HANDBOOK

FOR

MSME

ENTREPRENEURS

June 2017

Price : Rs. 250/- ( Excluding Postage)

© THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

Al rights reserved. No part of this publication may be translated or copied in any

form or by any means without the prior written permission of The Institute of

Company Secretaries of India.

Published by :

THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

ICSI House, 22, Institutional Area, Lodi Road, New Delhi - 110 003

Phones : 41504444, 45341000, Fax : 24626727

Website : www.icsi.edu, E-mail : info@icsi.edu

ISBN : 978-93-82207-97-9

Laser typesetting at AArushi Graphics

Printed at : Chandu Press/100/June 2017

(i )

Foreword

Micro, Smal and Medium Enterprises (MSMEs) sector has emerged as a highly vibrant and

dynamic sector of the Indian economy and is widely acclaimed as engine of economic

growth, particularly in the context of Make in India initiative of the Government of India.

MSMEs play a noteworthy role in economic and social development, thereby providing fl ip

to entrepreneurship, as they have inherent characteristics of being innovative and responsive

to changing market dynamics. Being complementary to large industries this sector contributes

hugely to the socioeconomic development of the country. MSMEs not only play a crucial role

in providing large employment opportunities at comparatively lower capital cost but also

encourage entrepreneurial activities in rural and backward areas.

I am happy to note that the Institute of Company Secretaries of India as part of its capacity

building initiatives, and to support the skil s development initiatives of the Government, is

playing pivotal role in enhancing the compliance status for strengthening the Governance

of MSMEs in India. Apart from this, Institute is organizing seminars and workshops in

promoting awareness about the role of MSMEs in the inclusive development of economy;

facilitating in establishing MSMEs and providing exacting solutions to issues being faced

by this sector.

I have gone through this handbook and found the contents very informative, written in

simple language. The emphasizes on the role of MSMEs in the National progress, insight

into the registration process of MSMEs, raising of finances, as wel as compliances with

various regulatory obligations would help MSME Entrepreneurs in management and

administration of their businesses in a sustainable manner.

I am confident that MSME Entrepreneurs wil find this Handbook quite useful in ensuring

Good Governance of their enterprises.

K K Jalan

169, UDYOG BHAWAN, NEW DELHI - 110 011. Tel. : +91-11-23062107 Fax : 2306 3045, E-mail : secretary-msme@nic.in; www.msme.gov.in (i i)

(iv)

Preface

The Micro, Small and Medium Enterprises (MSMEs) play a significant role in the

social, economic and political growth of the country. MSME sector not only

generate the global value of the products and services, it creates various

employment opportunities in the country too. MSMEs receive more governmental

focus as their role in the economic and social growth is inclusive, employment

oriented.

Since the first Industrial Policy Resolution, 1956 itself, priority was given to

agricultural growth along with the establishment, growth and development of

vil age and smal scale industries. Further, seeing the potential of growth in MSME

and their contribution to Indian economy, the Parliament enacted the Micro,

Smal and Medium Enterprises Development Act, 2006 to facilitate the promotion,

development and enhancing the competitiveness of micro, small and medium

enterprises.

In the current scenario of promoting MSMEs government is providing various

facilities and credits to MSME to ensure smooth working and eventual growth of

MSMEs in India. Further, to ease the regulatory burden on the industry and assist

MSMEs in complying with the legal requirements and mandatory disclosures, a

single window compliances and online mechanism of registration and

compliance has been initiated for MSMEs.

Under this backdrop, it is highly required that start-up entrepreneurs of MSME

sector as well as professionals assisting the compliances for MSMEs are

acquainted with the facilities, ease, assistance and essential compliances afforded

at the end of MSMEs. In this context, the Institute has initiated the publication titled

Handbook for MSME Entrepreneurs to serve a clear understanding about

compliances for MSMEs and operational mechanism.

I commend the dedicated efforts put in by Mr. Chittaranjan Pal, Assistant Director,

Directorate of Professional Development, Perspective Planning & Studies, ICSI in

preparing the manuscript of this publication and CS Pankila Bhardwaj, Consultant

for assistance in finalizing the publication for printing.

I am sure that this Handbook would be an accommodating and guiding one stop

document for the professionals to learn and understand the facts and facets of

(v)

various compliances required at the end of MSMEs along with the mechanism of

adhering those legal and mandatory requirements while ensuring the smooth

governance and growth of MSME sector in India.

New Delhi

CS (Dr.) Shyam Agrawal

9 June, 2017

President

The Institute of Company Secretaries of India

(vi)

CONTENTS

Section

Topic

Page

I

INTRODUCTION

1

II

LEGAL FRAMEWORK-MSMES

5

Computation of Investment limit in Plants &

6

Machineries or in Equipments for the purpose of

MSMED Act, 2006

Memorandum of Micro, Smal and Medium Enterprises

7

Udyog Aadhar Memorandum

8

Micro, Smal and Medium Enterprises Development

16

(Furnishing of Information) Rules, 2016

III

MSME REGISTRATION

21

Benefits of Registration

21

IV

HOW TO SET UP MSME

23

V

MASTER DIRECTION-RESERVE BANK OF INDIA

30

[LENDING TO MICRO, SMALL & MEDIUM

ENTERPRISES (MSME) SECTOR] - DIRECTIONS, 2016

Targets/sub-targets for lending to Micro, Smal and

33

Medium Enterprises (MSME) sector by Domestic

Commercial Banks and Foreign Banks operating in India

Guidelines for Special Credit Linked Capital Subsidy

42

Scheme (SCLCSS) for SC/ST Micro & Smal Enterprises

Smal Industries Development Bank of India (SIDBI)

50

[List of Primary Lending Institutions (PLI)]

Agreement for Financial Assistance under Special

54

Credit Linked Capital Subsidy Scheme (SCLCSS) for

SC/ST Micro & Smal Enterprises

Application Form for assistance under Special Credit

58

Linked Capital Subsidy Scheme (SCLCSS) for SC/ST

Micro & Smal Enterprises

VI

COMPLIANCE BASED ON FORMATION OF MSME

61

Sole Proprietorship

62

Partnership Firm

63

One Person Company

66

Limited Liability Partnership

80

(vi )

Public Company/Private Company

96

Listing of specified securities of smal and Medium

112

Enterprises on the institutional trading platform in a

SME Exchange without making an initial public offer

VII

LABOUR LAWS APPLICABLE FOR MSMES

119

Employee’s Provident funds and Miscellaneous

121

Provisions Act, 1952

Employees State Insurance Act, 1948

126

The Contract Labour (Regulation & Abolition) Act,

129

1970

Employee’s Compensation Act, 1923

132

The Minimum Wages Act, 1948

134

The Payment of Wages Act, 1936

136

Maternity Benefit Act, 1961

139

The Child and Adolescent Labour (Prohibition

141

and Regulation) Act, 1986

Equal Remuneration Act, 1976

142

The Factories Act, 1948

143

The Payment of Gratuity Act, 1972

147

The Payment of Bonus Act, 1965

148

The Apprentices Act, 1961

150

The Industrial Employment (Standing Orders)

151

Act, 1946

Labour Laws (Simplification of Procedure for

153

Furnishing Returns and Maintaining Registers by

Certain Establishments) Act, 1988

VIII

ENVIRONMENTAL LAWS COMPLIANCES FOR MSMES

157

Air (Prevention and Control of Pol ution) Act, 1981

159

The Noise Pol ution (Regulation And Control) Rules,

161

2000

The Water (Prevention And Control of Pol ution)

164

Act, 1974

The Environment (Protection) Act, 1986

166

The Public Liability Insurance Act, 1991

168

Hazardous And Other Wastes (Management &

169

Transboundary Movement) Rules, 2016

IX

GST VIS-A-VIS MSME

172

X

ROLE OF COMPANY SECRETARIES

175

XI

CHECKLIST FOR COMPLIANCES

179

(vi i)

SECTION I

INTRODUCTION

“Compliance is concerned with holding the balance between economic and

social goals and between individual and communal goals. The governance

framework is there to encourage the efficient use of resources and equal y to

require accountability for the stewardship of those resources. The aim is to align

as nearly as possible the interests of individuals, corporations and society.”

Micro, Small and Medium Enterprises (MSMEs) sector has emerged as a highly

vibrant and dynamic sector of the Indian economy over the last five decades.

MSMEs not only play a crucial role in providing large employment opportunities

at comparatively lower capital cost than large industries but also help in

industrialization of rural and backward areas. MSMEs reduce regional imbalances,

assuring more equitable distribution of national income and wealth. MSMEs are

complementary to large industries as ancil ary units and this sector contributes

enormously to the socioeconomic development of the country.

The flagship Make in India initiatives aims to facilitate investment, foster

innovation, enhance skil development and build an Eco-system for manufacturing

infrastructure in the country. The MSMEs of India would be the cradle for the

“Make in India” vision. This would be the nursery where smal existing businesses

have the potential to become world beaters tomorrow. The larger players amongst

the MSME space also are in a unique position to become global players attracting

partners with technology and funds.

Startup India is a flagship initiative of the Government of India, intended to build a

strong ecosystem for nurturing innovation and Startups in the country that wil

drive sustainable economic growth and generate large scale employment

opportunities. The Government through this initiative aims to empower Startups

to grow through innovation and design.

More than 90% of MSMEs in India are either proprietorship or partnership

enterprise and therefore, it is imperative to strive towards corporatisation of Small

& Medium Enterprises for good corporate governance as well as energise the

economy as a whole.

Globally, Micro, Small and Medium Enterprises (MSMEs) play a vital role in the

1

2

HANDBOOK FOR MSME ENTREPRENEURS

economic development of a nation. MSMEs are the nursery where smal existing

businesses have the potential to become Global Enterprises.

The MSME sector has emerged as a dynamic sector of the Indian economy over

the last five decades. MSMEs contribute enormously to the socio-economic

development of the country. MSME have a large share of jobs, production and

exports. The primary responsibility of promotion and development of MSMEs is of

the State Governments. However, the Government of India, supplements the

efforts of the State Governments through various initiatives.

