THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006 
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ARRANGEMENT OF SECTIONS 
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SECTIONS 

1.  Short title and commencement. 
2.  Definitions. 

CHAPTER I 

PRELIMINARY 

CHAPTER II 

NATIONALBOARD FOR MICRO, SMALL AND MEDIUM ENTERPRISES 

3.  Establishment of Board. 
4.  Removal of member from Board. 
5.  Functions of Board. 
6.  Powers and functions of Member-Secretary of Board. 

CHAPTER III 

CLASSIFICATION OF ENTERPRISES, ADVISORY COMMITTEE ANDMEMORANDUM  

OF MICRO, SMALL AND MEDIUM ENTERPRISES 

7.  Classification of enterprises. 
8.  Memorandum of micro, small and medium enterprises. 

MEASURES FOR PROMOTION, DEVELOPMENT AND ENHANCEMENT OFCOMPETITIVENESS OF MICRO, 

 SMALL AND MEDIUM ENTERPRISES 

CHAPTER IV 

9.  Measures for promotion and development. 
10.  Credit facilities. 
11.  Procurement preference policy. 
12.  Funds. 
13.  Grants by Central Government. 
14.  Administration and utilisation of Fund or Funds. 

CHAPTER V 

DELAYED PAYMENTS TO MICRO AND SMALL ENTERPRISES 

15.  Liability of buyer to make payment. 
16.  Date from which and rate at which interest is payable. 

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SECTIONS 

17.  Recovery of amount due. 
18.  Reference to Micro and small Enterprises Facilitation Council. 
19.  Application for setting aside decree, award or order. 
20.  Establishment of Micro and Small Enterprises Facilitation Council. 
21.  Composition of Micro and Small Enterprises Facilitation Council. 
22.  Requirement to specify unpaid amount with interest in the annual statement of accounts. 
23.  Interest not to be allowed as deduction from income. 
24.  Overriding effect. 
25.  Scheme for closure of business of micro, small and medium enterprises. 

CHAPTER VI 

MISCELLANEOUS 

26.  Appointment of Officers and other employees. 
27.  Penalty for contravention of section 8 or section 22 or section 26. 
28.  Jurisdiction of courts. 
29.  Power to make rules. 
30.  Power to make rules by State Government. 
31.  Power to remove difficulties. 
32.  Repeal of Act 32 of 1993. 

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THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006 

ACT NO. 27 OF 2006 

[16th June, 2006.] 

An  Act  to  provide  for  facilitating  the  promotion  and  development  and  enhancing  the 
competitiveness of micro, small and medium enterprises and for matters connected therewith 
or incidental thereto. 

WHEREAS  a  declaration  as  to  expediency  of  control  of  certain  industries  by  the  Union  was  made 

under section 2 of the Industries (Development and Regulation) Act, 1951; 

AND  WHEREAS  it  is  expedient  to  provide  for  facilitating  the  promotion  and  development  and 
enhancing  the  competitiveness  of  micro,  small  and  medium  enterprises  and  for  matters  connected 
therewith or incidental thereto; 

BE it enacted by Parliament in the Fifty-seventh Year of the Republic of India as follows:— 

CHAPTER I 

PRELIMINARY 

1.  Short  title  and  commencement.—(1)  This  Act  may  be  called  the  Micro,  Small  and  Medium 

Enterprises Development Act, 2006. 

 (2) It shall come into force on such date1 as the Central Government may, by notification, appoint; 
and different dates may be appointed for different provisions of this Act and any reference in any such 
provision to the commencement of this Act shall be construed as a reference to the coming into force of 
that provision. 

2. Definitions.—In this Act, unless the context otherwise requires,— 

(a)  “Advisory  Committee”  means  the  committee  constituted  by  the  Central  Government  under 

sub-section (2) of section 7; 

(b) “appointed day” means the day following immediately after the expiry of the period of fifteen 
days from the day of acceptance or the day of deemed acceptance of any goods or any services by a 
buyer from a supplier. 

