MSME-1 Half-Yearly Return: Practical Compliance Handbook for Companies under Section 405
1. Overview: Purpose and Nature of Form MSME-1
Form MSME-1 is a specific disclosure return prescribed by the Ministry of Corporate Affairs (MCA) for companies that delay payments to Micro and Small Enterprises beyond the statutory period. It is filed under Section 405 of the Companies Act, 2013 and is intended to capture information about dues owed to Micro and Small suppliers that remain unpaid for more than 45 days from the date of acceptance of goods or services.
This filing requirement is closely linked to the payment provisions contained in the MSMED Act, 2006, which obligate buyers to clear dues to MSMEs within fixed timelines. The idea behind MSME-1 is to ensure accountability where those timelines are breached, not to impose a universal periodic return on all companies.
Key principle: MSME-1 is a conditional compliance. It becomes applicable only when qualifying delayed dues to Micro or Small Enterprises exist at the close of a half-year.
If a company has no such overdue amounts on the relevant cut-off date, it is not required to file Form MSME-1 for that half-year.
2. Statutory Basis and Scope of MSME-1
2.1 Legislative Framework
The obligation to furnish Form MSME-1 arises from the combined operation of the following provisions and notifications:
Section 405of theCompanies Act, 2013- Empowers the Central Government to require companies to submit information or statistics relating to matters such as payments to Micro and Small Enterprises.
MSMED Act, 2006Section 15of the MSMED Act mandates that buyers must pay Micro and Small Enterprises within:- the period specified in a written agreement (not exceeding 45 days), or
- 15 days from the date of acceptance (where there is no written agreement).
MCA Notification dated 22nd January 2019
- Introduced the requirement to file Form MSME-1 and laid down the timelines for submitting the information to the Registrar of Companies (RoC).
2.2 Entities Covered
The obligation to submit MSME-1 extends to all companies as defined under the Companies Act, 2013, irrespective of:
- whether they are public or private,
- listed or unlisted,
- small, private limited companies or large corporates.
However, they fall within the reporting net only when the following two conditions are simultaneously fulfilled:
- The company has obtained goods or services from a Micro Enterprise or Small Enterprise; and
- At the end of the relevant half-year, there are unpaid amounts due to such Micro or Small Enterprise suppliers, which have remained outstanding for more than 45 days from the date of acceptance or deemed acceptance.
Important: The reporting is confined to Micro and Small category entities. Dues to Medium Enterprises do not form part of the MSME-1 disclosure requirement.
3. Understanding the 45-Day Payment Criterion
3.1 Statutory Payment Timelines under MSMED Act, 2006
The entire design of Form MSME-1 revolves around the payment timeline laid down in the MSMED Act. The scheme is as follows:
Where there is a written agreement between the buyer and the MSME vendor:
- The agreed payment period cannot exceed 45 days from the date of acceptance or deemed acceptance.
Where no written agreement exists:
- The buyer is required to make payment within 15 days of the date of acceptance or deemed acceptance.
3.2 Trigger Point for MSME-1 Reporting
While the MSMED Act prescribes both 15-day and 45-day limits depending on the nature of agreement, the crucial criterion for MSME-1 is whether the outstanding amount remains unpaid beyond 45 days.
For each half-year, the company must assess:
- Are there any amounts payable to a Micro or Small Enterprise supplier that have been outstanding for more than 45 days as on:
- 30th September, or
- 31st March?
If yes, such outstanding dues must be reported in Form MSME-1. If not, no MSME-1 filing obligation arises for that period.