MSMEs have the inherent characteristics of being innovative and quickly

responsive to changing market conditions. And it is because of these qualities,

SMEs contribute substantial y to any economy and are widely acknowledged as

the engine of economic growth.

Some highlights of MSME performance are as under :

 The second largest employer after agriculture

 The total number of MSMEs - 3.6 crores

 Employing over 8 crore people

 Accounts for 45 % of total industrial production

 40% of total exports of India

 Manufacturing segment within the MSME contributes to 7.09% of GDP

 MSMEs also contribute to 30.50% of services

 The total contribution of MSMEs to the GDP is 37.54%

Major contribution of MSMEs is as fol ows:

1. It provides opportunities at comparatively lower cost;

2. It helps in industrialization of rural and backward areas;

3. Reduce Regional imbalances through the optimum utilization of their

resources;

4. More equitable distribution of national income and wealth;

5. Major partner in the process of inclusive growth.

The SME business market of India is large and bubbling with newer opportunities.

Increased purchasing power and consumerism is what drives the business

scenario in India. Thus, here is an opportunity for competitive advantage that can

benefit investors and entrepreneurs to a large extent. An investment in any best

small business opportunity promises lucrative returns and success in less time.

HANDBOOK FOR MSME ENTREPRENEURS

3

There are various reasons due to which the small scale business in India has

witnessed a spurt of growth. Some of these factors are:

 Less Capital Intensive

 Extensive Promotion & Support by Government

 Reservation for Exclusive Manufacture by small scale sector

 Project Profiles

 Funding - Finance & Subsidies

 Machinery Procurement

 Raw Material Procurement

 Manpower Training

 Technical & Managerial skil s

 Tooling & Testing support

 Reservation for Exclusive Purchase by Government

 Export Promotion

 Growth in demand in the domestic market size due to overal economic

growth

 Increasing Export Potential for Indian products

 Growth in Requirements for ancil ary units due to the increase in number

of Greenfield units coming up in the large-scale sector.

Although Indian MSMEs are a diverse and heterogeneous group, they face some

common problems, which are as under :

 Lack of availability of adequate and timely credit. The major dependence

for some sectors (eg. handicrafts) is for larger working capital requirement,

which directly impacts their production cycle

 High cost of credit

 Col ateral requirements being insisted upon by banks

 Limited access to equity capital for MSMEs

 Marketing is one of the critical areas where MSMEs face problems

including product differentiation, brand building, customized tailor-made

services, clientele building, after sales servicing etc.

 Many entrepreneurs are not entering in the field of exports due to lack of

4

HANDBOOK FOR MSME ENTREPRENEURS

market knowledge, availability of a growing domestic market, and the

complexities of international trade.

 Limited scale of operations leads to low production capacity (and

consequent low exportable surplus), which is related to the maximum

limits for capital investment for definition of MSME

 Problems of designing, packaging and product display due to limited

capacities Inadequate infrastructure facilities, including power, water,

roads, etc.

 Low technology levels and lack of access to modern technology.

 Lack of skil ed manpower

 Absence of a suitable mechanism which enables the quick revival of

viable sick enterprises and al ows unviable entities to close down speedily.

 Lack of coordination among the various organizations involved in the

promotion of MSMEs, including organizations of the State Governments,

and poor linkages with the institutional stakeholders in the private sector.

There is also duplication of programmes run by various Ministries for the

same target group

 Lack of reliable and updated data base to help in monitoring the

development initiatives and formulation of appropriate schemes to meet

the differential needs of the heterogeneous beneficiaries.

 Non availability of raw materials at a competitive cost, very often due to

low volumes

 High transaction costs and procedural delays leading to high fixed costs.

 Policy and procedural issues.

 Governance Issues.

In nutshel , the major problems for the MSMEs relate to the availability and cost of

credit, marketing support, improving productivity, technology/skil upgradation,

infrastructure and the institutional framework for the MSMEs.

HANDBOOK FOR MSME ENTREPRENEURS

5

SECTION II

LEGAL FRAMEWORK -MSMEs

The Micro, Smal and Medium Enterprises Development Act, 2006, provides for

facilitating the promotion and development and enhancing the competitiveness

of micro, small and medium enterprises and for matters connected therewith or

incidental thereto.

In terms of Section 2(e) of the Act ”enterprise” means an industrial undertaking or

a business concern or any other establishment, by whatever name called,

engaged in the manufacture or production of goods, in any manner, pertaining to

any industry specified in the First Schedule to the Industries (Development and

Regulation) Act, 1951 or engaged in providing or rendering of any service or

services.

The Micro Small and Medium Enterprises have been defined under MSME Act,

2006. According to the Act, MSME have been broadly classified in two categories:

1. Enterprises engaged in the manufacturing and production of goods

pertaining to any industry;

2. Enterprises engaged in providing or rendering services

( a) Manufacturing Enterprises- The enterprises engaged in the manufacture or

production of goods pertaining to any industry specified in the first schedule to

the industries (Development and Regulation) Act, 1951 and are defined in terms of

investment in Plant & Machinery.

( b) Service Enterprises: The enterprises engaged in providing or rendering of

services and are defined in terms of investment in equipment.

Accordingly, the Section 7 of the Act, the ceiling on investment to be classified as

micro, small or medium enterprises is as under:

5

6

HANDBOOK FOR MSME ENTREPRENEURS

Manufacturing Sector

Enterprises

Investment in plant & machinery

Micro Enterprises

Does not exceed twenty five lakh rupees

Smal Enterprises

More than twenty five lakh rupees but does

not exceed five crore rupees

Medium Enterprises

More than five crore rupees but does not

exceed ten crore rupees

Service Sector

Enterprises

Investment in equipments

Micro Enterprises

Does not exceed ten lakh rupees:

Smal Enterprises

More than ten lakh rupees but does not

exceed two crore rupees

Medium Enterprises

More than two crore rupees but does not

exceed five core rupees

Computation of Investment limit in Plants & Machineries or in Equipments for

the purpose of MSMED Act, 2006

In exercise of the powers conferred by sub-section (1) of Section 7 of the MSMED

Act, 2006, the Central Government vide notification S.O. 1722(E) dated 5th October,

2006, the cost of which shall be excluded while calculating the investment in

plant and machinery in the case of the enterprises mentioned in Section 7(1)(a) of

the said Act, namely:

(i) equipment such as tools, jigs, dyes, moulds and spare parts for

maintenance and the cost of consumables stores;

(i ) instal ation of plant and machinery;

(i i) research and development equipment and pol ution control ed equipment

(iv) power generation set and extra transformer installed by the enterprise as

per regulations of the State Electricity Board;

(v) bank charges and service charges paid to the National Small Industries

Corporation or the State Small Industries Corporation;

(vi) procurement or installation of cables, wiring, bus bars, electrical control

panels (not mounted on individual machines), oil circuit breakers or

miniature circuit breakers which are necessarily to be used for providing

electrical power to the plant and machinery or for safety measures;

HANDBOOK FOR MSME ENTREPRENEURS

7

(vi ) gas producer plants;

(vi i) transportation charges (excluding sales-tax or value added tax and excise

duty) for indigenous machinery from the place of their manufacture to the

site of the enterprise;

(ix) charges paid for technical know-how for erection of plant and machinery;

(x) such storage tanks which store raw material and finished products and

are not linked with the manufacturing process; and

(xi) firefighting equipment.

2. While calculating the investment in plant and machinery referred to in paragraph

1, the original price thereof, irrespective of whether the plant and machinery are

new or second hand, shal be taken into account provided that in the case of

imported machinery, the fol owing shal be included in calculating the value,

namely;

(i) Import duty (excluding miscel aneous expenses such as transportation

from the port to the site of the factory, demurrage paid at the port);

(i ) Shipping charges;

(i i) Customs clearance charges; and

(iv) Sales tax or value added tax.

Memorandum of Micro, Smal and Medium Enterprises

According to Section 8(1) of the MSMED Act, 2006 Any person who intends to

establish,

a. a micro or smal enterprise, may, at his discretion, or

b. a medium enterprise engaged in providing or rendering of services may,

at his discretion; or

c. a medium enterprise engaged in the manufacture or production of goods

pertaining to any industry specified in the First Schedule to the Industries

(Development and Regulation) Act, 1951,shall file the memorandum of

mico, smal or, as the case may be, of medium enterprise with such

authority as may be specified by the State Government under sub-section

(4) or the Central Government under sub-section (3):

Provided that any person who, before the commencement of this Act,

established

8

HANDBOOK FOR MSME ENTREPRENEURS

a. a smal scale industry and obtained a registration certificate, may,

at his discretion; and

b. an industry engaged in the manufacture or production of goods

pertaining to any industry specified in the First Schedule to the

Industries (Development and Regulation) Act, 1951, having investment

in plant and machinery of more than one crore rupees but not

exceeding ten crore rupees and, in pursuance of the notification of

the Government of India in the erstwhile Ministry of Industry

(Department of Industrial Development) number S.O. 477(E) dated

the 25th July, 1991 filed an Industrial Entrepreneur’s Memorandum

shal within one hundred and eighty days from the commencement

of this Act, file the memorandum, in accordance with the provisions

of this Act.

Section 8(2) provides that the form of the memorandum, the procedure of its filing

and other matters incidental thereto shal be such as may be notified by the

Central Government after obtaining the recommendations of the Advisory

Committee in this behalf.

Section 8(3) states that the authority with which the memorandum shall be filed

by a medium enterprise shall be such as may be specified by notification, by the

Central Government.

Section 8(4) provides that the State Government shall, by notification, specify the

authority with which a micro or small enterprise may file the memorandum.

As per Section 8(5) The authorities specified under sub-sections (3) and (4) shal

fol ow, for the purposes of this section, the procedure notified by the Central

Government under sub-section (2).

Udyog Aadhar Memorandum

Ministry of Micro, Small and Medium Enterprises (MSME) has notified the Udyog

Aadhaar Memorandum (UAM) under the MSMED Act, 2006 vide gazette

notification [SO No. 2576(E)] dated 18-09-2015 in order to promote ease of doing

business for MSMEs.