Explanation.—For the purposes of this clause,— 

(i) “the day of acceptance” means,— 

(a) the day of the actual delivery of goods or the rendering of services; or 

(b) where any objection is made in writing by the buyer regarding acceptance of goods or 
services within fifteen days from the day of the delivery of goods or the rendering of services, 
the day on which such objection is removed by the supplier; 

(ii)  “the  day  of  deemed  acceptance”  means,  where  no  objection  is  made  in  writing  by  the 
buyer regarding acceptance of goods or services within fifteen days from the day of the delivery 
of goods or the rendering of services, the day of the actual delivery of goods or the rendering of 
services; 

(c)  “Board”  means  the  National  Board  for  Micro,  Small  and  Medium  Enterprises  established 

under section 3; 

(d)  “buyer”  means  whoever  buys  any  goods  or  receives  any  services  from  a  supplier  for 

consideration; 

1. 2nd October, 2006, vide notification No. S.O. 1154(E) dated 18th July, 2006, see Gazette of India, Extraordinary Part II 

sec.3(ii). 

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(e) “enterprise” means an industrial undertaking or a business concern or any other establishment, 
by  whatever  name  called,  engaged  in  the  manufacture  or  production  of  goods,  in  any  manner, 
pertaining  to  any  industry  specified  in  the  First  Schedule  to  the  Industries  (Development  and 
Regulation) Act, 1951 (55 of 1951) or engaged in providing or rendering of any service or services; 

(f) “goods” means every kind of movable property other than actionable claims and money; 

(g) “medium enterprise” means an enterprise classified as such under sub-clause (iii) of clause (a) 

or sub-clause (iii) of clause (b) of sub-section (1) of section 7; 

(h) “micro enterprise” means an enterprise classified as such under sub-clause (i) of clause (a) or 

sub-clause (i) of clause (b) of sub-section (1) of section 7; 

(i) “National Bank” means the National Bank for Agriculture and Rural Development established 
under section 3 of the National Bank for Agriculture and Rural Development Act, 1981 (51 of 1981); 

(j) “notification” means a notification published in the Official Gazette; 

(k) “prescribed” means prescribed by rules made under this Act; 

(l) “Reserve Bank” means the Reserve Bank of India constituted under section 3 of the Reserve 

Bank of India Act, 1934 (2 of 1934); 

(m) “small enterprise” means an enterprise classified as such under sub-clause (ii) of clause (a) or 

sub-clause (ii) of clause (b) of sub-section (1) of section 7; 

(n)  “supplier”  means  a  micro  or  small  enterprise,  which  has  filed  a  memorandum  with  the 

authority referred to in sub-section (1) of section 8, and includes,— 

(i)  the  National  Small  Industries  Corporation,  being  a  company,  registered  under  the 

Companies Act, 1956 (1 of 1956); 

(ii)  the  Small  Industries  Development  Corporation  of  a  State  or  a  Union  territory,  by 

whatever name called, being a company registered under the Companies Act, 1956 (1 of 1956); 

(iii) any company, co-operative society, trust or a body, by whatever name called, registered 
or constituted under any law for the time being in force and engaged in selling goods produced by 
micro or small enterprises and rendering services which are provided by such enterprises; 

(o) “Small Industries Bank” means the Small Industries Development Bank of India established 
under sub-section (1) of section 3 of the Small Industries Development Bank of India Act, 1989 (39 
of 1989); 

(p)  “State  Government”,  in  relation  to  a  Union  territory,  means  the  Administrator  thereof 

appointed under article 239 of the Constitution. 

NATIONAL BOARDFOR MICRO, SMALLAND MEDIUM ENTERPRISES 

CHAPTER II 

3.  Establishment  of  Board.—(1)  With  effect  from  such  date  as  the  Central  Government  may,  by 
notification, appoint, there shall be established, for the purposes of this Act, a Board to be known as the 
National Board for Micro, Small and Medium Enterprises. 

(2) The head office of the Board shall be at Delhi. 

(3) The Board shall consist of the following members, namely:— 

(a)  the  Minister  in  charge  of  the  Ministry  or  Department  of  the  Central  Government  having 
administrative  control  of  the  micro,  small  and  medium  enterprises  who  shall  be  the  ex  officio 
Chairperson of the Board; 

(b) the Minister of State or a Deputy Minister, if any, in the Ministry or Department of the Central 
Government having administrative control of the micro, small and medium enterprises who shall be 
ex  officio  Vice-Chairperson  of  the  Board,  and  where  there  is  no  such  Minister  of  State  or  Deputy 

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Minister, such person as may be appointed by the Central Government to be the Vice-Chairperson of 
the Board; 

(c)  six  Ministers  of  the  State  Governments  having  administrative  control  of  the  departments  of 
small scale industries or, as the case may be, micro, small and medium enterprises, to be appointed by 
the Central Government to represent such regions of the country as may be notified by the Central 
Government in this behalf, ex officio; 

