In this blog post, Virgil Braganza, a student of ICFAI Law School, Hyderabad, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the procedure for online registration under the MSMED Act.

Background

“MSME stands for micro, small and medium enterprises and any enterprise that falls under any of these three categories. MSME enterprises are the backbone of any economy and are an engine of economic growth, promoting equitable development for all. Therefore, to support and promote MSMEs, the Government of India through various subsidies, schemes and incentives promotes MSMEs through the Micro Small Medium Enterprises Development Act. To avail the benefits under the MSMED Act from Central or State Government and the Banking Sector, MSME Registration is required.”[1]

Scheme of the Act

The Micro, Small and Medium Enterprises Development Act, 2006, most commonly known as the MSMED Act was aimed at helping and developing early stage businesses and start ups. Now the first thing to understand here is what micro, small and medium enterprises are.

As per the Definitions of Micro, Small and Medium Enterprises, manufacturing enterprise is defined as the enterprise engaged in the manufacture of production of goods pertaining to any industry specified in the first schedule to the (Industries Development and Regulation Act, 1951). The Manufacturing Enterprises are defined in terms of investment in Plant and Machinery.[2]

Meanwhile, service sector is defined as the enterprises engaged in providing or rendering of services defined in terms of investment and are in equipment.[3]

The MSMED Act was framed with the following objectives

• To enhance the competitiveness of MSM enterprises
• To facilitate the promotion and development of micro, small and medium scale enterprises (MSM enterprises)
• To concentrate on the related matters of MSM enterprises
• To extend the scope of benefits from SSI undertaking and ancillary industries to MSM enterprises.[4]

The benefits to Micro and Small Enterprises under the MSMED Act

1. Protection against delay in payment from buyers and right of interest on delayed payment

The MSMED Act contains provisions that impose severe disadvantages for delay or non-payment of bills – which can be strategically very useful for registered startups/SMEs in recovering their payments on time. The two features are “Payment of compound interest at thrice the bank rate” and “Interest for delay to MSME cannot be deducted from income of customer”.

2. Preference in procuring Government tenders

In March 2012, the Central Government released a policy (SME Procurement Policy) stating that it would reserve a minimum of 20 percent of its procurement requirements from micro and small enterprises registered under the MSMED Act. The reservation requirement will be mandatorily applicable to all Central Government ministries, departments and public sector undertakings controlled by it (collectively referred to as the Central Government Entities) from 1^st April, 2015, but Government departments have already started making arrangements to source from SMEs.

3. Time-bound resolution of disputes with buyers through conciliation and arbitration

Registered MSMEs have an easy dispute resolution method with respect to non-payment and interest related matters as well. MSMEs can make a reference of such matters to a Micro and Small Enterprises Facilitation Council created under the Act. The Council is required to first attempt to assist the parties to resolve the dispute through a process known as ‘conciliation’. If conciliation is not successful, the Council can dispose the dispute through arbitration, by organizing arbitration itself or referring it to another arbitral institution. The provisions of the Arbitration and Conciliation Act, 1996 shall apply for the above purposes.

Few others are:

1. Concession in electricity bills
2. Reservation policies to manufacturing / production sector enterprises
3. Stamp duty and Octroi Benefits
4. Reimbursement of ISO Certification Expenses
5. Easy availability of finance from Banks, without collateral requirement

States in which online Registration under MSMED Act is permitted 

There are thirty districts in India in which online registration under the MSMED Act is provided. They are “Agartala (Tripura), Agra (Uttar Pradesh), Ahmedabad (Gujrat), Allahabad (Uttar Pradesh), Bangalore (Karnataka), Chennai (Tamil Nadu), Cuttack (Odhisa), Gangtok (Sikkim), Goa, Guwahati (Assam), Haldwani (Uttarakhand), Hubli (Karnataka), Hyderabad (Telangana), Imphal (Manipur), Indore (Madhya Pradesh), Jaipur (Rajasthan), Jammu-Tawi (Jammu and Kashmir), Kanpur (Uttar Pradesh), Karnal (Haryana), Kolkata (West Bengal), Ludhiana (Punjab), Mumbai (Maharashtra), Muzaffarpur (Bihar), Nagpur (Maharashtra), New Delhi, Patna (Bihar), Raipur (Chhattisgarh), Ranchi (Jharkhand), Solan (Himachal Pradesh), Thrissur (Kerala).”[1]

There are twenty-two states in Indian and two union territories that provide online registration under the MSMED Act for Micro, Small Medium Enterprises.