The Salient features of Udyog Aadhaar are:-

• Registration is online and user-friendly

• Udyog Aadhaar Memorandum (UAM) can be filed on self-declaration

basis

• No documentation required

HANDBOOK FOR MSME ENTREPRENEURS

9

• No Fee for filing

• File more than one Udyog Aadhaar with same Aadhaar Number

Further, the Ministry of Micro, Small and Medium Enterprises vide Notification S.O.

85(E) dated 10th January, 2017 in exercise of the powers conferred by sub-section

(2) of the section 8 of the Micro, Small and Medium Enterprises Development Act,

2006 (27 of 2006) and in supersession of the notification of the Government of

India in the Ministry of Micro, Smal and Medium Enterprises number S.O. 2576(E),

dated the 18th September, 2015, published in the Gazette of India, Extraordinary,

Part I , Section 3, Sub-section (i ), dated the 21st September, 2015 except as respects

things done or omitted to be done before such supersession, the Central

Government after undertaking a review of the implementation of Udyog Aadhaar

Memorandum, hereby specifies that any micro, smal and medium enterprise

shal file Udyog Aadhaar Memorandum, referred to as the memorandum) in

Form I inaccordance with the fol owing procedure, namely:-

(1) The memorandum shal be filed online on the website of the Ministry of

Micro, Small and Medium Enterprises, Government of India at http://

udyogaadhar.gov.in

(2) Every micro, small and medium engaged in the manufacturing of goods

or rendering of services with total investment in plant and machinery

below the limit specified in section 7 of the said Act, shall file the

memorandum;

(3) The memorandum shal be filed only after establishing the unit, obtaining

all regulatory approvals and starting commercial operations;

(4) Any number of activities including manufacturing or service or both may

be specified in the memorandum;

(5) The proprietor in the case of a proprietorship firm, managing partner in

the case of a partnership firm and a karta in the case of a Hindu Undivided

Family (HUF), shall provide his Aadhaar Number in the memorandum;

(6) In case .of a company or a limited liability partnership or a cooperative

society or a society or a trust, Permanent Account Number (PAN) of the

organisation along with Aadhaar number of the authorised signatory shal

be specified in the memorandum;

(7) A ‘one time password (OTP) for verification of the fresh memorandum as

wel as amending of the existing memorandum shall be sent on mobile

phone linked to the Aadhaar Number of the applicant and the applicant

shall enter the OTP in the form before submitting the memorandum;

10

HANDBOOK FOR MSME ENTREPRENEURS

(8) The memorandum shal be filed on self certification basis and no additional

document is required to be uploaded at the time of such filing: Provided

that the Central Government or the State Government or such person as

may be authorized in this behalf may seek documentary proof of the

information provided in the memorandum, wherever necessary;

(9) Udyog Aadhaar Acknowledgment in Form I to this notification along with

a unique Udyog Aadhaar Number (UAN) shall be generated and mailed

to the email address provided in the memorandum;

(10) There shall be no fee for filing the Udyog Aadhaar Memorandum;

(11) In case an applicant or the authorised signatory does not have Aadhaar

Number or in cases where online filing is not possible for any reason, a

hard copy of the duly fil ed form I, shall be submitted to the concerned

District Industries Center (DIC) or to the Office of the Micro, Smal &Medium

Enterprise - Development Institute (MSME-DI) under the Development

Commissioner, MSME and the concerned DIC or MSME-DI shal file the

Udyog Aadhaar Memorandum online, on the behalf of such enterprise;

(12) Existing enterprises which have filed Entrepreneurship Memorandum-I

or the holders of Small Scale Industry registration, prior to the coming into

force of the Micro, Smal and Medium Enterprise Development Act 2006

(27 of 2006) shal not be required to file Udyog Aadhaar Memorandum,

but if they so desire they may also file the Udyog Aadhaar Memorandum;

(13) No enterprise shall file more than one memorandum;

(14) In case of change in address or addition or deletion of activities by the

enterprises or for other changes, the proprietor or the managing partner

or an authorized person may apply for amendment of the existing

memorandum in accordance with the guidelines for filing the online Udyog

Aadhaar Form provided in the website of the Ministry of Micro, Small and

Medium Enterprises, at http://udyogaadhaar.gov.in.The procedure for

amendment in the Udyog Aadhaar Memorandum would be same as that

for filing new Memorandum;

(15) General Manager of the District Industries Center of the concerned district

shall be authorised to undertake enquiry for verifying the memorandum

submitted by the enterprise and in case of any discrepancy, he shal issue

a notice to the enterprise, giving it an opportunity to present its case and

based on the findings, the authorised officer may amend or cancel the

memorandum;

(16) UAM registration has replaced Entrepreneurship Memorandum-If (EM-I )

HANDBOOK FOR MSME ENTREPRENEURS

11

and Smal Scale Industry Registration for al purposes. Central or State

Government regulatory bodies, tax authorities, utilities providing water,

power, etc. banks and other financial institutions and similar organisations

should accept UAM in place of EM - I for all purposes. Earlier there was a

provision to take Enterprise Memorandum-I (EM-I) registration before

setting up an enterprise. Applicants used to file applications for obtaining

utilities, building plan approval from local bodies, consent to establish

from State Pol ution Control Board or applying for term loan from bank or

a financial institution to set up the enterprise along with a copy of EM-I.

UAM registration is given after an enterprise starts commercial operations.

Now there is no registration before establishing an enterprise. The practice

of EM-I registration is stopped. There is no counterpart document to EM-I.

Therefore, utilities, local bodies, regulatory bodies, tax authorities, banks

and financial institutions and other similar bodies should not ask for EM-

I from the applicants who want to set up an enterprise.

[F. No. A-541l12014-CDN]

MANOJ JOSHI, Jt. Secy.

FORM-I

UDYOG AADHAR

Type of Enterprise

Micro Small Medium

Manufacturing

A

B

C

Service

D

E

F

UDYOG AADHAR MEMORANDUM

1.

Aadhaar Number

2.

PAN Number*

3.

Name of Entrepreneur

4.

Social Category

SC

ST

OBC

General

5.

Gender

Male

Female

6.

Physically Handicapped

Yes

No

7.

Name of Enterprise

8.

Type of Organisation **

12

HANDBOOK FOR MSME ENTREPRENEURS

9.

Location of Plant(s)/

Flat/Door/Block No.

Enterprise(s)

Name of Premises/

Area/Locality

Building/Vil age

Road/Street/ Lane

Pin Code

City

District

State

10. Official Address of

Enterprise

Please enter mobile

District

State

Pin

number as in aadhaar

for which OTP to be

Mobile No:

Email:

sent

11. Date of

commencement

12. Previous Registration

SSI

Number-if any

EM-I

EM-2

13. Bank Details

IFS Code:

Bank Account:

14. Major Activity

Manufacturing

Service

15. National Industry

Classification Code

16. Persons employed

17. Investment

(Plant and Machinery/

Equipment's)

18. District Industries

Centre

HANDBOOK FOR MSME ENTREPRENEURS

13

Declaration

I hereby declare that information given above is true to the best of my

knowledge. Any information, that may be required to be verified, shall be

provided immediately before the concerned authority.

Submit

* In case of a company or a limited liability partnership or a cooperative society

or a society or a trust.

**(1) Proprietary, (2) Hindu Undivided Family (HUF), (3) Partnership, (4) Co-

Operative, (5) Private Limited

Company, (6)Public Limited Company, (7)Self Help Group, (8) Others

UDYOG AADHAR

Type of Enterprise

Micro Small Medium

Manufacturing

A

B

C

Service

D

E

F

Udyog Aadhaar Acknowledgement

Udyog Aadhaar

Number

Name of Enterprise

Location of Plant(s)/

Flat/Door/Block No.

Enterprise(s)

Name of premises/

Building/Vil age

Road/Street/ Lane

Area/Locality

City

Pin Code

State

District

14

HANDBOOK FOR MSME ENTREPRENEURS

Official Address of

Enterprise

District

State

Pin

Mobile No.:

Email:

Date of

Commencement

Major Activity

Manufacturing

Service

Enterprise Type

Micro

Small

Medium

National Industry

Classification

Code(s)

Previous Registration

SSI

Number-if any

EM-I

EM-2

Acknowledgement

Date of Filing

Date of Printing

Disclaimer: This is computer generated statement no signature required. Printed

from udyogaadhaar.gov.in

14

HANDBOOK FOR MSME ENTREPRENEURS

15

Distribution of Micro, Smal & Medium Enterprises as per UAM Filing

Source : Annual Report 16-7, Ministry of MSME

UAM as per Social Category-SC, ST, OBC on December 31, 2016

Source: Annual Report 16-7, Ministry of MSME

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HANDBOOK FOR MSME ENTREPRENEURS

Share of UAMs-Manufacturing & Service

Source : Annual Report 16-7, Ministry of MSME

Micro, Small and Medium Enterprises Development (Furnishing of

Information) Rules, 2016

In exercise of powers conferred by clause (e) of subsection (2) of Section 29 of the

MSMED Act, 2006 and in supersession of the MSMED (Furnishing of Information)

Rules, 2009, Ministry of Micro, Smal and Medium Enterprises has notified MSMED

(Furnishing of information) Rules, 2016 vide Gazette Notification of. GSR 750(E)

dated 29 July 2016.

Details of the MSMED (Furnishing of information) Rules, 2016 are as under:

Rule 2. Definitions

(1) In these rules, unless the context otherwise requires,-

(a) “Act” means the Micro, Smal and Medium Enterprises Development

Act, 2006 (27 of 2006);

(b) “information” means any information furnished by an enterprise

under rule 3 and includes any data or document in hard copy or soft

copy.

(2) Words and expressions used in these rules and not defined but defined in

the Act shall have the meanings respectively assigned to them in the Act.

16

HANDBOOK FOR MSME ENTREPRENEURS

17

Rule 3. Al micro, small and medium enterprises shall furnish the information

relating to their enterprise to the Government in the Form annexed to these rules.