(d) three Members of Parliament of whom two shall be elected by the House of the People and 

one by the Council of States; 

(e) the Administrator of a Union territory to be appointed by the Central Government, ex officio; 

(f)  the  Secretary  to  the  Government  of  India  in  charge  of  the  Ministry  or  Department  of  the 
Central  Government  having  administrative  control  of  the  micro,  small  and  medium  enterprises,  ex 
officio; 

(g)  four  Secretaries  to  the  Government  of  India,  to  represent  the  Ministries  of  the  Central 
Government  dealing  with  commerce  and  industry,  finance,  food  processing  industries,  labour  and 
planning to be appointed by the Central Government, ex officio; 

(h) the Chairman of the Board of Directors of the National Bank, ex officio; 

(i) the chairman and managing director of the Board of Directors of the Small Industries Bank, ex 

officio; 

(j) the chairman, Indian Banks Association, ex officio; 

(k) one officer of the Reserve Bank, not below the rank of an Executive Director,to be appointed 

by the Central Government to represent the Reserve Bank; 

(l) twenty persons to represent the associations of micro, small and midium enterprises, including 
not less than three persons representing associations of women's enterprises and not less than three 
persons representing associations of micro enterprises, to be appointed by the Central Government; 

(m) three persons of eminence, one each from the fileds of economics, industry and science and 
technology, not less than one of whom shall be a woman, to be appointed by the Central Government;  

(n)  two  representatives  of  Central  Trade  Union  Organisations,  to  be  appointed  by  the  Central 

Government; and 

(o) one officer not below the rank of Joint Secretary to the Government of India in the Ministry or 
Department of the Central Government having administrative control of the micro, small and medium 
enterprises  to  be  appointed  by  the  Central  Government,  who  shall  be  the  Member-Secretary  of  the 
Board, ex officio. 

(4) The term of office of the members of the Board, other than ex officio members of the Board, the 
manner of filling vacancies, and the procedure to be followed in the discharge of their functions by the 
members of the Board, shall be such as may be prescribed: 

Provided that  the  term  of office of  an  ex  officio  member  of  the  Board  shall  continue  so  long  as  he 

holds the office by virtue of which he is such a member. 

(5) No act or proceedings of the Board shall be invalid merely by reason of— 

(a) any vacancy in, or any defect in the constitution of, the Board; or 

(b) any defect in the appointment of a person acting as a member of the Board; or 

(c) any irregularity in the procedure of the Board not affecting the merits of the case. 

(6) The Board shall meet at least once in every three months in a year. 

(7)  The  Board  may  associate  with  itself,  in  such  manner  and  for  such  purposes  as  it  may  deem 
necessary, any person or persons whose assistance or advice it may desire in complying with any of the 

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provisions of this Act and a person so associated shall have the right to take part in the discussions of the 
Board relevant to the purposes for which he has been associated but shall not have the right to vote. 

(8) Without prejudice to sub-section (7)the Chairperson of the Board shall, for not less than two of the 
meetings  of  the  Board  in  a  year,  invite  such  Ministers  of  the  State  Governments  having  administrative 
control of the departments of small scale industries or, as the case may be, the micro, small and medium 
enterprises,  or  the  Administrators  of  Union  territories  and  representatives  of  such  other  associations  of 
micro, small and medium enterprises, as he may deem necessary for carrying out the purposes of this Act. 

(9)  It  is  hereby  delcared  that  the  office  of  member  of  the  Board  shall  not  disqualify  its  holder  for 

being chosen as, or for being, a member of either House of Parliament. 

4. Removal of member from Board.—(1) The Central Government may remove a member of the 

Board from it, if he— 

(a) is, or at any time has been, adjudged as insolvent; or 

(b) is, or becomes, of unsound mind and stands so declared by a competent court; or 

(c) refuses to act or becomes incapable of acting as a member of the Board; or 

(d) has been convicted of an offence which, in the opinion of the Central Government, involves 

moral turpitude; or 

(e)  has  so  abused,  in  the  opinion  of  the  Central  Government,  his  position  as  a  member  of  the 

Board as to render his continuance in the Board detrimental to the interests of the general public. 

(2)  Notwithstanding  anything  contained  in  sub-section  (1),  no  member  shall  be  removed  from  his 
office  on  the  grounds  specified  in  clauses  (c)  to  (e)  of  that  sub-section  unless  he  has  been  given  a 
reasonable opportunity of being heard in the matter. 

