Up to six months in jail, fines up to Rs 3 lakh for defaulting payments to MSMEs

The Ministry of Corporate Affairs has notified new guidelines that say directors of companies delaying payments to small businesses could face imprisonment up to six months, or face fines between Rs 25,000 and Rs 3 lakh, according to an IANS report.

The government has also made it mandatory for all companies to file half yearly returns showing outstanding dues to MSME suppliers. They need to also assign reasons if such delays are for more than 45 days. The report added that the new rules have been implemented to ensure companies pay MSMEs on time.

Every private and public company will now have to file ‘MSME FORM I’ with the Registrar of Companies (RoC) by February 22. The form will comprise details of all outstanding dues to MSME suppliers as of January 22. Further, these entities also have to file a return by October 31 for the period from April to September and by April 30 for the period from October to March.

The guidelines add that the ministry will reserve the right to penalise defaulting entities. In order to ensure adherence to these new rules, a fine of up to Rs 25,000 has been proposed for companies defaulting on filing the information or delaying payments.

The proposed fine for directors, chief financial officer and company secretary of a defaulting company is between Rs 25,000 and Rs 3 lakh per person. These new rules will be applicable for every company that has received goods or services from the MSME segment.

Companies that have no outstanding payments to MSMEs, or if outstanding payments are not for more than 45 days, do not need to fill up the form.

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