Rule 4. The information referred to in rule 3 shall be furnished online to the

Central Government in the data bank maintained by it at www.msmedatabank.in.

FORM

(See rule 3)

Data Bank

Basic Details

• Aadhaar Number:*

......................................

• UdyogAadhaar Number *Get Udyog Aadhaar:

......................................

• PAN Number:*

......................................

• Button to Validate and Get Details * Validate UAN

......................................

• Enterprise Name:*

......................................

• Category Unit Size:*

......................................

• Organization Type:*

......................................

• Major Activity:*

......................................

• State:*

......................................

• District:*

......................................

• Pin code:*

......................................

• Commencement Date:*

......................................

• Email ID: *

......................................

• Mobile Number: *

......................................

• Communication address:*

......................................

• Enterprise Social Category:*

......................................

• Authorised Person Name:*

......................................

• Nature of Operation:*

......................................

• Cluster Name ( If Any):

......................................

• Website:

......................................

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HANDBOOK FOR MSME ENTREPRENEURS

• Any Special Category of Entrepreneur

( ) Ex-Serviceman

( ) Person with Disability

( ) Woman

( ) Minority

• ( ) Registered in the Factory Act 1948?

• ( ) Unit is an Ancil ary?

• ( ) Registered in Shop and Establishment Act?

If any, other, please specify

......................................

Factory and Product Details

• Enterprise Address: *

......................................

State: *

......................................

District *

......................................

Pin Code:

......................................

• Person Employed:*

......................................

Installed Capacity (Per Annum):*

Quantity: ........................................

Unit : ..........................................

• Investment on Machinery/Plant

(Rs. in lacs):*

......................................

• Power load:*

H.P. ........................................

K.W.: ........................................

• Enterprise Product Description:

......................................

• Major Raw Material used:

1. ........................................................

2. .......................................................

3. .......................................................

• Major Buyers:

• Turnover Last year (Rs. in lacs):

.....................................................

• Upload more products: (Upload pdf/doc file max size limit is 1 MB)

Add Product Details

Product Name ..................................

Product Code ......................................

HANDBOOK FOR MSME ENTREPRENEURS

19

Production Capacity ..........................

Production measurement unit

............................................ (Add)

Please provide valid unit

For ‘Verification and Capacity Certification’, Please click here

Other Details

Bank Name : .....................................................................................................................

Bank Account No. ...................................................... IFSC Code: ..................................

Add Assistance Details

Taken From ...................................................... Scheme Name ........................................

.............. on date ...................................................... (Add)

Add Association Details

Association Name ... ....................................... .......... Since date ................. ...................

................. (Add)

Hand Holding by Development Organisation (If Applicable)

Select Office Name: ......................................................

Add Appreciation/Award Details

Appreciation/Award Name ...................................

Details ............. .....................

On Date ...................................

................................... (Add)

Additional Requirements

1. Are you using Solar Energy in your organisation/Factory?

.................................... (H.P.) ............................... (K.W.)

If No, do you wish to use it? .............................................. (H. P.) .............................

......................... (K. W.)

2. Have you got energy audit done for your unit? ......................................................

3. Do you have Joint Venture?... ....... ....... ....... ........ ....... ....... ....... ....... ....... ....... ....

If YES, Please provide details.......................................................

If No, Do you wish to plan , Joint Venture?..........................................................

4. Are you exporting? .................................................................................................

If Yes, Please provide country name

20

HANDBOOK FOR MSME ENTREPRENEURS

1. ......................................................

2. ......................................................

3.......................................................

5. Wil you be interested in foreign fairs? ......................................................

6. Do you have our own brand?......................................................

If yes please provide Brand name ......................................................

7. Will you be interested in availing Marketing Assistance Scheme?

......................................................

8. Do you intend to participate in Public procurement? .............................

.........................

9. Do you wish to upgrade Technology ...................................................................

If Yes please specify ....................................................................................................

10. Do you wish to import Technology? .....................................................................

If YES, Please specify country. ............................................................. Details

......................................................

11. Do you intend to transfer your Technology to other MSEs?

...................................................... Please specify......................................................

12. Is your enterprise ISO certified’? ..........................................................................

13. Is your enterprise has quality certification? ..............................................................

Please specify ..........................................................................

14. Wil you be interested in Credit facilitation? .............................................................

15. Have you ever been Black listed?..........................................................................

Al (*) marked fields are mandatory

*...................................... This is to certify that the information furnished in the Data bank is true and correct to the best of my knowledge and belief.

...................................... Would you like to avail insurance with discounted premium?

• registering authority is seen as proof of being MSME and is required to avail the

benefits sanctioned for MSMEs.

HANDBOOK FOR MSME ENTREPRENEURS

21

SECTION III

MSME REGISTRATON

MSME units should seek registration with the Director of Industries of the concerned

State Government. Al classes of enterprises, whether Proprietorship, Hindu

undivided family, Association of persons, Co-operative society, Partnership firm,

Company or Undertaking, by whatever name cal ed can apply for the registration

and get qualified for the benefits provided under the Act.

The main purpose of Registration is to maintain statistics and maintain a rol of

such units for the purposes of providing incentives and support services. States

have general y adopted the uniform registration procedures as per the guidelines.

However, there may be some modifications done by States.

Objectives of the registration are as under:

1. To enumerate and maintain a rol of smal industries to which the package

of incentives and support are targeted.

2. To provide a certificate enabling the units to avail statutory benefits mainly

in terms of protection.

3. To serve the purpose of col ection of statistics.

4. To create nodal centres at the Centre, State and District levels to promote

SSI.

Benefits of Registration

The registration scheme has no statutory basis. Units would normal y get

registered to avail some benefits, incentives or support given either by the Central

or State Govt. Benefits available under the MSMED Act. Registration of Micro,

Small and Medium (MSM) Enterprises under MSMED Act is a very powerful

medium to enjoy the regime of incentives offered by the Centre generally contain

the fol owing:

 Easy finance availability from Banks, without col ateral requirement

 Protection against delay in payment from Buyers and right of interest on

delayed payment

21

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HANDBOOK FOR MSME ENTREPRENEURS

 Preference in procuring Government tenders

 Stamp duty and Octroi benefits

 Concession in electricity bil s

 Reservation policies to manufacturing / production sector enterprises

 Time-bound resolution of disputes with Buyers through conciliation and

arbitration

 Reimbursement of ISO Certification Expenses

 Credit prescription (Priority sector lending), differential rates of interest etc.

 Excise Exemption Scheme

 Exemption under Direct Tax Laws.

 Financial Assistance for setting up testing facilities through NSIC

 Statutory support such as reservation and the Interest on Delayed Payments

Act.

 Subsidy on ISO Certifications

 Subsidy on NSIC Performance and Credit ratings

 Participation in Government Purchase registrations

 Registration with NSIC

 Counter Guarantee from Government of India through CGSTI

 Waiver in Earnest Money (Security Deposit ) in Government tenders

 Stamp duty and Octroi benefits,

 Weightage in price Preference.

 Reduction in rate of Interest from banks (Subject to ratings)

 Free of Cost Government tenders

HANDBOOK FOR MSME ENTREPRENEURS

23

SECTION IV

HOW TO SET UP MSME

Fol owing major steps are included in the formation of MSMEs in India

• Project Selection

• Technology and Machinery

• Arranging Finance

• Unit Development

• Udyog Aadhaar Memorandum

• Clearances

• Quality Certification

Project Selection

Choosing a Project to start can be a difficult undertaking, especially if you have a

lot of ideas, but just cannot make up your mind. But even if you have no idea

about what project to start, you have to consider a number of factors in your

decision making process.

First few questions that you should ask yourself:-

– Is it a viable business proposition in your area?

– Does it match the needs of your clientele?

– Does the idea fire up your motivation?

– Is it a sunrise industry?

Fol owing factors are also to be kept in mind:-

– Check it out with basic market research

– Test it out at market place

– Consult with the experts

– Look out for competition in the field

23

24

HANDBOOK FOR MSME ENTREPRENEURS

– Your business opportunity

– Project conceptualization

Also taken into consideration fol owing concepts i.e., –

 PRODUCT (Shape, Size and Nature)

 PROCESS (Technology to produce the product)

 PLACE (Location of Plant)

 PARTNER (Technological of Financial Col aborator)

Once the product is finalised, choices of process technology emerge.

Technology and Machinery

Process Selection

Choices of process technology emerge once the product is finalized. For some

complex products, process know how has to be imported. In such cases

agreements for technology transfer should be made with due care to safeguard

interest. A lot of appropriate technology is being developed at CSIR and Defence

Research Labs and some of this technology can now be bought. Indigenously

developed process know-how has intrinsic benefits such as appropriateness

and relative inexpensiveness.

While checking out on a process technology, the fol owing things need to be

considered with utmost care:

Whether process requires very high level of skil ed workers or complex machines?

Whether process requires large quantities of water and/or power?

Whether any process or product patent needs to be honored while utilising the

selected process technology.

Any special pol ution or environmental regulations.

Final y, the appropriateness to the Indian environment and conditions. Machinery

and equipment

One of the major deficiencies in the micro, smal and medium enterprises

scenario is the prevalence of outdated production and management methods

hindering the efficient operation of micro, small and medium-scale units. It was

also found that the most important reason for the reluctance of the small

industrialists to instal modern machinery and equipment was the lack of investible

funds. The main objective of National micro, small and medium enterprises

(NMSME) is to provide machinery and equipment to smal industrial units offering

them long repayment period with moderate rate of interest.

HANDBOOK FOR MSME ENTREPRENEURS

25

NSIC procedures for hire purchase of machinery

The hire purchase application is to be made on the prescribed form.

The Director of Industries of the State under whose jurisdiction the applicant falls,

forwards the application to the head office of the NSIC at Delhi with his

recommendation and comments.

All applications for indigenous or imported machines are considered by

acceptance committees comprising of the representatives of the Chief Control er

of Imports, Development Commissioner, micro, small and medium enterprises

and other concerned departments.

Decision of these committees is conveyed to the parties concerned with copies

to the regional offices of the NSIC and the concerned Directorate of Industries.