5.  Functions  of  Board.—The  Board  shall,  subject  to  the  general  directions  of  the  Central 

Government, perform all or any of the following functions, namely:— 

(a)  examine  the  factors  affecting  the  promotion  and  development  of  micro,  small  and  medium 
enterprises  and  review  the  policies  and  programmes  of  the  Central  Government  in  regard  to 
facilitating  the  promotion  and  development  and  enhancing  the  competitiveness  of  such  enterprises 
and the impact thereof on such enterprises; 

(b) make recommendations on matters referred to in clause (a) or on any other matter referred to 
it by the Central Government which, in the opinion of that Government, is necessary or expedient for 
facilitating  the  promotion  and  development  and  enhancing  the  competitiveness  of  the  micro,  small 
and medium enterprises; and 

(c) advise the Central Government on the use of the Fund or Funds constituted under section 12. 

6. Powers and functions of Member-Secretary of Board.—Subject to other provisions of this Act, 
the  Member-Secretary  of  the  Board  shall  exercise  such  powers  and  perform  such  functions  as  may  be 
prescribed. 

CHAPTER III 

CLASSIFICATION OF ENTERPRISES, ADVISORY COMMITTEE AND MEMORANDUM OF 

MICRO, SMALL AND MEDIUM ENTERPRISES 

7.  Classification  of  enterprises.—(1)  Notwithstanding  anything  contained  in  section  11B  of  the 
Industries  (Development  and  Regulation)  Act,  1951  (65  of  1951),the  Central  Government  may,  for  the 
purposes  of  this  Act,  by  notification  and  having  regard  to  the  provisions  of  sub-sections  (4)  and  (5), 
classify any class or classes of enterprises, whether proprietorship, Hindu undivided family, association of 
persons, co-operative society, partnership firm, company or undertaking, by whatever name called,— 

(a) in the case of the enterprises engaged in the manufacture or production of goods pertaining to 
any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 
(65 of 1951),as— 

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(i) a micro enterprise, where the investment in plant and machinery does not exceed twenty-

five lakh rupees; 

(ii) a small enterprise, where the investment in plant and machinery is more than twenty-five 

lakh rupees but does not exceed five crore rupees; or 

(iii)  a  medium  enterprise,  where  the  investment  in  plant  and  machinery  is  more  than  five 

crore rupees but does not exceed ten crore rupees; 

(b) in the case of the enterprises engaged in providing or rendering of services, as— 

(i) a micro enterprise, where the investment in equipment does not exceed ten lakh rupees; 

(ii) a small enterprise, where the investment  in equipment is more than ten lakh rupees but 

does not exceed two crore rupees; or 

(iii) a medium enterprise, where the investment in equipment is more than two crore rupees 

but does not exceed five crore rupees. 

Explanation 1.—For the removal of doubts, it is hereby clarified that in calculating the investment in 
plant  and  machinery,  the  cost  of  pollution  control,  research  and  development,  industrial  safety  devices 
and such other items as may be specified, by notification, shall be excluded. 

Explanation 2.—It is clarified that the provisions of section 29B of the Industries (Development and 
Regulation) Act, 1951 (65 of 1951), shall be applicable to the enterprises specified in sub-clauses (i) and 
(ii) of clause (a) of sub-section (1) of this section. 

(2) The  Central  Government  shall,  by  notification,  constitute  an  Advisory  Committee  consisting  of 

the following members, namely:— 

(a)  the  Secretary  to  the  Government  of  India  in  the  Ministry  or  Department  of  the  Central 
Government  having  administrative  control  of  the  small  and  medium  enterprises  who  shall  be  the 
Chairperson, ex officio; 

(b)  not  more  than  five  officers  of  the  Central  Government  possessing  necessary  expertise  in 

matters relating to micro, small and medium enterprises, members, ex officio; 

(c) not more than three representatives of the State Governments, members, ex officio; and 

(d) one representative each of the associations of micro, small and medium enterprises, members, 

ex officio. 

(3) The Member-Secretary of the Board shall also be the ex officio Member-Secretary of the Advisory 

Committee. 

(4)  The  Central  Government  shall,  prior  to  classifying  any  class  or  classes  of  enterprises  under  

sub-section (1), obtain the recommendations of the Advisory Committee. 

(5) The Advisory Committee shall examine the matters referred to it by the Board in connection with 

any subject referred to in section 5 and furnish its recommendations to the Board. 

(6) The Central Government may seek the advice of the Advisory Committee on any of the matters 

specified in section 9, 10, 11, 12 or 14 of Chapter IV. 

