In a significant reform aimed at promoting and streamlining the Micro, Small, and Medium Enterprises (MSME) sector, the Government of India has implemented the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, which has come into effect from October 2, 2006. The new legislation replaces the erstwhile Small Scale Industries (SSI) registration system with a more inclusive and simplified process of filing a Memorandum.
The MSMED Act, 2006, is a comprehensive legal framework that now governs the entire MSME ecosystem, expanding its scope beyond traditional industries to include service enterprises as well. One of the most notable changes under the Act is the replacement of the term “industry” with “enterprise,” highlighting the growing importance of the service sector.
Classification of Enterprises
Under the Act, enterprises are classified based on investment in plant and machinery (for manufacturing) or equipment (for services), as follows:
Manufacturing Enterprises
- Micro: Investment up to Rs. 25 lakh
- Small: Investment above Rs. 25 lakh and up to Rs. 5 crore
- Medium: Investment above Rs. 5 crore and up to Rs. 10 crore
Service Enterprises
- Micro: Investment up to Rs. 10 lakh
- Small: Investment above Rs. 10 lakh and up to Rs. 2 crore
- Medium: Investment above Rs. 2 crore and up to Rs. 5 crore
Filing of Memorandum: Key Provisions
The new system of filing a Memorandum introduces flexibility and clarity:
- SSI registration has been abolished.
- Filing of the Memorandum is optional for Micro and Small Enterprises in both manufacturing and service sectors.
- For Medium Enterprises in the service sector, filing is also optional.
- However, for Medium Enterprises in the manufacturing sector, filing of the Memorandum is mandatory.
The Memorandum must be submitted to the Nodal Authority of the Industries Department, and upon submission, the authority is required to issue an acknowledgment and a receipt — both of which are mandatory.
In most states, including Delhi, the designated authority for accepting these filings is the Deputy Commissioner of Industries (Registration).
Strengthening Payment Protections and Dispute Resolution
The MSMED Act, 2006 also incorporates provisions from the erstwhile Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. It mandates strict enforcement of payment timelines to protect MSMEs from delayed payments.
Additionally, all states and Union Territories are required to establish Micro and Small Enterprises Facilitation Councils (MSEFCs) to resolve disputes, especially those related to payment delays. The rules for MSEFCs in Delhi have already been notified.
This reform is expected to enhance the ease of doing business for MSMEs, streamline regulatory procedures, and provide timely redressal mechanisms, thereby strengthening the sector’s contribution to the Indian economy.
Read More: Rs. 1 Lakh Cost Imposed On GST ITC Fraud Accused For Misusing Writ Jurisdiction: Delhi High Court
