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Petitions challenging Chapter V of MSMED Act dismissed

K.T. Sangameswaran

CHENNAI: The fixing of a time limit for payment to the supplier by the buyer of goods under the Micro, Small and Medium Enterprises Development (MSMED) Act is to save the micro and small enterprises from going out of existence due to wanton delay in payments, the Madras High Court has held.

Dismissing a batch of petitions challenging Chapter V of the legislation, Justice K.Chandru did not accept counsel's argument that they would have to sell their products in the market and only after getting money, they could pay back their supplier. Having found that the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 did not fulfil the objects for which it was enacted and having seen its working for over 13 years, Parliament had chosen to enact the MSMED Act. Its attempt was to plug the loopholes found in the 1993 Act. Counsel's contention that even if goods were defective or there was deficiency in service, they would be bound to make payments under threat of compulsory arbitration did not find any support from the legislation.

The MSMED Act 2006 was enacted by Parliament to facilitate the promotion and development and enhancing the competitiveness of micro, small and medium enterprises.

Mr. Justice Chandru said the 1993 Act providing for 120 days outer time limit for credit facilities was not working satisfactorily. Micro and small enterprises were driven to the point of extinction. Therefore, the outer limit of 45 days was fixed. In normal circumstances, when goods were delivered and services rendered, payments should be made instantaneously. It was by agreement credit facilities could be worked out between the parties. Parliament had ample power to restrict such contract. The fixing of time limit was to save the micro and small enterprises. To that extent, right to enter into contract could be curtailed. Such curtailment could not be said to be either arbitrary or unconstitutional.

The petitioners who were all buyers filed writ petitions challenging the vires of Chapter V of the legislation. The provisions challenged included those relating to buyers liability to make payment, date from which and rate at which interest was payable, recovery of amount due and reference to Micro and Small Enterprises Facilitation Council.

Mr. Justice Chandru also dismissed petitions that challenged certain decisions and notices of the Facilitation Council.

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