Udyog Aadhaar for MSME

“The process of obtaining MSME registration will be simplified by the introduction of the Udyog Aadhaar for MSME in India. Prior to the introduction of the Udyog Aadhaar, to obtain MSME or SSI Registration, two filings namely, Entrepreneur Memorandum-I (EM-I) and Entrepreneur Memorandum-II (EM-II) had to be filed. With the introduction of Udyog Aadhaar, the process of obtaining SSI or MSME registration has been drastically simplified.”[6]

The online Udyog Aadhar registration process has been created with an aim to encourage online filing of Entrepreneurs Memorandum (also known as MSME registration) for Micro, Small and Medium Enterprises. The online Udyog Aadhar registration process will simplify the registration process with an online and simple one page registration form. In the form, the MSME will self certify its existence, bank account, business activity details, employment and ownership details and other information.

Documents and information required for online Udyog Aadhar registration

• Aadhar Number – 12 digit Aadhar number issued to the applicant should be filled in the appropriate field.
• Name of Owner – The applicant should fill his/her name strictly as mentioned on the Aadhar Card issued by UIDAI. For example, if Raj Pal Singh has his name as Raj P. Singh, the same should accordingly be entered, if the name does not match with the Aadhar number, the applicant will not be able to fill the form further.
• Social Category – Applicant’s Caste: General/Schedule Caste/Schedule Tribe/ Other Backward Castes. The proof of belonging to SC, ST or OBC may be asked by appropriate authority, if and when required.
• Name of Enterprise – Name of the legal entity to conduct business. One applicant can have more than one enterprise doing business and each one can be registered for a separate Udyog Aadhar and with the same Aadhar number.
• Type of Organisation – Type of Business entity or Legal entity.

1. Proprietorship
2. Partnership Firm
3. Hindu Undivided Family
4. Private Limited Company
5. Co-Operative
6. Public Limited Company
7. Self Help Group
8. Others (Limited Liability Partnership)

• Postal Address – Address of the business including mobile and email address.
• Date of Commencement – The date on which business was started
• Previous Registration Details – Details of previous MSME registration, if applicable should be entered here.
• Bank Details – Details of bank account of the company including IFSC Code and Bank Account Number.
• Major Activity – Major area of activity of the business – manufacturing or service.
• NIC Code – The appropriate NIC Code should be entered from the National Institute Classification (NIC) handbook.
• Person employed – The total number of people employed in the business.
• Investment in Plant & Machinery/Equipment – Amount of money invested in terms of machinery and equipment by the business.
• DIC – Details of the District Industry Center nearest to the business, if required. (The list of DI’s has been provided above).

The steps are more or less the same in every state since the online Udyog Aadhar form is a standard form across India.

Conclusion

The growth of Micro, Small and Medium Enterprises in India has lead to the formation of certain rules and enactments, MSMED Act being one of them. Ever since the enactment of the Act, there have been several amendments for the benefit of the Micro, Small and Medium Enterprises in India. Registering under the MSMED Act is not a mandatory duty. However, it is highly advisable to do so. The enterprises registered under the Act avail a lot of benefits as mentioned above and they are not entitled to them if they haven’t registered. Earlier, there were two Enterprise Memorandum forms. Now they have been replaced by one simple Udyog Aadhar form. Udyog Aadhar is only for running units. There is no need to apply for upcoming units.[7] The government has taken drastic steps to help the Micro, Small and Medium Enterprises. This has encouraged a lot of entrepreneurs to set up their enterprise and has in turn also helped the economy grow.

Footnotes:

[1] MSME Registration, indiafiling ,http://www.indiafilings.com/msme-registration.php# , (last visited on 26^th May, 2016).

[2] Definitions of Micro, Small and Medium Enterprises, http://msmehyd.ap.nic.in/Definitions.htm , (last visited on 25^th May, 2016).

[3] Ibid.

[4]Programmes for MSME, http://msme.gov.in/WriteReadData/Whatsnew/Programees%20for%20MSME%20Final%20Title.pdf , (last visited on 28^th May, 2016).

[5]Websites and Email IDs of all MSME DIs, http://dcmsme.gov.in/msme-do/MSMEdi.pdf, (last visited on 27^th May, 2016).

[6]UdyorAadhaar for MSMEs, http://www.indiafilings.com/learn/udyog-aadhaar-for-msmes/ , (last visited on 26^th May, 2016).

[7]UdyogAadhar Registration, udyogaadhar.gov.in, http://udyogaadhaar.gov.in/UA/UdyogAadhar-New.aspx, (last visited on 27^th May, 2016).