(7)  The  State  Government  may  seek  advice  of  the  Advisory  Committee  on  any  of  the  matters 

specified in the rules made under section 30. 

(8)  The  Advisory  Committee  shall,  after  considering  the  following  matters,  communicate  its 
recommendations or advice to the Central Government or, as the case may be, State Government or the 
Board, namely:— 

(a) the level of employment in a class or classes of enterprises; 

(b)  the  level  of  investments  in  plant  and  machinery  or  equipment  in  a  class  or  classes  of 

enterprises; 

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(c)  the  need  of  higher  investment  in  plant  and  machinery  or  equipment  for  technological 
upgradation,  employment  generation  and  enhanced  competitiveness  of  the  class  or  classes  of 
enterprises; 

(d)  the  possibility  of  promoting  and  diffusing  entrepreneurship  inmicro,  small  or  medium 

enterprises; and 

(e) the international standards for classification of small and medium enterprises. 

(9)  Notwithstanding  anything  contained  in  section  11B  of  the  Industries  (Development  and 
Regulation)  Act,  1951  (65  of  1951)  and  clause  (h)  of  section  2  of  the  Khadi  and  Village  Industries 
Commission Act, 1956 (61 of 1956),the Central Government may, while classifying any class or classes 
of enterprises under sub-section (1), vary, from time to time, the criterion of investment and also consider 
criteria  or  standards  in  respect  of  employment  or  turnover  of  the  enterprises  and  include  in  such 
classification the micro or tiny enterprises or the village enterprises, as part of small enterprises. 

8.  Memorandum  of  micro,  small  and  medium  enterprises.—(1)  Any  person  who  intends  to 

establish,— 

(a) a micro or small enterprise, may, at his discretion; or 

(b) a medium enterprise engaged in providing or rendering of services may, at his discretion; or 

(c)  a  medium  enterprise  engaged  in  the  manufacture  or  production  of  goods  pertaining  to  any 
industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 
of 1951), 

shall  file  the  memorandum  of  micro,  small  or,  as  the  case  may  be,  of  medium  enterprise  with  such 
authority as may be specified by the State Government under sub-section (4) or the Central Government 
under sub-section (3): 

Provided that any person who, before the commencement of this Act, established— 

(a) a small scale industry and obtained a registration certificate, may, at his discretion; and 

(b)  an  industry  engaged  in  the  manufacture  or  production  of  goods  pertaining  to  any  industry 
specified  in  the  First  Schedule  to  the  Industries  (Development  and  Regulation)  Act,  1951  (65  of 
1951),having investment in plant and machinery of more than one crore rupees but not exceeding ten 
crore rupees and, in pursuance of the notification of the Government of India in the erstwhile Ministry 
of Industry (Department of Industrial Development) number S.O. 477(E), dated the 25th July, 1991 
filed an Industrial Entrepreneur's Memorandum, 

shall within one hundred and eighty days from the commencement of this Act, file the memorandum, in 
accordance with the provisions of this Act. 

(2) The form of the memorandum, the procedure of its filing and other matters incidental thereto shall 
be  such  as  may  be  notified  by  the  Central  Government  after  obtaining  the  recommendations  of  the 
Advisory Committee in this behalf. 

(3) The authority with which the memorandum shall be filed by a medium enterprise shall be such as 

may be specified, by notification, by the Central Government. 

(4) The  State  Government  shall,  by  notification,  specify  the  authority  with  which  a  micro  or  small 

enterprise may file the memorandum. 

(5)  The  authorities  specified  under  sub-sections  (3)  and  (4)  shall  follow,  for  the  purposes  of  this 

section, the procedure notified by the Central Government under sub-section (2). 

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CHAPTER IV 

MEASURES FOR PROMOTION, DEVELOPMENT AND ENHANCEMENT OF 

COMPETITIVENESS OF MICRO, SMALL AND MEDIUM ENTERPRISES 

9.Measures  for  promotion  and  development.—The  Central  Government  may,  from  time  to  time, 
for  the  purposes  of  facilitating  the  promotion  and  development  and  enhancing  the  competitiveness  of 
micro,  small  and  medium  enterprises,  particularly  of  the  micro  and  small  enterprises,  by  way  of 
development  of  skill  in  the  employees,  management  and  entrepreneurs,  provisioning  for  technological 
upgradation,marketing assistance or infrastructure facilities and cluster development of such enterprises 
with a view to strengthening backward and forward linkages, specify, by notification, such programmes, 
guidelines or instructions, as it may deem fit. 

