The Ministry of Corporate Affairs (MCA), through its notification dated 22 January 2019, introduced Form MSME-I, a mandatory filing aimed at monitoring payments by companies to Micro and Small Enterprises (MS suppliers). The form stems from provisions of Section 405 of the Companies Act, 2013 and reflects the government’s effort to strengthen financial discipline, track delayed payments, and safeguard the financial health of smaller enterprises.
Specified companies—those who receive supplies from Micro and Small Enterprises and delay payments beyond 45 days—must file this form both on a one-time basis and on a half-yearly basis. The intent is to ensure transparency and enforce accountability by highlighting delays in payments owed to small suppliers. Importantly, the notification applies only to dues owed to Micro and Small Enterprises, not medium enterprises.
The analysis of Form MSME-I reveals complexities in its applicability. For example, once a company qualifies as a specified company, it must disclose all dues to MSME suppliers, even those not delayed beyond 45 days. Situations involving objections to goods, deemed acceptance, appointed days, and retention money further complicate compliance. Additionally, inconsistencies between the MSME Ministry’s notification and the MCA’s notification have raised questions, including whether the disclosure should be limited to dues beyond 45 days or cover all outstanding amounts.
Non-compliance attracts penalties under Section 405, including fines for the company and imprisonment or fines for officers in default. While the initiative supports the MSME sector, it increases compliance burden and creates interpretational challenges that call for clearer government guidance.
1. Brief overview
The MCA introduced Form MSME-I to assess the financial health of the MSME sector and ensure timely payments to suppliers. The directive, under Section 405 of the Companies Act, 2013, obliges specified companies to disclose details of dues to Micro and Small Enterprises (MS suppliers) and explain reasons for any delay. This measure reflects the government’s intention to monitor payment practices and improve cash flow conditions for smaller enterprises, which often face liquidity constraints due to delayed payments.
2. Legislative Background/Requirement
The legislative roots of Form MSME-I can be traced back to a notification by the Ministry of Micro, Small and Medium Enterprises on 2 November 2018, which required companies to file returns if:
- They obtained goods or services from Micro and Small Enterprises; and
- Payments to such suppliers exceeded 45 days from the date of acceptance or deemed acceptance.
Building on this, the MCA issued its notification on 22 January 2019, requiring all specified companies to file Form MSME-I. Key requirements include:
- One-time return: Within 30 days of the notification.
- Half-yearly returns: To be filed by 31 October (for April–September) and 30 April (for October–March).
The form is applicable strictly to “specified companies,” defined as those with payments outstanding beyond 45 days to MSME suppliers.
3. Analysis
The notification has several nuances that companies must carefully interpret.
A. Scope of disclosure
Only dues to Micro and Small Enterprises are covered; medium enterprises are excluded.
B. Disclosure of all dues once classified as a specified company
Once a company falls into the category of a specified company, it must disclose all dues to MSME suppliers in Form MSME-I, regardless of whether each individual due has crossed the 45-day threshold. For example, if a company has dues to ten suppliers, and only one exceeds 45 days, all ten must be reported.
C. Relevant dates for assessment
- 22 January 2019 (one-time return)
- 30 September and 31 March (for half-yearly filings)
If dues exceed 45 days as of these dates, they must be reported—even if cleared before the filing deadline.
D. Changing classification across periods
A company may qualify as a specified company in one half-year but not in the next, depending on its dues status. Applicability must be reassessed each reporting period.
E. Section 9 reference issue
The MCA notification references Section 9 of the MSMED Act, which deals with promotion of MSMEs, not payment timelines. The correct provisions are in Section 15 and Section 16, which govern payment timelines and interest liability.
F. Key provisions of the MSMED Act
- Day of acceptance: Actual delivery date, or the date objections raised in writing within 15 days are resolved.
- Day of deemed acceptance: Delivery date, if no objection is raised within 15 days.
- Appointed day: The day after 15 days from acceptance/deemed acceptance.
- Payment terms: Cannot exceed 45 days, even if contractually agreed otherwise.
- Interest liability: Triggered if payment goes beyond the agreed credit period or 45 days, whichever is shorter.
G. Supplier-by-supplier assessment
Assessment must be done for each supplier. Even if advance payments offset other dues, overdue invoices beyond 45 days trigger the requirement to file.
H. Retention money complications
In many industries, part of the payment is withheld as retention money until satisfactory performance is verified. Strict interpretation suggests such amounts must also be reported and interest computed, though practically these may not be “overdue.”
I. Proposed changes in MSME classification
The MSMED Amendment Bill, 2018, pending parliamentary approval, seeks to shift classification criteria from investment-based to turnover-based:
| Enterprise type | Current (2006 Act) | Proposed (2018 Bill) |
| Micro | ₹25 lakh (plant) / ₹10 lakh (equipment) | Turnover up to ₹5 crore |
| Small | ₹25 lakh–₹5 crore (plant) / ₹10 lakh–₹2 crore (equipment) | ₹5–75 crore |
| Medium | ₹5–10 crore (plant) / ₹2–5 crore (equipment) | ₹75–250 crore |
If implemented, these changes would broaden the base of enterprises benefiting from MSME protections.
4. Consequences of non-compliance with the aforesaid provisions
Non-compliance with the requirement to file Form MSME-I attracts penalties under Section 405 of the Companies Act, 2013. Specifically:
- Companies may be fined up to ₹25,000.
- Officers in default may face imprisonment of up to six months, fines between ₹25,000 and ₹3,00,000, or both.
These penalties highlight the seriousness with which the government views delayed payments to MSMEs.
5. Concluding remarks
Form MSME-I represents another layer of compliance under the Companies Act, 2013. While it aligns with the government’s broader mission of protecting MSMEs and ensuring timely payments, it also increases compliance burdens for companies.
Ambiguities remain—such as whether retention money should be reported, whether disclosures cover only overdue amounts or all dues, and the overlap between MSME Ministry and MCA notifications. Additionally, since the e-Form was not initially available on the MCA portal, the one-time filing deadline may be extended, similar to earlier precedents with other forms.
For companies, the key lies in establishing robust processes to monitor dues to MSME suppliers on a real-time basis. For policymakers, the need is to provide clearer guidance and rationalise filing requirements so that the focus remains on timely payment rather than procedural complexity.