Once all these formalities are completed by the hirer, instructions are sent to the

suppliers to dispatch the consignment (duly insured for transit risk) to the hirer

and to send the R/R or C/R as the case may be, to the regional office

The NSIC after ensuring that all dues have been paid by the hirer releases the R/

R or C/R to him for taking delivery of the machines.

In case of imported machines, the procedure is slightly different in as much as

the shipping documents are sent to the clearing agents for clearing the

consignment from the Customs and dispatching it to the hirer.

Value of machines that can be supplied

Rs. 7.5 Lacs, F.O.R. or landed cost as the case may be.

Earnest Money

5% or 10% of the value of machinery depending on whether the equipment is

imported or indigenous. In the case of furnaces and a few other items of

equipment, the rate of earnest money is different. Interest 9 per cent per annum

with a rebate of 2 per cent on payment. This interest is calculated on the value of

machines outstanding after deducting payment of earnest money.

Administrative Charge

2 per cent on the sales value of machines and its recovery by the NSIC is spread

over the total instalment period.

Period of Repayment

The value of the machines, after deducting the earnest money received, cal ed

the Balance Value, is payable along with interest and administrative charge in 7

years.

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HANDBOOK FOR MSME ENTREPRENEURS

The first installment is payable after one year and six months from the delivery of

machines.

The second and subsequent installment are payable half-yearly thereafter.

Gestation Period

In case of certain type of machines which become operative immediately on

instal ation in the service sector industries and job order establishment, a gestation

period of only 6 months shall be allowed both to the new and existing units.

A rebate of 2% per annum is allowed on the interest rates, in case an installment

is paid on or before the due date.

In case the payment of instal ment is not made within one month of the specified

due date, interest @ 2% per annum over and above the normal rate is charged on

the defaulted amount from the date of default to the date of actual payment.

Remission in interests is allowed in case one or more than one instal ment is

paid in advance of the due date(s).

Now the Place and Right Partner has to be selected and Project Report has to be

prepared.

Arranging Finance

Need of Finance are of fol owing type:-

• Long and medium term loans

• Short term or working capital requirements

• Risk Capital

• Seed Capital/Marginal Money

• Bridge loans

Financial assistance in India for MSME units is available from a variety of

institutions. The important ones are:-

• Commercial/Regional Rural/Co-operative Banks.

• SIDBI: Small Industries Development Bank of India (refinance and direct

lending)

• SFCs/SIDCs: State Financial Corporations (e.g. Delhi Financial Corporation)/

State Industrial Development Corporations.

For loans from financial institutions and commercial banks a formal application

needs to be made. The details of documentation that need to be provided with

HANDBOOK FOR MSME ENTREPRENEURS

27

the loan application are indicated below:

• Documentation for Loan Application

• Balance Sheet and Profit Loss Statement for last three consecutive years

of firms owned by promoters

• Income Tax Assessment Certificates of Partners/Directors

• Proof of Possession of Land/Building

• Architect’s estimate for construction cost

• Partnership deed/Memorandum and Articles of Associations of Company

• Project Report

• Budgetary Quotations of Plant and Machinery

A sanction or rejection letter is issued by bank after its assessment of the

application. After receiving a sanction letter, applicants need to indicate in writing

their acceptance of terms and conditions laid down by FI/Banks.

Subsequently, loan is disbursed according to the phased implementation of the

project. There are other sources apart from commercial banks and Government

owned financial institutions. These sources of finance include venture capital

funds and non-government finance companies.

Sources of finance for MSME (6th Economic Census)

78%

Self Finance

11%

7%

Donations/

Financial

Transfer from

Assistance

other

agencies

Sources of from Govt.

Sources

Finance

1%

for MSME

2%

Loan from

Borrowing

Self Help

from financial

Group

institutions

1%

Borrowing

from Non-

institutions/

Money

Lenders

Source: Annual Report 16-7, Ministry of MSME

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HANDBOOK FOR MSME ENTREPRENEURS

Unit development

Setting up an establishment is much more than putting a signboard up and

waiting for customers to walk in. It requires negotiating a favourable plot or shed

purchase, organising for proper construction of building, design of interiors and

finding good deals for equipment and machinery.

Construction of Building

Once an industrial plot for the unit is secured, then the next job is that of finding a

suitable architect. Design of factory building has to be in consonance with the

type of industry and have an appropriate plant layout.

An architect’s estimate of building construction is essential for loan applications.

Further, architect’s certificate for money spent on building is needed for

disbursement of loan.

Getting the Utility Connections

Among the utilities of prime importance are power and water. In many cases

getting power connection causes delay in setting up of plant. Therefore it is

imperative to commence work on these aspects with diligent fol ow up. Power

connections are generally of either LT (Low Tension) or HT (High-tension) type. If

connected load is upto 75 HP, LT connection is provided. For connected loads of

130 HP or higher only HT connection is provided.

A formal application needs to be made in a specified form to the state electricity

board. An electrical inspector is deputed for evaluation of application to factory

site, after which the load is sanctioned. In areas of power shortage, it is advisable

to augment the power supply with a captive generating set.

Water connection is also obtained likewise by applying in advance in formal

forms. The water supply can be augmented by installation of tubewell.

Getting 3M’s Right

Men

Projections for manpower and staffing are made in the project report. However it

is necessary to time the induction of manpower in a planned manner. The

engineers and operatives must be available before the instal ation of the

machinery.

Machinery

Choosing and ordering of right machinery is also of paramount importance. In

HANDBOOK FOR MSME ENTREPRENEURS

29

many cases technology or process provides us with specification which is not

provided, then an extensive techno-economic survey of machinery and

equipment available must be carried out. International trade fairs and engineering

fairs are good places to look at available options. The entrepreneur must also

consult experts, dealers / suppliers as well as users, prior to making a selection

of equipment and machinery. The advice of DIC, MSMEI and NSIC can also be

sought.

Materials

Materials procurement and planning are critical to success, of a start-up with a

MSME unit. Inventory management can lead to manageable cash flow situations;

otherwise if too much is ordered too soon considerable amount of working capital

gets locked up. On the other hand, non-availability may result in production hold-

ups, and idle machine and manpower. For essential imported raw material whose

lead-time is large proper planning is all the more essential.

Udyog Aadhar Memorandum

On line filing of Udyog Aadhar Memorandum

Clearances

An entrepreneur has to obtain several clearances or permissions depending

upon the nature of his unit and products manufactured.

 Environment Clearance

 Regulatory or Taxation Clearances

 Product Specific Clearances

Quality certification

Quality certification has become extremely important in competitive markets and

especial y in gaining foothold in exports. To avail the certification of ISO , a unit

has to undertake significant costs; the smal scale industries have been found

wanting mainly on account of resource crunch to implement quality systems to

obtain this certification.

30

HANDBOOK FOR MSME ENTREPRENEURS

SECTION V

MASTER DIRECTION – RESERVE BANK OF INDIA [LENDING TO MICRO,

SMALL & MEDIUM ENTERPRISES (MSME) SECTOR] - DIRECTIONS, 2016

In exercise of the powers conferred by Sections 21 and 35 A of the Banking

Regulation Act, 1949, the Reserve Bank of India, being satisfied that it is necessary

and expedient in the public interest to do so, hereby, issued the Master Direction

- Lending to Micro, Small & Medium Enterprises (MSME) Sector.

The provisions of the Master Direction - Lending to Micro, Smal & Medium

Enterprises (MSME) Sector shal apply to every Scheduled Commercial Bank

{excluding Regional Rural Banks (RRBs)} licensed to operate in India by the Reserve

Bank of India.

Definitions/ Clarifications

The MSMED Act, 2006 means ‘Micro, Small and Medium Enterprises

Development (MSMED) Act, 2006’ as notified by the Government of India on June

16, 2006 and the amendments, if any, carried out therein by the Government of

India from time to time.

‘Micro, Smal and Medium Enterprises’ mean the enterprises as defined in the

MSMED Act, 2006 and the amendments, if any, carried out therein by the

Government of India from time to time.

‘Manufacturing’ and ‘Service’ Enterprises mean the enterprises as defined in

the MSMED Act, 2006 or as notified by the Government of India, Ministry of MSME

under the MSMED Act, 2006 from time to time.

‘Priority Sector’ means the sectors as defined in Master Direction - Reserve

Bank of India (Priority Sector Lending –Targets and Classification) Directions, 2016

dated July 7, 2016 or as modified from time to time.

‘Adjusted Net Bank Credit (ANBC)’ would mean Adjusted Net Bank Credit (ANBC)

as defined in Master Direction - Reserve Bank of India (Priority Sector Lending –

Targets and Classification) Directions, 2016 dated July 7, 2016 or as modified from

time to time.

30

HANDBOOK FOR MSME ENTREPRENEURS

31

Manufacturing Enterprises i.e. Subject to the definition in MSMED Act, 2006,

manufacturing enterprises would mean enterprises engaged in the manufacture

or production of goods as specified below:

(i) A micro enterprise is an enterprise where investment in plant and

machinery does not exceed Rs. 25 lakh;

(i ) A small enterprise is an enterprise where the investment in plant and

machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore; and

(i i) A medium enterprise is an enterprise where the investment in plant and

machinery is more than Rs.5 crore but does not exceed Rs.10 crore.

In case of the above enterprises, investment in plant and machinery is the original

cost excluding land and building and the items specified by the Ministry of Small

Scale Industries vide its notification No.S.O. 1722(E) dated October 5, 2006 .

Service Enterprises i.e. Enterprises engaged in providing or rendering of services and whose investment in equipment (original cost excluding land and building

and furniture, fittings and other items not directly related to the service rendered

or as may be notified under the MSMED Act, 2006) as specified below:

(i) A micro enterprise is an enterprise where the investment in equipment

does not exceed Rs. 10 lakh;

(i ) A small enterprise is an enterprise where the investment in equipment is

more than Rs.10 lakh but does not exceed Rs. 2 crore; and

(i i) A medium enterprise is an enterprise where the investment in equipment

is more than Rs. 2 crore but does not exceed Rs. 5 crore.