10. Credit facilities.—The policies and practices in respect of credit to the micro, small and medium 
enterprises shall be progressive and such as may be specified in the guidelines or instructions issued by 
the  Reserve  Bank,  from  time  to  time,  to  ensure  timely  and  smooth  flow  of  credit  tosuch  enterprises, 
minimise the incidence of sickness among and enhance the competitiveness of such enterprises. 

11.  Procurement  preference  policy.—For  facilitating  promotion  and  development  of  micro  and 
small  enterprises,  the  Central  Government  or  the  State  Government  may,  by  order  notify  from  time  to 
time,  preference  policies  in  respect  of  procurement  of  goods  and  services,  produced  and  provided  by 
micro and small enterprises, by its Ministries or departments, as the case may be, or its aided institutions 
and public sector enterprises. 

12. Funds.—There shall be constituted, by notification, one or more Funds to be called by such name 
as may be specified in the notification and there shall be credited thereto any grants made by the Central 
Government under section 13. 

13. Grants by Central Government.—The Central Government may, after due appropriation made 
by Parliament by law in this behalf, credit to the Fund or Funds by way of grants for the purposes of this 
Act, such sums of money as that Government may consider necessary to provide. 

14.Administration and utilisation of Fund or Funds.—(1) The Central Government shall have the 

power to administer the Fund or Funds in such manner as may be prescribed. 

(2) The Fund or Funds shall be utilised exclusively for  the measures specified in sub-section (1) of 

section 9. 

(3) The Central Government shall be responsible for the coordination and ensuring timely utilisation 

and release of sums in accordance with such criteria as may be prescribed. 

CHAPTER V 

DELAYED PAYMENTS TO MICRO AND SMALL ENTERPRISES 

15.Liability  of  buyer  to  make  payment.—Where  any  supplier  supplies  any  goods  or  renders  any 
services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between 
him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day: 

Provided that in no case the period agreed upon between the supplier and the buyer in writing shall 

exceed forty-five days from the day of acceptance or the day of deemed acceptance. 

16.Date  from  which  and  rate  at  which  interest  is  payable.—Where  any  buyer  fails  to  make 
payment  of  the  amount  to  the  supplier,  as  required  under  section  15,  the  buyer  shall,  notwithstanding 
anything contained in any agreement between the buyer and the supplier or in any law for the time being 
in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the 
appointed day or, as the case may be, from the date immediately following the date agreed upon, at three 
times of the bank rate notified by the Reserve Bank. 

17.  Recovery  of  amount  due.—For  any  goods  supplied  or  services  rendered  by  the  supplier,  the 

buyer shall be liable to pay the amount with interest thereon as provided under section 16. 

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18.Reference to Micro and Small EnterprisesFacilitation Council.—(1) Notwithstanding anything 
contained  in  any  other  law  for  the  time  being  in  force,  any  party  to  a  dispute  may,  with  regard  to  any 
amount due under section 17, make a reference to the Micro and Small Enterprises Facilitation Council. 

(2) On receipt of a reference under sub-section (1), the Council shall either itself conduct conciliation 
in  the  matter  or  seek  the  assistance  of  any  institution  or  centre  providing  alternate  dispute  resolution 
services  by  making  a  reference  to  such  an  institution  or  centre,  for  conducting  conciliation  and  the 
provisions of sections 65 to 81 of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to 
such a dispute as if the conciliation was initiated under Part III of that Act. 

(3)  Where  the  conciliation  initiated  under  sub-section  (2)  is  not  successful  and  stands  terminated 
without  any  settlement  between  the  parties,  the  Council  shall  either  itself  take  up  the  dispute  for 
arbitration  or  refer  ittoany  institution  or  centre  providing  alternate  dispute  resolution  services  for  such 
arbitration and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall then apply 
to  the  dispute  as  if  the  arbitration  was  in  pursuance  of  an  arbitration  agreement  referred  to  in 
sub-section(1) of section 7 of that Act. 

(4) Notwithstanding anything contained in any other law for the time being in force, the Micro and 
Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall 
have jurisdiction to act as an Arbitrator or Conciliator under this section in a dispute between the supplier 
located within its jurisdiction and a buyer located anywhere in India. 

(5) Every reference made under this section shall be decided within a period of ninety days from the 

date of making such a reference. 

