NPA’s in MSME‘s and Measures taken to Protect the Interest of the MSMEs By CS G. Sriram


Introduction
 
MSME stands for Micro, Small and Medium Enterprises., MSME industries are the backbone of the Indian economy.
**As per RBI data, India’s MSME sector contributes to nearly a third of the gross domestic product, accounting for about 45% of manufacturing output and 40% of the country’s total outward shipments.

SMEs not only play a crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in the industrialization of rural & backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth.

Non-Performing Assets:-

In recent years, the NPA’s in the MSME Sector have gradually increased.

The reasons for NPAs in MSME’s are:

  1. lack of demand,

  2. shortage of working capital,

  3. non-availability of raw materials,

  4. power shortage,

  5. marketing problems,

  6. labor and management problems,

  7. equipment problems etc.

Besides the above-mentioned problems the main problem faced by the MSME’S are delayed payments from the receivers of their Goods and services which leads to NPA’S in MSME’s.

Therefore to address the Delayed payment issues , to reduce the Financial stress and also to safeguard  the interest of MSME’s the Government of India has taken various measures which is detailed below:-

1. Reserve Bank of India’s Circular on Non-Performing Assets

In a circular dated February 12, the RBI withdrew all existing stressed asset schemes and the joint lenders forum mechanism. Banks were told that they must start working on a resolution plan even if an account is overdue by a day. Failure to come up with a resolution plan in 180 days would lead to the account being referred for insolvency proceedings.

But, the RBI has excluded the MSME’s from the applicability of this Guidelineswhich has the loan exposure upto 25 crores  shall continue to be guided by the instructions  contained  in  Circular  No.  FIDD.MSME  &  NFS.BC.No.21/  06.02.31/2015-16 dated March 17, 2016  which deals with the Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises (MSMEs).

2. Amendments in Insolvency and Bankruptcy Code 2016
 
The Ministry of Corporate Affairs has made, the amendments in section 29A in the Insolvency and Bankruptcy Code (IBC) 2016 through the IBC amendment act 2018 which deals with the disqualification of Resolution applicants which has previously barred the Promoters of the Company and LLP’s including promoters of MSME to bid or submit the Resolution Plan for their own company which is facing the Insolvency Proceedings.
 
But after the amendments,  the new section 240A is inserted by the Ministry through the IBC amendment act 2018which will allows the MSME promoters to bid for their enterprises which are undergoing Corporate Insolvency Resolution Process (CIPR). However, the person should not be a wilful defaulter and does not attract other disqualifications.
 
3. The Trade Receivables Discounting System (TReDS) for MSME’S

To ensure timely availability of funds to the MSME sector, the RBI also facilitated the setting up of electronic bill factoring exchanges in the country. These exchanges provide for a swift discounting of MSME bills and help MSMEs raise funds without delay.
The RBI has formulated the  scheme  for  setting  up  and  operating  the  institutional  mechanism  for  facilitating  the   financing  of  trade  receivables  of  MSMEs  from  corporate  and  other  buyers,  including  Government   Departments   and   Public   Sector   Undertakings   (PSUs),   through   multiple   financiers will be known as Trade Receivables Discounting System (TReDS).
The Reserve Bank of India also issued the Guidelines for the Trade Receivables Discounting System (TReDS) in this regard on July 2, 2018.

The  TReDS  will  facilitate  the  discounting  of  both  invoices  as  well  as  bills  of  exchange. 
Further,  as  the  underlying  entities  are  the  same  (MSMEs  and  corporate  and  other  buyers, including Government Departments and PSUs), the TReDSwill deal with both receivables  factoring  as  well  as  reverse  factoring  so  that  higher  transaction  volumes  come  into  the  system and facilitate better pricing.

All corporate firms with an asset size above Rs 500 crore must come on to TreDS platform (Trade Receivables Electronic Discounting System).

Further, the Ministry of MSME has also issued the Gazette Notification Dated 02nd November 2018 in this regard.

According to this notification All companies registered with the Companies Act, 2013 (18 of 2013) with a turnover of more than Rs. 500 crore (rupees five hundred crore) and all Central Public Sector Enterprises shall be required to get themselves onboarded on the Trade Receivables Discounting System platform, set up as per the notification of the Reserve Bank of India. The Registrar of Companies in each State shall be the competent authority to monitor the compliance of these instructions by companies under its jurisdiction and the Department of Public Enterprises, Government of India shall be the competent authority to monitor the compliance of such instructions by Central Public Sector Enterprises.

All companies with a turnover of more than Rs 500 crore would have to now come on Trade Receivables e-Discounting System (TReDS) platform, so that there is no cash flow problem for MSMEs.

4. Rupees One Crore Loan to MSME’s within 59 Minutes

On September 2018 the Prime Minister had announced a 59 minute loan scheme for the MSME’s.

Under this scheme, the MSME seeking a loan from Government may apply for loan through the online government's website which offers automated processing of loan that provides with a in-principal approval in less than an hour. The automated, contact-less business loan approvals are currently provided for loans worth Rs 10 lakh to Rs 1 crore. The rate of interest starts from 8% and collateral coverage is not mandatory because these loans are connected to the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme.