Priority Sector Guidelines for MSME sector

In terms of Master Direction FIDD.CO.Plan.1/04.09.01/2016-17 dated July 7, 2016

on ‘Priority Sector Lending - Targets and Classification’, bank loans to Micro,

Small and Medium Enterprises, for both Manufacturing and Service sectors are

eligible to be classified under the Priority Sector as per the fol owing norms:

Manufacturing Enterprises

The Micro, Smal and Medium Enterprises engaged in the manufacture or

production of goods to any industry specified in the first schedule to the Industries

(Development and Regulation) Act, 1951 and as notified by the Government from

time to time. The Manufacturing Enterprises are defined in terms of investment in

plant and machinery.

32

HANDBOOK FOR MSME ENTREPRENEURS

Service Enterprises

Bank loans up to Rs.5 crore per borrower / unit to Micro and Smal Enterprises

and Rs.10 crore to Medium Enterprises engaged in providing or rendering of

services and defined in terms of investment in equipment under MSMED Act,

2006.

Khadi and Vil age Industries Sector (KVI)

Al loans to units in the KVI sector wil be eligible for classification under the sub-

target of 7.5 percent prescribed for Micro Enterprises under priority sector.

Bank loans to food and agro processing units shall form part of agriculture.

Other Finance to MSMEs

(i) Loans to entities involved in assisting the decentralized sector in the supply

of inputs to and marketing of outputs of artisans, vil age and cottage

industries.

(i ) Loans to co-operatives of producers in the decentralized sector viz.

artisans, vil age and cottage industries.

(i i) Loans sanctioned by banks to MFIs for on-lending to MSME sector as per

the conditions specified in the extant Master Direction on ‘Priority Sector

Lending - Targets and Classification’.

(iv) Credit outstanding under General Credit Cards (including Artisan Credit

Card, Laghu Udyami Card, Swarojgar Credit Card, and Weaver’s Card etc.

in existence and catering to the non-farm entrepreneurial credit needs of

individuals).

(v) Overdrafts extended by banks after April 8, 2015 up to Rs.5,000/- under

Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts provided the

borrower’s household annual income does not exceed Rs.100,000/- for

rural areas and Rs.1,60,000/- for non-rural areas. These overdrafts wil

qualify as achievement of the target for lending to Micro Enterprises.

(vi) Outstanding deposits with SIDBI and MUDRA Ltd. on account of priority

sector shortfal .

To ensure that MSMEs do not remain small and medium units merely to remain

eligible for priority sector status, the MSME units shal continue to enjoy the priority

sector lending status up to three years after they grow out of the MSME category

concerned.

Since the MSMED Act, 2006 does not provide for clubbing of investments of

HANDBOOK FOR MSME ENTREPRENEURS

33

different enterprises set up by same person / company for the purpose of

classification as Micro, Small and Medium enterprises, the Gazette Notification

No. S.O.2 (E) dated January 1, 1993 on clubbing of investments of two or more

enterprises under the same ownership for the purpose of classification of industrial

undertakings as SSI has been rescinded vide GOI Notification No. S.O. 563 (E)

dated February 27, 2009.

Targets/sub-targets for lending to Micro, Smal and Medium Enterprises

(MSME) sector by Domestic Commercial Banks and Foreign Banks

operating in India

Advances to Micro, Smal and Medium Enterprises (MSME) sector shal be reckoned

in computing achievement under the overall Priority Sector target of 40 percent of

Adjusted Net Bank Credit (ANBC) or credit equivalent amount of Off-Balance

Sheet Exposure, whichever is higher, as per the extant guidelines on priority

sector lending.

Domestic Commercial Banks are required to achieve a sub-target of 7.5 percent

of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever

is higher, for lending to Micro Enterprises by March 2017. The sub-target for Micro

Enterprises for foreign banks with 20 branches and above operating in India

would be made applicable post 2018 after a review in 2017. However, this sub-

target for lending to Micro Enterprises is not applicable to foreign banks with less

than 20 branches operating in India.

Bank loans above Rs.5 crore per borrower / unit to Micro and Smal Enterprises

and Rs.10 crore to Medium Enterprises engaged in providing or rendering of

services and defined in terms of investment in equipment under MSMED Act,

2006, shall not be reckoned in computing achievement under the overall Priority

Sector targets as above. However, bank loans above Rs.5 crore per borrower /

unit to Micro and Smal Enterprises would be taken into account while assessing

the performance of the banks with regard to their achievement of targets

prescribed by the Prime Minister’s Task Force on MSMEs for lending to MSE

sector.

In terms of the recommendations of the Prime Minister’s Task Force on MSMEs,

banks are advised to achieve:

20 per cent year-on-year growth in credit to micro and small enterprises,

10 per cent annual growth in the number of micro enterprise accounts and

60% of total lending to MSE sector as on preceding March 31st to Micro

enterprises

34

HANDBOOK FOR MSME ENTREPRENEURS

Common guidelines / instructions for lending to MSME sector

1. Issue of Acknowledgement of Loan Applications to MSME borrowers

Banks are advised to mandatorily acknowledge all loan applications, submitted

manually or online, by their MSME borrowers and ensure that a running serial

number is recorded on the application form as wel as on the acknowledgement

receipt. Banks are further advised to put in place a system of Central Registration

of loan applications, online submission of loan applications and a system of e-

tracking of MSE loan applications.

2. Collateral

Banks are mandated not to accept col ateral security in the case of loans up to

Rs.10 lakh extended to units in the MSE sector. Banks are also advised to extend

col ateral-free loans up to Rs. 10 lakh to al units financed under the Prime Minister

Employment Generation Programme (PMEGP) administered by KVIC.

Banks may, on the basis of good track record and financial position of the MSE

units, increase the limit to dispense with the col ateral requirement for loans up to

Rs.25 lakh (with the approval of the appropriate authority).

Banks are advised to strongly encourage their branch level functionaries to avail

of the Credit Guarantee Scheme cover, including making performance in this

regard a criterion in the evaluation of their field staff.

3. Composite loan

A composite loan limit of Rs.1 crore can be sanctioned by banks to enable the

MSE entrepreneurs to avail of their working capital and term loan requirement

through Single Window.

4. Revised General Credit Card (GCC) Scheme

In order to enhance the coverage of GCC Scheme to ensure greater credit linkage

for all productive activities within the overall Priority Sector guidelines and to

capture all credit extended by banks to individuals for non-farm entrepreneurial

activity, the GCC guidelines were revised on December 2, 2013.

5. Credit Linked Capital Subsidy Scheme (CLSS)

Government of India, Ministry of Micro, Smal and Medium Enterprises had

launched Credit Linked Capital Subsidy Scheme (CLSS) for Technology Upgradation

of Micro and Small Enterprises subject to the fol owing terms and conditions:

(i) Ceiling on the loan under the scheme is Rs.1 crore.

(i ) The rate of subsidy is 15% for all units of micro and small enterprises up to

HANDBOOK FOR MSME ENTREPRENEURS

35

loan ceiling at Sr. No. (i) above.

(i i) Calculation of admissible subsidy wil be done with reference to the

purchase price of plant and machinery instead of term loan disbursed to

the beneficiary unit.

(iv) SIDBI and NABARD wil continue to be implementing agencies of the

scheme.

6. Streamlining flow of credit to Micro and Smal Enterprises (MSEs) for

facilitating timely and adequate credit flow during their ‘Life Cycle’:

In order to provide timely financial support to Micro and Small enterprises facing

financial difficulties during their ‘Life Cycle’, guidelines were issued to banks vide

our circular FIDD.MSME & NFS.BC.No.60/06.02.31/2015-16 dated August 27, 2015

on the captioned subject. Banks are advised to review and tune their existing

lending policies to the MSE sector by incorporating therein the fol owing provisions

so as to facilitate timely and adequate availability of credit to viable MSE borrowers

especially during the need of funds in unforeseen circumstances:

i) To extend standby credit facility in case of term loans

i ) Additional working capital to meet with emergent needs of MSE units

i i) Mid-term review of the regular working capital limits, where banks are

convinced that changes in the demand pattern of MSE borrowers require

increasing the existing credit limits of the MSMEs, every year based on the

actual sales of the previous year.

iv) Timelines for Credit Decisions

7. Debt Restructuring Mechanism for MSMEs

(i) Al scheduled commercial banks are advised to fol ow the guidelines /

instructions pertaining to SME Debt Restructuring, as contained in circular

DBR.No.BP.BC.2/21.04.048/2015-16 dated July 1, 2015 on ‘Master Circular -

Prudential norms on Income Recognition, Asset Classification and Provisioning

pertaining to Advances’ and as updated from time to time.

(i ) In the light of the recommendations of the Working Group on Rehabilitation of

Sick MSEs (Chairman: Dr. K.C. Chakrabarty), al commercial banks are advised

vide our circular RPCD. SME &NFS.BC.No.102/06.04.01/2008-09 dated May 4,

2009 to:

(a) put in place loan policies governing extension of credit facilities,

Restructuring/Rehabilitation policy for revival of potential y viable sick units

/ enterprises (now read with guidelines on Framework for Revival and

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HANDBOOK FOR MSME ENTREPRENEURS

Rehabilitation of Micro, Smal and Medium Enterprises issued on March

17, 2016) and non- discretionary One Time Settlement scheme for recovery

of non-performing loans for the MSE sector, with the approval of the Board

of Directors and

(b) implement recommendations with regard to timely and adequate flow of

credit to the MSE sector.

(i i) Banks are advised to give wide publicity to the One Time settlement scheme

implemented by them, by placing it on the bank’s website and through other

possible modes of dissemination. They may al ow reasonable time to the

borrowers to submit the application and also make payment of the dues in order

to extend the benefits of the scheme to eligible borrowers.