19.Application  for  setting  aside  decree,  award  or  order.—No  application  for  setting  aside  any 
decree, award or other order made either by the Council itself or by any institution or centre  providing 
alternate dispute resolution services to which a reference is made by the Council, shall be entertained by 
any  court  unless  the  appellant  (not  being  a  supplier) has  deposited  with it  seventy-five  per  cent.  of the 
amount in terms of the decree, award or, as the case may be, the other order in the manner directed by 
such court: 

Provided  that  pending  disposal  of  the  application  to  set  aside  the  decree,  award  or  order,  the  court 
shall  order  that  such  percentage  of  the  amount  deposited  shall  be  paid  to  the  supplier,  as  it  considers 
reasonable  under  the  circumstances  of  the  case,  subject  to  such  conditions  as  it  deems  necessary  to 
impose. 

20.Establishment of Micro and Small Enterprises Facilitation Council.—The State Government 
shall,  by  notification,  establish  one  or  more  Micro  and  Small  Enterprises  Facilitation  Councils,  at  such 
places, exercising such jurisdiction and for such areas, as may be specified in the notification. 

21. Composition of Micro and Small Enterprises Facilitation Council.—(1) The Micro and Small 
Enterprise Facilitation Council shall consist of not less than three but not more than five members to be 
appointed from amongst the following categories, namely:— 

(i)  Director  of  Industries,  by  whatever  name  called,  or  any  other  officer  not  below  the  rank  of 
such Director, in the Department of the State Government having administrative control of the small 
scale industries or, as the case may be, micro, small and medium enterprises; and 

(ii)  one  or  more  office-bearers  or  representatives  of  associations  of  micro  or  small  industry  or 

enterprises in the State; and 

(iii)  one  or  more  representatives  of  banks  and  financial  institutions  lending  to  micro  or  small 

enterprises; or 

(iv) one or more persons having special knowledge in the field of industry, finance, law, trade or 

commerce. 

(2) The person appointed under clause (i) of sub-section (1) shall be the Chairperson of the Micro and 

Small Enterprises Facilitation Council. 

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(3) The  composition  of  the  Micro and  Small  Enterprises  Facilitation  Council, the  manner  of  filling 
vacancies  of  its  members  and  the  procedure  to  be  followed  in  the  discharge  of  their  functions  by  the 
members shall be such as may be prescribed by the State Government. 

22.Requirement to specify unpaid amount with interest in the annual statement of accounts.—
Where any buyer is required to get his annual accounts audited under any law for the time being in force, 
such  buyer  shall  furnish  the  following  additional  information  in  his  annual  statement  of  accounts, 
namely:— 

(i)the principal amount and the interest due thereon (to be shown separately) remaining unpaid to 

any supplier as at the end of each accounting year; 

(ii) the amount of interest paid by the buyer in terms of section 16, along with the amount of the 

payment made to the supplier beyond the appointed day during each accounting year; 

(iii)  the  amount  of  interest  due  and  payable  for the  period  of  delay  in  making  payment  (which 
have  been  paid  but  beyond  the  appointed  day  during  the  year)  but  without  adding  the  interest 
specified under this Act; 

(iv) the amount of interest accrued and remaining unpaid at the end of each accounting year; and 

(v) the amount of further interest remaining due and payable even in the succeeding years, until 
such date when the interest dues as above are actually paid to the small enterprise, for the purpose of 
disallowance as a deductible expenditure under section 23. 

23.Interest not to be allowed as deduction from income.—Notwithstanding anything contained in 
the Income-tax Act, 1961 (43 of 1961), the amount of interest payable or paid by any buyer, under or in 
accordance with the provisions of this Act, shall not, for the purposes of computation of income under the 
Income-tax Act, 1961, be allowed as deduction. 

24.Overriding  effect.—The  provisions  of  sections  15  to  23  shall  have  effect  notwithstanding 

anything inconsistent therewith contained in any other law for the time being in force. 

25.Scheme  for  closure  of  business  of  micro,  small  and  medium  enterprises.—Notwithstanding 
anything contained in any law for the time being in force, the Central Government may, with a view to 
facilitating closure of business by a micro, small or medium enterprise, not being a company registered 
under  the  Companies  Act,  1956  (1  of  1956),  notify  a  Scheme  within  one  year  from  the  date  of 
commencement of this Act. 

CHAPTER VI 

MISCELLANEOUS 

26.Appointment  of  officers  and  other  employees.—(1)  The  Central  Government  or  the  State 
Government may appoint such officers with such designations and such other employees as it thinks fit 
for the purposes of this Act and may entrust to them such of the powers and functions under this Act as it 
may deem fit. 