The website reduces the turnaround time from 20-25 days to 59 minutes. After approval, the loan will be disbursed in about a week.

After Announcement of this SchemePublic sector banks have approved more than 1.12 lakh loan applications of MSMEs totalling Rs 37,412 crore.

***As on December 25, out of over 1.31 lakh applications, the state-owned banks haveaccorded in-principal approval to 1.12 lakh applicants.

[***News Source:
https://timesofindia.indiatimes.com/business/]

5. Development of MSME’s Owned by the Women Entrepreneurs


To develop and encourage the MSME’s owned by the Women entrepreneurs the Ministry of MSME has issued the notification dated 9th November, 2018  that every Public sector companies is now required to  source at least a 25% of their requirement from MSMEs against 20% earlier and, within that, 3% would have to be done from units run by women.


6. Other Notification by Ministry of Micro small and medium scale enterprises  to protect the MSME’S

To Protect the interests of the Micro small and Medium scale enterprises and to ensure timely and smooth flow of credit to MSMEs and minimise sickness among them, the Ministry of MSME had issued an Gazette notification on 2nd November 2018 that all companies who get supplies of goods or  services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed forty five days from the date  of  acceptance  or  the  date  of  deemed  acceptance   of  the  goods  or  services  as  per  the  provisions  of the  Act,  shall submit a half yearly return to the Ministry of Corporate Affairs stating the following:

(a) The amount of payments due; and

(b) The reasons of the delay.


7. Notification by the Ministry of Corporate Affairs Companies should file the Half yearly Return

Subsequent to the Notification given by the Ministry of MSME on 02nd November 2018, now the Ministry of Corporate Affairs have issued a gazette notification dated 22/01/2019 mandating all the Specified Companies shall file details of all outstanding dues to Micro or small  enterprises  suppliers  existing  on  the  date  of  notification  of  this  order  within  thirty  days  from the date of publication of this notification in MSME Form I.

Every specified company shall file a return as per MSME Form I annexed to this Order, by 31st October for the period from April to September and by 30th April for the period from October to March.

Details of this Notification

1. Whether all the Companies have to file the Initial Return within 30 days from the Date of publication of this Notification?
 
Every Specified Companies who gets supplies of goods or  services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed forty five days from the date  of  acceptance  or  the  date  of  deemed  acceptance   of  the  goods  or  services  as  per  the  provisions  of the  MSME Act 2006 Shall file the Initial Return in MSME Form I with Ministry of Corporate Affairs within 30 days from the date of Publication of this Notification.

2. What is mean by Specified Companies?
 
All  the companies,  who  get  supplies  of  goods  or services  from  micro  and  small  enterprises  and  whose  payments  to  micro  and  small  enterprise suppliers exceed forty five days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of section 9 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006) are referred  as “Specified Companies”.

3. What are the details required to be collected from the MSME suppliers before filing the return with the Ministry of Corporate Affairs by the Companies?
 
  1. Certificate of Registration (UdyogAadhar) Issued by the Ministry of Micro Small and Medium Scale Enterprises to the MSME to ensure that the concerned entity is an MSME

  2. Copy of Pan Card of the MSME

4.  What are the details required to be filed about the MSME suppliers while filing the return with Ministry of Corporate Affairs by the Company?
 
  1. Financial Year in which the Amount Fell due

  2. Total Amount due

  3. Date on which the Amount fell due etc.

5.  Any further Returns is required to be filed by the Company after filing the Initial Return?
 
Yes, after filing the Initial Return every specified company who gets supplies of goods or  services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed forty five days from the date  of  acceptance  or  the  date  of  deemed  acceptance   of  the  goods  or  services  as  per  the  provisions  of the  MSME Act 2006 shall file the half yearly returns for the period ended April to September and October to March every year.
 
6. What is the due of filing the Half Yearly Returns?
 
  1. For the period from October to March

      The Due Date is on or before 30th April of every year
 
  1. For the period from April to September

     The Due Date is on or before 31st October of every year

7. Who has to sign the Returns in this e-form MSME I?
 
The following Managerial Personnels of the Company is authorised to sign and submit the eform with the Registrar of the Companies in whose Jurisdiction the Company’s registered office is situated.
 
  1. Director of the Company whose din number is in Active status and not a disqualified Director under the Companies Act 2013.

  2. Chief Executive Officer of the Company

  3. Manager of the Company

  4. Company Secretary of the Company.

Conclusion:

It is sure that, the above measures taken by the Government of India will definitely help the MSME’s from getting payments  from the receivers of their goods and services, timely availability of funds by way of loan , increase the cash flow and reduce the NPA’S and Financial stress among the Micro Small and Medium Scale Enterprises Sector.
 

This Note is a part of the knowledge resource of Mamta Binani & Associates and any form of plagiarism will not be entertained. This document is only for knowledge sharing purpose and is not to be construed in any other manner whatsoever.

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