8. Framework for Revival and Rehabilitation of MSMEs

The Ministry of Micro, Small and Medium Enterprises, Government of India, vide

their Gazette Notification dated May 29, 2015 had notified a ‘Framework for Revival

and Rehabilitation of Micro, Small and Medium Enterprises’ to provide a simpler

and faster mechanism to address the stress in the accounts of MSMEs and to

facilitate the promotion and development of MSMEs. The Reserve Bank was

advised to issue necessary instructions to banks for effective implementation

and monitoring of the said Framework. After carrying out certain changes in the

captioned Framework in consultation with the Government of India, Ministry of

MSME so as to make it compatible with the existing regulatory guidelines on

‘Income Recognition, Asset Classification and provisioning pertaining to

Advances’ issued to banks by RBI, the guidelines on the captioned Framework

along with operating instructions were issued to banks on March 17, 2016. The

revival and rehabilitation of MSME units having loan limits up to Rs.25 crore

would be undertaken under this Framework. Banks were required to put in place

their own Board approved policy to operationalize the Framework not later than

June 30, 2016. The revised Framework supersedes the earlier Guidelines on

Rehabilitation of Sick Micro and Small Enterprises issued vide circular RPCD. CO.

MSME & NFS.BC.40/06.02.31/2012-2013 dated November 1, 2012, except those

relating to Reliefs and Concessions for Rehabilitation of Potential y Viable Units

and One Time Settlement, mentioned in the said circular.

The salient features of the Framework are as under:

i) Before a loan account of an MSME turns into a Non-Performing Asset

(NPA), banks or creditors should identify incipient stress in the account by

creating three sub-categories under the Special Mention Account (SMA)

category as given in the Framework

HANDBOOK FOR MSME ENTREPRENEURS

37

i ) Any MSME borrower may also voluntarily initiate proceedings under this

Framework

i i) Committee approach to be adopted for deciding corrective action plan

iv) Time lines have been fixed for taking various decisions under the

Framework

9. Structured Mechanism for monitoring the credit growth to the MSE sector

In view of the concerns emerging from the deceleration in credit growth to the

MSE sector, an Indian Banking Association (IBA)-led Sub-Committee (Chairman:

Shri K.R. Kamath) was set up to suggest a structured mechanism to be put in

place by banks to monitor the entire gamut of credit related issues pertaining to

the sector. Based on the recommendations of the Committee, banks are advised

to:

 strengthen their existing systems of monitoring credit growth to the sector

and put in place a system-driven comprehensive performance

management information system (MIS) at every supervisory level (branch,

region, zone, head office) which should be critical y evaluated on a regular

basis;

 put in place a system of e-tracking of MSE loan applications and monitor

the loan application disposal process in banks, giving branch-wise,

region-wise, zone-wise and State-wise positions. The position in this

regard is to be displayed by banks on their websites; and

 monitor timely rehabilitation of sick MSE units. The progress in rehabilitation

of sick MSE units is to be made available on the website of banks.

Institutional arrangements

1. Specialised MSME branches

Public sector banks are advised to open at least one specialised branch in each

district. Further, banks have been permitted to categorise their general banking

branches having 60% or more of their advances to MSME sector as specialized

MSME branches in order to encourage them to open more specialised MSME

branches for providing better service to this sector as a whole. As per the policy

package announced by the Government of India for stepping up credit to MSME

sector, the public sector banks would ensure specialized MSME branches in

identified clusters/centres with preponderance of small enterprises to enable

the entrepreneurs to have easy access to the bank credit and to equip bank

personnel to develop requisite expertise. The existing specialised SSI branches,

if any, may also be redesignated as MSME branches. Though their core

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HANDBOOK FOR MSME ENTREPRENEURS

competence wil be utilized for extending finance and other services to MSME

sector, they wil have operational flexibility to extend finance/render other services

to other sectors/borrowers. Banks may take care to train the officials posted in

such branches appropriately.

2. State Level Inter Institutional Committee (SLI C)

In order to deal with the problems of co-ordination for rehabilitation of sick micro

and smal units, State Level Inter-Institutional Committees were set up in the

States. However, the matter of continuation or otherwise, of the SLI C Forum has

been left to the individual States / Union Territory. The meetings of these

Committees are convened by Regional Offices of RBI and presided over by the

Secretary, MSME or Industry of the concerned State Government. It provides a

useful forum for adequate interfacing between the State Government Officials

and State Level Institutions on the one side and the term lending institutions and

banks on the other. It closely monitors timely sanction of working capital to units

which have been provided term loans by SFCs, implementation of special schemes

such as Margin Money Scheme of State Government and reviews general

problems faced by industries and sickness in MSE sector based on the data

furnished by banks. Among others, the representatives of the local state level

MSE associations are invited to the meetings of SLI C which are held quarterly.

3. Empowered Committee on MSMEs

As part of the announcement made by the Union Finance Minister, at the Regional

Offices of Reserve Bank of India, Empowered Committees on MSMEs are

constituted under the Chairmanship of the Regional Directors with the

representatives of SLBC Convenor, senior level officers from two banks having

predominant share in MSME financing in the state, representative of SIDBI Regional

Office, the Director of MSME or Industries of the State Government, one or two

senior level representatives from the MSME Associations in the state, and a

senior level officer from SFC/SIDC as members. The Committee would meet

periodically and review the progress in MSME financing as also rehabilitation of

sick Micro, Small and Medium units. It would also coordinate with other banks/

financial institutions and the state government in removing bottlenecks, if any, to

ensure smooth flow of credit to the sector. The committees may decide the need

to have similar committees at cluster/district levels.

4. Banking Codes and Standards Board of India (BCSBI)

The Banking Codes and Standards Board of India (BCSBI) has formulated a Code

of Bank’s Commitment to Micro and Small Enterprises. This is a voluntary Code,

which sets minimum standards of banking practices for banks to fol ow when

they are dealing with Micro and Small Enterprises (MSEs) as defined in the Micro

HANDBOOK FOR MSME ENTREPRENEURS

39

Small and Medium Enterprises Development (MSMED) Act, 2006. It provides

protection to MSE and explains how banks are expected to deal with MSE for their

day to-day operations and in times of financial difficulty.

The Code also mentions, inter alia, that the banks are expected to dispose of MSE

loan application for a credit limit or enhancement in the existing credit limit up to

Rs.5 lakh within two weeks; and for credit limit above Rs.5 lakh and up to Rs.25

lakh within 3 weeks; and for credit limit above Rs.25 lakh within 6 weeks from the

date of receipt, provided the application is complete in al respects and is

accompanied by documents as per ‘check list’ provided.

While banks may voluntarily adhere to such time limits in the Code, every effort

should be taken to reduce further the time taken to process and dispose of MSE

loan applications.

The Code does not replace or supersede regulatory or supervisory instructions

issued by the Reserve Bank of India (RBI) and banks wil comply with such

instructions /directions issued by the RBI from time to time.

Objectives of the BCSBI Code

The Code is developed to:

(a) Give a positive thrust to the MSE sector by providing easy access to efficient

banking services.

(b) Promote good and fair banking practices by setting minimum standards

in dealing with MSE.

(c) Increase transparency so that a better understanding of what can

reasonably be expected of the services.

(d) Improve understanding of business through effective communication.

(e) Encourage market forces, through competition, to achieve higher

operating standards.

(f) Promote a fair and cordial relationship between MSE and banks and also

ensure timely and quick response to banking needs.

(g) Foster confidence in the banking system.

5. Micro and Smal Enterprises Sector – The imperative of Financial Literacy

and consultancy support

Keeping in view the high extent of financial exclusion in the MSME sector, it is

imperative for banks that the excluded units are brought within the fold of the

formal banking sector. The lack of financial literacy, operational skil s, including

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HANDBOOK FOR MSME ENTREPRENEURS

accounting and finance, business planning etc. represent formidable challenge

for MSE borrowers underscoring the need for facilitation by banks in these critical

financial areas. Moreover, MSE enterprises are further handicapped in this regard

by absence of scale and size. To effectively and decisively address these

handicaps, Scheduled commercial banks were advised vide circular RPCD.MSME

& NFS.BC.No.20/06.02.31/2012-13 dated August 1, 2012 that they could either

separately set up special cel s at their branches, or vertically integrate this function

in the Financial Literacy Centres (FLCs) set up by them, as per their comparative

advantage. The bank staff should also be trained through customised training

programs to meet the specific needs of the sector.

6. Cluster Approach

Al SLBC Convenor banks are advised to incorporate in their Annual Credit Plans,

the credit requirement in the clusters identified by the Ministry of Micro, Smal and

Medium Enterprises, Government of India. They are also encouraged to extend

banking services in such clusters / agglomerations which have come up and

identified subsequently by SLBC / DCC members.

(i) As per Ganguly Committee recommendations (September 4, 2004), banks

are advised that a ful -service approach to cater to the diverse needs of

the SSI sector (now MSE sector) may be achieved through extending

banking services to recognized MSE clusters by adopting a 4-C approach

namely, Customer focus, Cost control, Cross sel and Contain risk. A cluster

based approach to lending may be more beneficial:

(a) in dealing with well-defined and recognized groups;

(b) availability of appropriate information for risk assessment and

(c) monitoring by the lending institutions.

Clusters may be identified based on factors such as trade record,

competitiveness and growth prospects and/or other cluster specific

data.

(i ) Al SLBC Convenor banks were advised vide letter RPCD.PLNFS.No.10416/

06.02.31/ 2006-07 dated May 8, 2007 to review their institutional

arrangements for delivering credit to the MSME sector, especially in 388

clusters identified by United Nations Industrial Development Organisation

(UNIDO) spread over 21 states in various parts of the country.

(i i) The Ministry of Micro, Small and Medium Enterprises has approved a list

of clusters under the Scheme of Fund for Regeneration of Traditional

Industries (SFURTI) and Micro and Small Enterprises Cluster Development

Programme (MSE-CDP) located in 121 Minority Concentration Districts.

HANDBOOK FOR MSME ENTREPRENEURS

41

Accordingly, appropriate measures have been taken to improve the credit

flow to the identified clusters of micro and small entrepreneurs from the

Minority Communities residing in the minority concentrated districts of

the country.

(iv) In terms of recommendations of the Prime Minister’s Task Force on MSMEs

banks should open more MSE focused branch offices at different MSE

clusters which can also act as Counsel ing Centres for MSEs. Each lead

bank of a district may adopt at least one MSE cluster.