(2) The Officers appointed under sub-section (1) may, for the purposes of this Act, by order require 

any person to furnish such information, in such form, as may be prescribed. 

27.Penalty for contravention of section 8 or section 22 or section 26.—(1) Whoever intentionally 
contravenes  or  attempts  to  contravene  or  abets  the  contravention  of  any  of  the  provisions  contained  in 
sub-section (1) of section 8 or sub-section (2) of section 26 shall be punishable— 

(a) in the case of the first conviction, with fine which may extend to rupees one thousand; and 

(b) in the case of second or subsequent conviction, with fine which shall not be less than rupees 

one thousand but may extend to rupees ten thousand. 

(2)  Where  a  buyer  contravenes  the  provisions  of  section  22,  he  shall  be  punishable  with  fine 

which shall not be less than rupees ten thousand. 

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28.Jurisdiction of courts.—No court inferior to that of a Metropolitan Magistrate or a Magistrate of 

the first class shall try any offence punishable under this Act. 

29. Power  to  make rules.—(1) The  Central  Government  may,  by  notification,  make  rules  to  carry 

out the provisions of this Act. 

(2)  In  particular,  and  without  prejudice  to  the  generality  of  the  foregoing  power,  such  rules  may 

provide for all or any of the following matters, namely:— 

(a)  the  term  of  office  of  the  members  of  the  Board,  the  manner  of  filling  vacancies,  and  the 
procedure  to  be  followed  in  the  discharge  of  functions  by  the  members  of  the  Board  under  
sub-section (4) of section 3; 

(b) the powers and functions of the Member-Secretary under section 6; 

(c) the manner in which the Fund may be administered under sub-section (1) of section 14; 

(d) the criteria based on which sums may be released under sub-section (3) of section 14; 

(e)  the  information  to  be  furnished  and  the  form  in  which  it  is  to  be  furnished  under  

sub-section (2) of section 26; and 

(f) any other matter which is to be or may be prescribed under this Act. 

(3) Every notification issued under section 9 and every rule made by the Central Government under 
this section shall be laid, as soon as may be after it is made, before each House of Parliament, while it is 
in  session,  for  a  total  period  of  thirty  days  which  may  be  comprised  in  one  session  or  in  two  or  more 
successive  sessions,  and  if,  before  the  expiry  of  the  session  immediately  following  the  session  or  the 
successive sessions aforesaid, both Houses agree in making any modification in the notification or rule or 
both Houses agree that the notification or rule should not be made, the notification or rule shall thereafter 
have effect only in such modified form or be of no effect, as the case may be; so, however, that any such 
modification or annulment shall be without prejudice to the validity of anything previously done under 
that notification or rule. 

30.Power to make rules by State Government.—(1) The State Government may, by notification, 

make rules to carry out the provisions of this Act. 

(2)  In  particular,  and  without  prejudice  to  the  generality  of  the  foregoing  power,  such  rules  may 

provide for all or any of the following matters, namely:— 

(a) the composition of the Micro and Small Enterprises Facilitation Council, the manner of filling 
vacancies of the members and the procedure to be followed in the discharge of their functions by the 
members of the Micro and Small Enterprises Facilitation Council under sub-section (3) of section 21; 

(b) any other matter which is to be, or may be, prescribed under this Act. 

(3) The rule  made  under  this  section  shall,  as  soon  as  may  be  after it  is  made,  be  laid  before  each 
House  of the  State  Legislature  where  there are two Houses,  and  where  there  is  one  House  of the  State 
Legislature, before that House. 

31. Power to remove difficulties.—(1) If any difficulty arises in giving effect to the provisions of 
this Act, the Central Government may, by order published in the Official Gazette, make such provisions 
not inconsistent with the provisions of this Act as may appear to be necessary for removing the difficulty: 

Provided  that  no  order  shall  be  made  under  this  section  after  the  expiry  of  two  years  from  the 

commencement of this Act. 

(2) Every order made under this section shall, as soon as may be after it is made, be laid before each 

House of Parliament. 

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32.Repeal of Act 32 of 1993.—(1) The Interest on Delayed Payments to Small Scale and Ancillary 

Industrial Undertakings Act, 1993is hereby repealed. 

(2) Notwithstanding such repeal, anything done or any action taken under the Act so repealed under 
sub-section (1), shall be deemed to have been done or taken under the corresponding provisions of this 
Act.     

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