Introduction

The Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006 is an Indian legislation that provides support and protection to micro, small, and medium enterprises (MSMEs). While the MSMED Act primarily focuses on promoting the growth and development of MSMEs, it also includes provisions for debt recovery.

Under the MSMED Act, CHAPTER -5 deals with the issue of recovery of debt, if an MSME supplies goods or services to a buyer and the buyer fails to make payment within the agreed-upon timeframe, the MSME can initiate a debt recovery process. Here are the key steps involved in debt recovery under the MSMED Act:

1. Issue of demand notice: The first step is to issue a written demand notice to the buyer seeking payment for the outstanding amount. The notice should clearly state the details of the goods or services supplied, the amount due, and a request for payment within 15 days from the date of receipt of the notice.
2. Filing an application: If the buyer fails to make payment within 15 days of receiving the demand notice, the MSME can file an application with the Micro and Small Enterprises Facilitation Council (MSEFC) or the concerned District Industries Centre (DIC). The application should include relevant details and supporting documents.
3. Examination by the MSEFC/DIC: Upon receiving the application, the MSEFC or DIC will examine the case and issue a notice to the buyer, allowing them to present their case. The council will attempt to settle the dispute amicably through conciliation.
4. Settlement or reference to arbitration: If the dispute is settled through conciliation and both parties agree to the terms, a settlement agreement is reached. If mediation fails or the buyer fails to comply with the settlement agreement, the matter is referred to arbitration.
5. Arbitration proceedings under Section(16): The arbitration process under the MSMED Act is conducted as per the provisions of the Arbitration and Conciliation Act, 1996. The arbitration proceedings aim to resolve the dispute and determine the outstanding amount payable to the MSME.
6. 6. Recovery certificate: If the buyer fails to comply with the arbitration award or settlement agreement, the MSEFC or DIC will issue a recovery certificate to the concerned district collector or magistrate. The recovery certificate enables the MSME to recover the outstanding amount as an arrear of land revenue.
7. Case laws M/S Eden Export Company & Ors. vs UOI 2010 Mad HC

Conclusion

It’s important to note that the MSMED Act provides a framework for debt recovery for MSMEs. Still, the actual process and enforcement may vary based on the specific circumstances and legal procedures followed in each case. It is advisable for MSMEs to consult legal professionals or seek guidance from the MSEFC or DIC for accurate and up-to-date information regarding debt recovery under the MSMED Act.

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Written by: Adv. Arti Mudgil is an advocate practising in Gurugram with over 9 years of experience. She has authored several articles on various topics and is passionate about women’s empowerment, Human rights and environmental law.