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Recent Amendments to Companies Act 2013: A Comprehensive guide for Companies when to Pay MSME's




Recent Amendments to the Companies Act, 2013 Relevant for MSMEs

The Ministry of Corporate Affairs (MCA) has introduced several key amendments to the Companies Act, 2013 that are particularly relevant for Micro, Small and Medium Enterprises (MSMEs). These amendments aim to ease compliance requirements, promote entrepreneurship, and provide greater protection for MSME vendors. In this comprehensive post, we will delve into the details of these recent changes and their implications for companies and MSMEs.


eForm MSME-1: Reporting Delayed Payments to MSME Vendors

One of the most significant amendments is the introduction of eForm MSME-1, which requires companies to report delayed payments to their MSME vendors. The key points regarding this form are:

  • Purpose: To inform the Registrar of Companies (ROC) about defaults in payments by companies to their MSME vendors.

  • Applicability: All companies that have MSME registered vendors and make payments to such vendors after 45 days from the date of acceptance of goods or services during the half-year.

  • Filing Frequency: Companies must file eForm MSME-1 with the ROC every half-year:

  • For April to September - Due Date is 31st October

  • For October to March - Due Date is 30th April

  • Fees: There is no filing fee for eForm MSME-1.

  • Information to be Provided: The form requires details such as the total outstanding amount, name of the supplier, PAN, amount due, date from which the amount is due, and the reason for the delay in payment.

Consequences of Non-Filing or Delayed Filing

While there is no additional fee for delayed filing of eForm MSME-1, non-compliance can attract penalties under Section 450 of the Companies Act, 2013:

  • Penalty on the Company: ₹10,000 and an additional ₹1,000 for each day of continuing contravention, subject to a maximum of ₹2,00,000.

  • Penalty on the Officer in Default: ₹50,000.

An analysis of an adjudication order in the case of Samsung R&D Institute India-Bangalore Private Limited highlights the penalties imposed for delayed filing of eForm MSME-1. The company was required to file the form for the periods April 2022 to September 2022 and October 2022 to March 2023, but filed both with delays of 266 days and 85 days, respectively. The company and its directors were penalized ₹2,85,000 and ₹1,04,000 for the respective delays.It is important to note that companies only need to report delayed payments to MSME vendors registered in the "Micro" and "Small" categories. Vendors registered as "Medium" enterprises are not required to be included in eForm MSME-1.

Provisions of the MSMED Act, 2006

The Companies Act amendments are closely linked to the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. Some key provisions of the MSMED Act relevant to the recent changes are:

  • Section 15: Specifies that the maximum period for payment of invoices to MSME suppliers shall not exceed 45 days from the date of acceptance or deemed acceptance.

  • Section 16: Imposes compound interest at three times the bank rate on buyers who fail to make payments to MSME suppliers within the stipulated 45-day period.

  • Section 22: Requires companies to disclose additional information in their annual financial statements, such as the principal amount and interest due to MSME suppliers, interest paid, and interest accrued but remaining unpaid.

Implications under the Income Tax Act

The amendments to the Companies Act also have implications under the Income Tax Act, particularly Section 43B(h). Some key points regarding the interplay between the MSMED Act and Income Tax Act:

  • Supplier Registration: Only MSME suppliers who have filed a memorandum with the authority under the MSMED Act are eligible for the benefits under Section 43B(h) of the Income Tax Act.

  • Applicability to Traders: Traders with MSME registration are not eligible for the benefits outlined in Section 15 of the MSMED Act and, consequently, Section 43B(h) of the Income Tax Act does not apply to outstanding dues owed to them.

  • Year-End Provisions: If a provision is made at the end of the financial year, but the actual delivery of goods or services does not occur by the year-end, no disallowance can be applied under Section 43B(h).

  • Timing of Payments: If payment is made beyond the stipulated time period but before the end of the financial year, the deduction can be allowed in the same financial year in which the liability accrued.

  • Capital Expenditure: Disallowance under Section 43B(h) cannot be attracted for dues outstanding in relation to capital expenditure, as capital expenditure is not considered an allowable expense under the Income Tax Act.

Amendments Related to Foreign Direct Investment (FDI)

The Companies Act has also been amended to align with the government's policy on foreign direct investment from countries sharing a land border with India. The key changes are:

  • Prior Approval Requirement: Any entity or citizen of a country sharing a land border with India intending to invest in an Indian company must obtain prior approval from the Government of India (GoI).

  • Incorporation: The Companies (Incorporation) Rules, 2014 have been amended to require subscribers from countries sharing a land border with India to obtain necessary government approval and attach it with the incorporation form (SPICe+).

  • Private Placement: In case of private placement, if the proposed allottee is from a country sharing a land border with India, the government approval must be attached with the private placement offer cum application letter (PAS-4).

  • Share Transfer: For transfer of shares to a person or entity from a country sharing a land border with India, the transferee must obtain government approval and attach it with the share transfer form (SH-4).

  • Mergers: If an Indian company is merging with an entity incorporated in a country sharing a land border with India, the latter must obtain prior government approval and attach it with Form CAA-16 for the merger application.

  • Director Appointment: Nationals of countries sharing a land border with India must obtain security clearance from the Ministry of Home Affairs before becoming directors of Indian companies. The approval must be attached with the consent letter (DIR-2) and the incorporation form (SPICe+).

  • DIN Application: Individuals from countries sharing a land border with India applying for a Director Identification Number (DIN) must attach the security clearance with the DIN application (DIR-3).

Additional Disclosures in Financial Statements

The Companies Act has also introduced additional disclosure requirements in the financial statements of companies:

  • Statement of Changes in Equity: Companies must disclose changes in equity due to prior period errors and restate the balance at the beginning of the reporting year. Details of other equity for the prior reporting period must also be provided.

  • Shareholding of Promoters: Companies must now disclose the shareholding of all promoters, including changes during the year. The definition of "promoter" is as per the Companies Act, which differs from the SEBI (ICDR) Regulations.

  • Loans and Advances to Promoters, Directors, KMPs, and Related Parties: Details of loans and advances to these parties, either jointly or severally, must be disclosed separately, along with the amount and percentage to total loans and advances.

  • Ageing Schedule of Trade Payables and Receivables: Companies must provide an ageing schedule for trade payables and receivables, including the amount of MSME payments due and the extent of delayed payments.

Conclusion

The recent amendments to the Companies Act, 2013 have introduced several changes that significantly impact MSMEs and their relationships with larger companies. The introduction of eForm MSME-1 and the associated penalties for non-compliance emphasize the government's commitment to ensuring timely payments to MSME vendors. The amendments also align with the MSMED Act, 2006 and have implications under the Income Tax Act.Additionally, the changes related to foreign direct investment and the enhanced disclosure requirements in financial statements aim to promote transparency and accountability. As companies navigate these new regulations, it is crucial for them to understand the implications and ensure timely compliance to avoid penalties and maintain healthy relationships with their MSME partners.


To view the blog in presentation form check the attached file as presented by our Legal Partner, Advocate Reema Jain, at the Greater Noida CPE Study Circle of the Honda group of companies on May 23rd, 2024. The seminar focused on "MSME & Relevant Amendments in the Companies Act, 2013," exploring crucial updates and how recent amendments in the Income Tax Act align with MSME provisions under the Companies Act.



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