The Micro, Small and Medium Enterprises Development Act, 2006

Summary of the Micro, Small Medium Enterprises Development Act, 2006
Key Provisions
1. Definitions (Section 2)
• Defines terms like Micro, Small, and Medium Enterprises based on investment in plant and machinery/equipment, buyer, Supplier, Advisory Committee, Board, etc.
2. Classification of Enterprises (Section 7)
• Micro Enterprise: Manufacturing: ≤ ₹25 Lakh in plant and machinery
• Services: ≤ ₹10 Lakh in equipment
• Small Enterprise: Manufacturing: > ₹25 Lakh to ≤ ₹5 Crore in plant and machinery
• Services: > ₹10 Lakh to ≤ ₹2 Crore in equipment
• Medium Enterprise: Manufacturing: > ₹5 Crore to ≤ ₹10 Crore in plant and machinery
• Services: > ₹2 Crore to ≤ ₹5 Crore in equipment
3. National Board for Micro, Small and Medium Enterprises (Sections 3, 4, 5, 6)
• Composition: Includes Ministers, MPs, Secretaries, Representatives from Banks, Associations, and Experts.
• Functions: Examine factors affecting enterprises, review policies, make recommendations, and advise on Fund usage.
• Powers and Removal of Members: Defined with provisions for removal under certain conditions.
4. Memorandum for Enterprises (Section 8)
• Filing: Optional for Micro and Small, specific conditions for Medium enterprises.
• Authority: Specified by State/Central Government.
• Provision for Existing Enterprises: To file under new Act within 180 days of commencement.
5. Promotion, Development, and Competitiveness (Sections 9, 10, 11)
• Credit Facilities (Section 10): Progressive policies by Reserve Bank.
• Procurement Preference Policy (Section 11): For Micro and Small Enterprises.
6. Funds and Grants (Sections 12, 13, 14)
• Establishment of Funds
• Grants by Central Government: Subject to Parliamentary appropriation.
• Administration and Utilisation: Exclusively for specified measures, coordinated by the Central Government.
7. Dispute Resolution and Other Provisions
• Recovery of Amounts Due
• Micro and Small Enterprises Facilitation Council
• Scheme for Closure of Business

Legislative History:

The Micro, Small and Medium Enterprises Development Act, 2006

Short Title The Micro, Small and Medium Enterprises Development Act, 2006

Act Number / Year Act No. 27 of 2006

Act ID (India Code) 200627

Presidential Assent Date June 16, 2006

Enforcement Date October 2, 2006

Nodal Ministry Ministry of Micro, Small and Medium Enterprises

Precedent & Statutory Rationale

1. Transition from Traditional Industrial Regulation:

o Prior to 2006, the small-scale industry sector in India lacked a comprehensive, unified central statute. Operations were largely regulated through policy guidelines, administrative notifications, and parts of the Industries (Development and Regulation) Act, 1951.

2. Fostering Competitiveness and Ease of Doing Business:

o The Act was framed to establish an integrated legal framework for the promotion, development, and enhancement of the competitiveness of micro, small, and medium enterprises (MSMEs). Key objectives included resolving chronic working capital bottlenecks, mitigating the impact of delayed payments, facilitating smoother institutional credit access, and encouraging technological modernization.

Parliamentary Trajectory & Enactment

• Formulation: Developed extensively by the Ministry of Micro, Small and Medium Enterprises in consultation with industry stakeholders, state governments, and financial institutions.

• Parliamentary Passage: Tabled, debated, and passed by both Houses of Parliament during the budget session of 2006.

• Presidential Assent: Received formal Presidential Assent on June 16, 2006, entering the statute book as Act No. 27 of 2006.

• Enforcement: Enforced on October 2, 2006.

Source: Official Records of Parliament, India Code, and Ministry of Micro, Small and Medium Enterprises