section 43B(h), its significance, and the implications it carries for businesses and buyers alike.

What is Section 43B(h) of the MSME Act, 2006?

Section 43B(h) mandates timely payments to MSMEs, thereby reducing delays that could hamper their operations. This provision aims to support micro and small businesses by enforcing strict timelines for payments by buyers.

Key highlights of the section include:

• Without a Written Agreement: If no written agreement exists between the MSME and the buyer, payment must be made within 15 days from the date of acceptance or deemed acceptance of goods or services.
• With a Written Agreement: Where a written agreement exists, payment must be made within the agreed timeframe, but not exceeding 45 days from the date of acceptance or deemed acceptance.

This section is a powerful tool in strengthening the financial health of MSMEs by ensuring they receive dues promptly.

Applicability to Manufacturers and Service Providers

Section 43B(h) applies to both manufacturing and service-based MSMEs, provided they fall within the micro or small enterprise category. Whether supplying goods or offering services, these businesses are legally entitled to receive payments within the stipulated timeframe, enhancing their liquidity and operational efficiency.

Also Read: How to Apply for Udyam Re-registration Online

Implications of Non-Compliance

Buyers who fail to comply with the payment timelines set under Section 43B(h) may face:

• Interest Penalties: Additional interest may be levied on the overdue amount, often at a significantly higher rate.
• Legal Action: MSMEs have the right to initiate legal proceedings to recover their dues, potentially leading to additional costs and reputational damage for the buyer.

Hence, it is crucial for buyers to honor their financial commitments within the specified timeframe to avoid penalties and legal complications.

Conclusion

Section 43B(h) of the MSME Act, 2006, serves as a protective measure for micro and small enterprises by ensuring timely payments from buyers. This promotes financial stability and supports the overall growth and sustainability of the MSME sector. Both MSMEs and buyers must be aware of their rights and responsibilities under this provision to foster smoother business relationships and a healthier economic environment.

FAQs on Section 43B(h) – MSME Act, 2006

1. What is Section 43B(h) of the MSME Act, 2006?

Section 43B(h) is a legal provision introduced to ensure timely payments to micro and small enterprises (MSMEs). It mandates that buyers must pay MSMEs within a specified time frame or face interest penalties and legal consequences.

2. Who does Section 43B(h) apply to?

It applies to micro and small enterprises registered under the MSME Act that are involved in manufacturing or service activities. Medium enterprises are currently not covered under this section.

3. What is the payment deadline if there is no written agreement?

If there is no written agreement, payment must be made within 15 days from the date of acceptance or deemed acceptance of goods or services.

4. What is the maximum payment period if a written agreement exists?

If a written agreement is in place, the buyer must pay within the agreed period, but in any case, not later than 45 days from the date of acceptance or deemed acceptance.

5. What happens if the buyer fails to make payment on time?

The buyer will be liable to pay compound interest with monthly rests on the delayed amount at three times the bank rate notified by the Reserve Bank of India (RBI).

6. Is it mandatory to register as an MSME to avail benefits under Section 43B(h)?

Yes. Only businesses registered under Udyam (MSME Registration) are eligible for the benefits and protection offered by Section 43B(h).

7. How is 'deemed acceptance' defined under the MSME Act?

‘Deemed acceptance’ refers to a situation where the buyer does not reject the goods or services within a reasonable time, usually 15 days, making it considered accepted.

8. Can MSMEs take legal action if payments are delayed?

Yes. MSMEs can file a complaint with the Micro and Small Enterprises Facilitation Council (MSEFC) or take legal action to recover dues along with interest.

9. Are there any tax implications for buyers under this section?

Yes. As per the Finance Act 2023, any delayed payments beyond the permitted period cannot be claimed as a deductible expense under Income Tax for the buyer.

10. How can I register my business as an MSME to claim these benefits?

You can register online through the official Udyam Registration Portal. If you need assistance, you can also apply through authorized service providers for guided support.

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IF you have any queries, contact us by Email id: care@udyamregister.org