7. Delayed Payment

In the Micro, Small and Medium Enterprises Development (MSMED), Act 2006,

the provisions of the Interest on Delayed Payment Act, 1998 to Small Scale and

Ancil ary Industrial Undertakings, have been strengthened as under:

(i) The buyer has to make payment to the supplier on or before the date

agreed upon between him and the supplier in writing or, in case of no

agreement, before the appointed day. The period agreed upon between

the supplier and the buyer shall not exceed forty five days from the date of

acceptance or the day of deemed acceptance.

(i ) In case the buyer fails to make payment of the amount to the supplier, he

shal be liable to pay compound interest with monthly rests to the supplier

on the amount from the appointed day or, on the date agreed on, at three

times of the Bank Rate notified by Reserve Bank.

(i i) For any goods supplied or services rendered by the supplier, the buyer

shall be liable to pay the interest as advised at (i ) above.

(iv) In case of dispute with regard to any amount due, a reference shall be

made to the Micro and Small Enterprises Facilitation Council, constituted

by the respective State Government.

Further, banks are advised to fix sub-limits within the overall working capital

limits to the large borrowers specifically for meeting the payment obligation in

respect of purchases from MSMEs.

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HANDBOOK FOR MSME ENTREPRENEURS

Guidelines for Special Credit Linked Capital Subsidy Scheme

(SCLCSS) for SC/ST Micro &Smal Enterprises

1. Background

Manufacturing has emerged as one of the high growth sectors in India. 'Make in

India' program has been launched to place India on the world map as a

manufacturing hub and give global recognition to the Indian economy.

Presently, the Ministry of Micro, Smal and Medium Enterprises (MSME) is operating

a scheme for technology upgradation of Micro & Small Enterprises called the

Credit Linked Capital Subsidy Scheme (CLCSS). CLCSS aims at up-gradation of

technology and 15% (subject to maximum of Rs.15.00 lakhs) upfront subsidy on

capital investment for technology upgradation is provided to micro and smal

enterprises for modernization of their production equipment (plant and machinery).

As being the case with MSE sector in general, SC/ST owned MSEs continue with

outdated technology and plant & machinery and due to lack of awareness and

inadequate finance, the problem gets further compounded and put them in

disadvantageous position as they lose out on economy of scale. The existing

CLCSS has been able to benefit negligible number of SC/ST MSEs. The Public

Procurement Policy mandates each Central Ministry/Deptt./PSUs to procure at

least 4% of its total annual procurement requirement from SC/ST owned MSEs. In

order to make SC/ST MSEs more participative in the public procurement, it is

imperative to promote new enterprises and support the existing enterprises in

their expansion. Hence, a new scheme providing assistance in the form of subsidy

for capital investment in plant & machinery, linked to credit, is requirement of the

day.

2. National SC-ST Hub

Hon'ble Prime Minister of India has launched the Scheme of National SC-ST Hub

(NSSH) on 18.10.2016. Ministry of MSME, Govt. of India has formulated a scheme

with an outlay of Rs. 490 crore ( 2016-2020) for creation of NSSH with an objective

to provide professional support to SC/ST enterprises in public procurement ,

adopt applicable industry practices and leveraging Stand-up India initiative. The

Hub is operating out of the National Smal Industries Corporation (NSIC), a CPSE

under Ministry of MSME. In order to achieve the above objectives, the Hub wil be

closely working with various stakeholders including Industry Association,

Incubators, Mentors, MSME-Development Institutes (MSME-Dls), District Industries

Centres (DICs), CPSEs and State Governments.

The guidelines dated 25.7.2016 for creation of National SC-ST Hub, inter-alia,

HANDBOOK FOR MSME ENTREPRENEURS

43

mandates to create Special Credit Linked Capital Subsidy Scheme (CLCSS) with

25% capital subsidy, overall investment ceiling of Rs.1 crore without any restriction

on the sectors or machinery & technology for SC/ST enterprises.

3. Special Credit Linked Capital Subsidy Scheme (SCLCSS) for SC/ST

Micro & Smal Enterprises

i. Objective

The scheme aims at facilitating purchase of plant & machinery by providing 25

per cent upfront capital subsidy to the existing as wel as new SC/ST owned MSEs

on institutional finance availed of by them. The objective of this scheme is to

promote new enterprises and support the existing enterprises in their expansion

for enhanced participation in the public procurement.

i . Scope of the Scheme

• The scheme would cover existing SC/ST MSEs for upgradation or expansion

as well as new SC/ST MSEs.

• The scheme would cover purchase of all plants & machinery without any

restriction on the technologies but subject to Consent/NOC from Pol ution

Control Board.

• Industries covered under RED category as per the Classification of industries

for consent management (Schedule- VII , rules 3(2) and 12 of Ministry of

Environment & Forests, Govt. of India) shall not be eligible for subsidy

under above scheme.

• The scheme shal be applicable only for the purchase of Plant & Machinery

eligible for Term Loan from the Prime Lending Institutions (PLIs).

• This scheme shall be applicable to the eligible enterprises where term

loan has been sanctioned by the PLIs on or after the date of notification of

the scheme.

i i. Eligible Beneficiaries

Sole Proprietorships, Partnerships, Co-operative societies, Private and Public

limited companies owned by SC/ST Entrepreneurs of MSE sector engaged in the

manufacturing activities are eligible for seeking assistance under this scheme.

The existing enterprises should have obtained registration under Udyog

AadhaarMemorandum as well as have enrol ed in the MSME Data Bank.

Office of the DC (MSME), Ministry of MSME vide its memorandum no. F. No. 22(1)/

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HANDBOOK FOR MSME ENTREPRENEURS

2012-MA dated 20th February 2014 clarifies the definition of SC-ST Enterprisesas

under:

Definition of SC/ST Enterprises

a. In case of proprietary MSE, proprietor shall be SC/ST

b. In case of partnership MSE, the SC/ST partners shall be holding at least

51% shares in the unit

c. In case of private limited companies, at least 51% shares shall be held by

SC/ST promoters.

iv. Implementing Agency

The implementing agency would be Office of DC (MSME).

v. Nodal Agencies

The Nodal Agencies approved for CLCSS scheme would act as Nodal Agencies

for SCLCSS also. Accordingly, Small Industries Development Bank of India (SIDBI),

National Bank for Agriculture and Rural Development (NABARD) and below

mentioned banks wil act as nodal banks/agencies for implementation and

release of capital subsidy under the scheme:

1. State Bank of India

2. Canara Bank

3. Bank of Baroda

4. Punjab National Bank

5. Bank of India

6. Andhra Bank

7. State Bank of Bikaner & Jaipur

8. Tamil Nadu Industrial Investment Corporation

The above banks would consider proposals only in respect of credit approved by

their respective branches, whereas, for other Primary Lending Institutions (PLI),

the SIDBI and the NABARD would be the nodal agencies for release of subsidy

under this scheme.

vi. Primary Lending Institutions (PLI)

Al Scheduled Commercial Banks, Scheduled Cooperative Banks [including the

urban cooperative banks co-opted by the SIDBI under the Technological

HANDBOOK FOR MSME ENTREPRENEURS

45

Upgradation Fund Scheme (TUFS) of the Ministry of Textiles], Regional Rural Banks

(RRBs), State Financial Corporations (SFCs) and North Eastern Development

Financial Institution (NEDFI) are eligible as PLI under this scheme after they execute

a General Agreement (GA) with either of the nodal agencies i.e. SIDBI or NABARD.

Details of eligible Scheduled Commercial Banks, SFC, Cooperative Banks [including

urban cooperative banks co-opted by the SIDBI under the Technological

Upgradation Fund Scheme(TUFS) of the Ministry of Textiles]/ and RRBs under this

scheme are provided at Appendix-A.

This scheme shall also be implemented through other Nodal agencies notified

from time to time by Ministry of MSME. Nomination of Nodal Agencies wil be a

continuous process.

vi . Eligibility Criteria

a. Capital subsidy @ 25% of the Term Loan sanctioned for purchase of plant

and machinery shall be available under the Scheme. This would be

applicable for proposals/projects, where Term Loans have been

sanctioned by the PLIs afternotification of this scheme.

b. Eligibility for capital subsidy under the Scheme is not linked to any refinance

Scheme of the Nodal Agency (ies). Hence, it is not necessary that the PLI

wil have to seek refinance in respect of the term loans sanctioned by

them from any of the refinancing Nodal Agencies.

c. SC/ST Units graduated from small scale to medium scale are eligible for

subsidy under SCLCSS for a period of three years from the date of graduation.

d. Industry graduating from smal scale to medium scale on account of

sanction of additional loan under this scheme shal be eligible for

assistance.

vi i. Subsidy & Ceiling on eligible loan amount

• Under the scheme, 25 per cent capital subsidy, limited to maximum of Rs.

25 lakh is provided to the SC/ST Micro and Smal Enterprises on institutional

finance availed of by the eligible SC/ST Enterprises for purchase of Plant &

Machinery in the form of Term Loan. The maximum eligible loan under

this scheme is Rs. 1 Crore for capital investment in Plant & Machinery.

• SC/ST owned MSEs who have already availed subsidy under the existing

CLCSS, before the date of notification of this scheme, cannot claim additional

subsidy on account of difference in the rate of subsidy which is now

permissible under this scheme.

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HANDBOOK FOR MSME ENTREPRENEURS

• In calculating the value of plant & machinery, the fol owing shall be

excluded, namely:

a. The cost of equipments such as tools, jigs, dies, moulds and spare

parts for maintenance and the cost of consumable stores;

b. The cost of instal ation of plant & machinery;

c. The bank charges /service charges paid to the State Smal Industries

Corporation;

d. The cost involved in procurement or instal ation of cables, wiring,

bus bars, electrical control panels (not those mounted on individual

machines), oil circuit breakers or miniature circuit breakers which

are necessarily to be used for providing electrical power to the plant

& machinery or for safety measures;

e. Transportation charges (excluding of sales-tax and excise) for

indigenous machinery from the place of manufacturing to the site of

the factory;

f. