The Micro, Small and Medium Enterprises Development Act, 2006 is India's principal law for the promotion, development and protection of micro, small and medium enterprises (MSMEs).
Basic Details
Enacted: 2006.
Nodal Ministry: Ministry of Micro, Small and Medium Enterprises (MSME).
Purpose: To facilitate the promotion, development and competitiveness of MSMEs, and to protect them from delayed payments by buyers.
Key Provisions
Classification: Enterprises are classified as micro, small or medium based on investment in plant and machinery or equipment, and turnover.
Micro: investment up to ₹1 crore, turnover up to ₹5 crore.
Small: investment up to ₹10 crore, turnover up to ₹50 crore.
Medium: investment up to ₹50 crore, turnover up to ₹250 crore.
Registration: Enterprises register on the Udyam Registration portal to avail statutory benefits and protections under the Act.
Delayed Payment Protection: A buyer must pay an MSME supplier within 45 days of acceptance of goods or services. Delayed payments attract compound interest at three times the RBI's notified bank rate.
Dispute Resolution: Micro and Small Enterprises Facilitation Councils (MSEFCs) handle delayed-payment disputes through conciliation and, if that fails, arbitration.
Significance
Core MSME Law: Forms the legal backbone for India's MSME policy, from credit guarantee schemes to priority-sector lending norms, most of which key off this Act's classification criteria.
Working Capital Protection: Its delayed-payment provisions directly address one of the most persistent complaints of the MSME sector — cash flow strain caused by late payments from larger buyers.