Legal support to help MSMEs tackle challenges
A country like India has an abundance of MSMEs, and hence the legal framework has been crafted according to the contextual nature.
Since India’s independence, MSMEs (micro, small and medium enterprises) have become a crucial contributor to the Indian economy through rural industrialisation, entrepreneurship and economic empowerment. MSMEs (earlier called small-scale industries) are predominantly present in the manufacturing, service, and trade sectors of India.
A country like India has an abundance of MSMEs, and hence the legal framework has been crafted according to the contextual nature.
According to IBEF, the number of MSMEs in India increased by a CAGR of 18.5 percent from 2019 to 2020. The loans taken by MSMEs stood at ₹9.5 trillion in FY2021 (a 40 percent increase from the previous year).
What is MSME?
Definition in Self-reliant India Scheme 2020
A revision of the MSME definition was announced after 14 years in the Atmanirbhar Bharat Abhiyan Scheme 2020. The earlier classification criteria for MSME included only ‘investment in plant, machinery or equipment’. The new approved amendment includes ‘annual turnover’ and eliminates the distinction between manufacturing and service sectors.
Key points for MSMEs: Aatmanirbhar Bharat Abhiyan Scheme 2020
The new scheme improved access to loans, debts and equity infusion for MSMEs (with applicable terms and conditions). Fintech will be used to enhance transaction-based lending using the data generated by the e-marketplace (the e-market has also been established in the new scheme). Several other legal benefits have been put in place (mentioned later).
What kind of problems do MSMEs face that often lead to failure?
It is observed that MSMEs fail to undertake timely compliances with the regulations associated with their industry due to lack of awareness and knowledge. These unexpected non-compliances can result in unwarranted penalties/prosecutions against the company, which takes up valuable time and resources.
Another aspect commonly seen as a major concern for MSMEs is the lack of awareness about protecting their intellectual property rights (IPR). Obtaining immediate certification for the trade name, trademark copyright or patent registrations has become a necessity for a business of any nature. MSMEs give very little importance to IPR registrations until they become victims of IPR infringements or are faced with legal and injunctive claims regarding the use of trade name, trademark, copyright or patent. Lastly, the absence of systematic technical support and timely legal help has led to unnecessary delays and an increase in expenditure for MSMEs.
Legal support for MSMEs
Bank loans (collateral free)
The Credit Guarantee Trust Fund Scheme, introduced by the Government of India, SIDBI (Small Industries Development Bank Of India) and the Ministry of Micro, Small and Medium Enterprise, makes sure that the Credit Guarantee Scheme is implemented for all micro and small enterprises but NOT medium-sized enterprises.
ISO certification charges reimbursement
MSMEs can claim reimbursement of the expenses made to obtain an ISO certification.
Fewer electricity bills
MSMEs registration certificates are entitled to concessions on their electricity bill.
Foreign direct investment approval
A company with an industry-related business can invest up to 24% equity in an MSME; but if the equity goes beyond 24 percent, the industry will lose its MSME status. The use of foreign brand names and trademarks of goods are now permitted freely.
NRI investment approval
There is no restriction on the extent of equity held by a non-resident Indian (NRI) as an individual/partner in an MSME. Investment up to 100 percent equity is allowed with full benefits of repatriation of dividends.
Environmental restrictions for the MSME sector
The environmental clearance procedure for small-scale industries has been rationalised and simplified, except in the case of 17 hazardous industries. The State Environment Board’s acknowledgment to an application of MSME will work as clearance.
Industrial licensing
Small units that employ less than 50 workers with power or less than 100 workers without power are not required to obtain any license under Compulsory Licensing Provisions.
Subsidy on patent registration
MSMEs can avail themselves of subsidies of 50 percent on patent registration fees.
Protection against payments
Under the Micro, Small and Medium Enterprise Development (MSMED) Act, 2006, all pending dues of MSMEs are to be released within 45 days (maximum) after accepting the products or services. If the buyer delays beyond 45 days after accepting the products or services, then the buyer can be called upon to pay interest, which is 3 times the rate that is notified as standing lending banking interest, as per the notification of the Reserve Bank of India. MSME Samadhan is a portal created by the office of Development Commissioner of MSME, Ministry of Micro, Small and Medium Enterprises, where MSMEs can file their applications online regarding delayed payments.
Insolvency and bankruptcy code framework for resolving MSME insolvency
This framework fast-tracks the corporate insolvency resolution process (fast-track CIRP) for smaller debtors. The existing management of an MSME debtor will be permitted to initiate proceedings even before a default occurs and will be allowed to remain in control during the process.
Edited by Swetha Kannan
