The (Micro and Small Enterprises Facilitation Council) MSEFC Act framework is the statutory mechanism for speedy redressal of delayed-payment disputes between buyers and eligible Micro & Small Enterprises (MSEs). Set up under the MSMED Act, the Councils exist at State/UT level (so implementation is by states), and they play a central role today because of recent legal and tax changes (notably the 45-day rule that came into effect for tax disallowance from 1 April 2024).
This article explains what the MSEFC Council Act is, who it covers, how it works, its pan-India reach, the traders question, and the important 2024 changes.
What Is The MSEFCs Council Act?
“MSEFC” refers to Micro and Small Enterprises Facilitation Councils constituted under the Micro, Small and Medium Enterprises Development Act (MSMED Act), 2006. The Councils are quasi-judicial/state bodies that receive complaints from MSE suppliers about delayed payments by buyers, attempt conciliation and – if required – pass orders for payment plus interest/penalty. In many practical guides they are called the “MSME Court.
Why Was The MSEFC Act Formed?
The MSEFC Council Act was formed to protect Micro and Small Enterprises from delayed payments by buyers. Its main purpose is to:
- Ensure timely payment for goods and services supplied by MSMEs
- Provide a fast, low-cost dispute resolution mechanism instead of lengthy court cases
- Improve cash flow and financial stability of small businesses
- Hold buyers legally accountable with mandatory interest and penalties for delays
In short, the MSEFC Act was created to safeguard MSMEs from payment exploitation and strengthen their working capital.
Who Falls Under MSEFC Council Act?
The MSEFC Act applies to Micro and Small Enterprises (MSEs) as defined under the MSMED Act, 2006. Entities Covered (Suppliers):
- Micro Enterprises
- Small Enterprises
- Manufacturing enterprises
- Service providers
- Proprietorships, Partnerships, LLPs, and Companies
Key condition: The supplier must qualify as a Micro or Small Enterprise under MSME criteria (Udyam registered or otherwise eligible).
Note: Entities that are not covered in the MSEFC act are medium enterprises, traders (wholesale/retail), non-MSME businesses.
When Were The Councils Implemented & Who Regulates Them?
The MSEFC Act was implemented in the year 2006 and state-wise implementation followed in subsequent years. It is regulated jointly by the central and state governments.
- It was introduced through the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006
- Sections 15 to 23 of the MSMED Act provide for the creation and functioning of Micro & Small Enterprises Facilitation Councils (MSEFC)
- After 2006, State Governments and Union Territories implemented it by notifying and constituting their respective MSEFCs.
Applicability Of MSEFC Council Act
the MSEFC mechanism is applicable across India, but with an important distinction:
- The MSMED Act, 2006 is a Central Act
- MSEFCs are constituted and operated by individual States & Union Territories
- Each State/UT has its own notified MSEFC(s) and procedural rules
So, applicability is pan-India, but implementation is state-wise.
State-wise Implementation Status of MSEFC Council Act
The MSEFC Council Act is not a separate law but a mechanism created under the MSMED Act, 2006. While the Act is central, its implementation is completely state-driven, below is the list of states where it is implemented:
Fully Implemented & Actively Functioning States
These states have notified rules, constituted councils, and regularly handle cases:
| State | Implementation Status | Mode |
|---|---|---|
| Maharashtra | Fully Implemented | Multiple regional MSEFCs |
| Gujarat | Fully Implemented | District & regional councils |
| Tamil Nadu | Fully Implemented | Regional councils |
| Uttar Pradesh | Fully Implemented | Divisional councils |
| Karnataka | Fully Implemented | State-level MSEFC |
| Delhi (NCT) | Fully Implemented | Single council |
| Rajasthan | Fully Implemented | State council |
| Madhya Pradesh | Fully Implemented | Regional councils |
| Punjab | Fully Implemented | State council |
| Haryana | Fully Implemented | State council |
| Telangana | Fully Implemented | State council |
| Andhra Pradesh | Fully Implemented | State council |
| Kerala | Fully Implemented | State council |
| West Bengal | Fully Implemented | State council |
| Odisha | Fully Implemented | State council |
| Chhattisgarh | Fully Implemented | State council |
| Jharkhand | Fully Implemented | State council |
| Bihar | Fully Implemented | State council |
| Himachal Pradesh | Fully Implemented | State council |
| Uttarakhand | Fully Implemented | State council |
Northeastern States – Implemented with Central Oversight
| State | Implementation |
|---|---|
| Assam | Implemented |
| Arunachal Pradesh | Implemented |
| Manipur | Implemented |
| Meghalaya | Implemented |
| Mizoram | Implemented |
| Nagaland | Implemented |
| Tripura | Implemented |
| Sikkim | Implemented |
These states usually have single MSEFCs, but MSMEs are fully protected under the Act.
