February 3, 2023
Rahul Hingmire, Founding Partner at Vis Legis Law Practice, Advocates

Problems And Legal Advantages Of Micro, Small And Medium Enterprises (MSMES)

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By Mr. Rahul Hingmire, Founding Partner at Vis Legis Law Practice, Advocates 

  • Micro, Small, and Medium Enterprises (MSMEs) in India

Since India’s independence, MSMEs (earlier called Small Scale Industries, SSI) has become a crucial contributor to the Indian economy through rural industrialization, entrepreneurship, and economic empowerment. MSME is predominantly present in the manufacturing, service, and trade sectors of India.

A country like India has an abundance of MSMEs operating within it, and hence the legal framework has been crafted as per the contextual nature. To give a fair idea of the scope of this sector, one can observe that the number of MSMEs in India increased by a CAGR of 18.5% from 2019-2020. We must also note that the loans taken by MSMEs stood at INR ₹10.48 Trillion in 2021 (a 40% 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. From earlier classification criteria for MSME including only ‘investment in plant, machinery or equipment, the new, approved amendment includes ‘annual turnover’ and eliminates the distinction between manufacturing and service sectors.

Unit Investment less than Turnover less than
Micro Rs. 1 Crore Rs. 5 Crore
Small Rs. 10 Crore Rs. 50 Crore
Medium Rs. 50 Crore Rs. 250 Crore

 

 

 

 

 

 

Table 1: Classifications

  • Key points for MSMEs: Aatmnirbhar 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 advantages have been put in place (mentioned below).

  • What kind of problems do MSMEs face that often leads 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 further takes up valuable time and resources. Another aspect, commonly seen as one of the major concerns for MSM the Es is a 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 any nature business. 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 effitechnicalogical support and timely legal help has led to unnecessary delays and an increase in expenditure for MSMEs.

  • Legal advantages for MSMEs

A // 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 this scheme is implemented (Credit Guarantee Scheme) for all Micro and Small Enterprises but NOT medium-sized enterprises.

B // ISO Certification Charges Reimbursement

MSMEs can claim reimbursement of the expenses made to obtain an ISO certification.

C // Fewer Electricity Bills

MSMEs Registration Certificates are entitled to concessions on their electricity bill. 

D // 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%, the industry will lose its MSME status. The use of foreign brand names and trademarks of goods are now permitted freely.

E // 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% equity is allowed with full benefits of repatriation of dividends.

F // Environmental Restrictions for MSME Sector

Environmental clearances procedure for small-scale industries has been rationalized 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.

G // Industrial Licensing

In the case of small units which 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.

H // Subsidy on Patent Registration:

MSMEs can avail of subsidies of 50% on patent registration fees.

I // Protection against Payments:

Under the Act, 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 (RBI). MSME Samadhan is a Portal created by the office of DC (MSME), Ministry of Micro, Small and Medium Enterprises (MSME) where Micro and Small Enterprises (MSEs) can file their applications online regarding delayed payments.

J // 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.

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