MCA imposed whopping penalty of INR 18.58 Lakhs for not filing form MSME-1

In the matter of M/s Blissful Garments Private Limited (ROC (K)/PC-03/Blissful/01/2023)

MSME-1 is a form which is required to be filed by every company disclosing balance outstanding to MSME entities on a specified date beyond the period of 45 days, period of delay and reason of delay. Now, the MCA has initiate to take rigrous action against the company or officers in default who have done any non-compliance under Companies Act.

In similar lines, In the matter of M/s Blissful garments Private Limited, the MCA confimed that the company and its managing directors have failed to file form MSME-1 from April, 2021 onwards and accordingly imposed whopping penaltyof INR 18.58 Laks for all the periods for which MSME-1 was required to be filed but not filed. Penalty was imposed on both company and managing director in default.

1. Brief Facts of the case

The Complaint is filed against M/s Blissful Garments Private Limited (“The Company”) that is has purchased goods from another company.
Being the complainant company is a MSME therefore, the company is obligatory to file form MSME-1 indicating the outstanding amount to the said complainant company along with the number of days of delay.
However, the company has failed to file such a form on the MCA 21 portal.

2. Relevant Legal Extract

Relevant legal extract is reiterated below for ready reference:

a. Requirement of Filing MSME-1:

Ministry of Micro, Small and Medium Enterprises, New Delhi vide Notification S.O. 5622(E) dated 2nd November 2018 has stated that;

“‘in exercise of powers conferred by Section 9 of the Micro, Small and Medium Enterprises Development Act. the Central Government hereby directs that all companies who get supplies of goods or services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed forty five days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of the Act, shall submit a half yearly return to the Ministry of Corporate Affairs stating the following:

the amount of payments due; and
the reasons of the delay’

b. Penalty for non-compliance

Section 405(4) of Companies Act, 2013 is reiterated below:

“(4) if any company fails to comply with an order made under sub-section (1) or subsection (3), or furnishes any information or statistics which is incorrect or incomplete in any material respect, the company and every officer of the company who is in default shall be liable to a penalty of twenty thousand rupees and in case of continuing failure, with a further penalty of one thousand rupees for each day after the first during which such failure continues, subject to a maximum of three lakh rupees.”

3. Analysis of the Case

Registrar of the Company, Kerala, has made following analysis in the given case:

As per order vide notification S.0.368(E) dated 22.01.2019 issued by the MCA under Section 405 of the Companies Act, the company is required to file MSME form No. 1 in accordance with Section 405(1) of Companies Act, 2013.
As per MCA 21 Portal, it is evident that the company has not filed the form MSME-1 till the today.
The failure to file the said form is punishable as per Section 405(4) of the Companies Act, 2013,
Therefore, the Company and its Managing directors were issued a show cause to explain as to why penalty should not be imposed under Section 405(4) of the Act.
The Company has admitting that the complainant was one of his supplier and that they have done a business. However, the complainant has initiated a proceedings before the Hon’ble Judicial Magistrate Court of Hyderabad and the company is ready to settle the due amount outside the Court if the complainant is ready to withdraw the Judicial proceedings.
However, the company did not filed any explanation for non filing of Form MSME-1.
Therefore, as the company has admitted that the transaction therefore, the the company is liable to file form MSME form No.1 indicating the amount due to the complainant.
Accordingly, the company and its Managing officer in default are liable for penalty as prescribed under Section 405(4) of the Act for all the periods for which form MSME-1 is not filed.
Following Penalty is imposed on the Company and Managing officers in default:

Name of the Party	Form MSME-1	Penalty Amount
Company	MSME-1 for the period ended on 30th April, 2021	2,00,000
Managing Director	MSME-1 for the period ended on 30th April, 2021	1,00,000
Company	MSME-1 for the period ended on 30th September, 2021	2,00,000
Managing Director	MSME-1 for the period ended on 30th September, 2021	1,00,000
Company	MSME-1 for the period ended on 30th April, 2022	2,00,000
Managing Director	MSME-1 for the period ended on 30th April, 2022	1,00,000
Company	MSME-1 for the period ended on 30th September, 2022	2,00,000
Managing Director	MSME-1 for the period ended on 30th September, 2022	1,00,000
Company	MSME-1 for the period ended on 30th April, 2023	2,00,000
Managing Director	MSME-1 for the period ended on 30th April, 2023	1,00,000
Company	MSME-1 for the period ended on 30th September, 2023	54,500
Managing Director	MSME-1 for the period ended on 30th September, 2023	54,500

4. Time limit of payment of penalty imposed and consequences of non-payment

The imposed penalty shall be paid within a period of 90 days from the date of receipt of this order copy .
If the Company and director fails to pay the amount of penalty within the specified time then the company shall be punishable with a minimum fine of INR 25,000 and which may extend to INR 5,00,000.
Further, officer in default shall be punishable with imprisonment which may extend to 6 months or with a minimum fine of INR 25,000 which may extend to INR 1,00,000 or both.