Union Territories – MSEFC Council Act Implementation
| Union Territory | Implementation Status |
|---|---|
| Delhi | Fully Implemented |
| Chandigarh | Implemented |
| Puducherry | Implemented |
| Jammu & Kashmir | Implemented |
| Ladakh | Administered through J&K mechanism |
| Dadra & Nagar Haveli & Daman & Diu | Implemented |
| Andaman & Nicobar Islands | Implemented (limited capacity) |
| Lakshadweep | Implemented through central administration |
MSME Act 2006 – Amendment 2024 (what changed)
Two linked developments are most important in 2023–2024:
- Finance Act 2023 — Section 43B(h) of Income Tax Act (effective 1 April 2024): Introduced a tax consequence: payments to MSMEs beyond prescribed timelines may be disallowed as a business expense for the payer if not paid within prescribed timeframes (the “45-day” focus in practice). The practical effect: buyers now have a tax incentive to pay MSME suppliers faster.
- Administrative/Gazette changes in 2024 (specified-companies order / reporting rules): Companies are required to report delays and certain specified companies must file half-yearly returns about payments to micro & small enterprises and furnish information where payments exceed 45 days (changes notified mid-2024). These rules strengthen enforcement & transparency.
How Udyamita Helpline Helps MSMEs Under the MSEFC Council Act?
Udyamita Helpline acts as a practical support partner for Micro & Small Enterprises (MSEs) to use the MSEFC mechanism effectively – from eligibility checks to recovery of delayed payments – without the confusion, delays, or legal complexity MSMEs usually face.
FAQs
Are Traders Covered By The MSEFC / Section 43B(h)?
No, traders (wholesale or retail) are not covered under the MSEFC Act or Section 43B(h). These provisions apply only to Micro and Small Enterprises engaged in manufacturing or services, not trading activities.
Is MSEFC The Same Across All States?
The statutory basis is central (MSMED Act) but Councils are state-level. Most states have MSEFCs, but local rules/procedures vary.
Does A Buyer Have To Be Registered Under MSME To Be Liable?
No. Liability to pay within timelines and MSEFC jurisdiction hinges on the supplier being an eligible MSE — buyer registration is not required.
From When Is The 45-Day Rule Effective?
The tax consequences tied to 45-day timelines (Section 43B(h) of IT Act) became effective 1 April 2024.
If I’m A Trader, Can I Use MSEFC For Delayed Payments?
Generally no — traders’ Udyam registration was for priority sector lending and most MSEFCs exclude traders from delayed-payment relief. Check your state’s specific guidance.
Do I Need A Lawyer To File At MSEFC?
Not necessarily — Councils are meant to be low-cost and accessible. But complex claims or enforcement actions may benefit from legal assistance.
Do Both Parties Have To Register As A Company To Use The MSEFC Remedy?
No, both parties do not need to be registered as companies. Only the supplier must be a Micro or Small Enterprise, while the buyer can be any entity (company, firm, individual, or government).
