Good News for MSME! Now Criminal Charge may not be imposed on MSME for providing incorrect details
The Union government is planning to decriminalise minor offences under the Micro, Small, and Medium Enterprises Development (MSMED) Act to improve the ease of doing business for MSMEs. Ahead of the upcoming Union Budget, the MSME Ministry has recommended that the law ministry decriminalise provisions such as submitting incorrect self-declaration memorandums and failing to disclose required information, according to sources familiar with the development.
The proposed changes are aimed at alleviating the financial and operational burden on MSMEs, which often struggle with low capital and delayed payments. Currently, Section 27 of the MSMED Act imposes penalties ranging from ₹1,000 to ₹10,000 for non-compliance, such as failing to disclose registration details. MSMEs penalised under this section frequently face additional legal costs, further straining their limited resources.
This move forms part of the government’s broader efforts to enhance the business environment for small enterprises, particularly in light of their reliance on government schemes and bank funding for survival. As of December 2024, over 5.58 crore MSMEs are registered on the Udyam portal, employing more than 230 million people—over 15% of India’s population.
Key Issues Plaguing MSMEs
Delayed payments remain a significant challenge for MSMEs. Large businesses reportedly owe MSMEs more than ₹27,000 crore, as per data from Micro and Small Enterprises Facilitation Councils (MSEFCs). While a third of these dues have been recovered, MSMEs face hurdles in accessing MSEFCs, navigating mandatory mediations, and enforcing arbitral awards.
“Of all the problems faced by MSMEs, the lack of timely and affordable credit is the most critical,” the MSME Ministry stated in its Credit Guarantee Fund Scheme introduction. High-risk perceptions among banks, coupled with demands for collateral, have further hindered access to finance, particularly for micro enterprises and first-time entrepreneurs.
Calls for Comprehensive Reform
Anil Bhardwaj, Secretary General of the Federation of Indian Micro, Small, and Medium Enterprises (FISME), called for more extensive changes to the MSMED Act. “The Act is intended to promote MSMEs, not regulate them. Beyond decriminalisation, the issue of delayed payments requires urgent attention,” he said.
FISME has suggested increasing the number of MSEFCs and training officers to ensure smoother dispute resolution and reduce the chances of arbitral awards being challenged. These councils play a critical role in resolving payment disputes, which remain one of the biggest obstacles for MSMEs.
Government’s Ease of Doing Business Push
The proposed decriminalisation under the MSMED Act aligns with the government’s larger agenda to improve India’s ease of doing business rankings. In 2023, the Union government amended the Jan Vishwas Bill to decriminalise minor offences that burdened the legal system.
The decriminalisation of Section 27 in the MSMED Act is a continuation of this initiative, aiming to reduce the time and resources MSMEs spend on legal disputes. As the government gears up for the Budget, this reform is expected to provide much-needed relief to small businesses struggling in an ecosystem marked by capital constraints and delayed payments.
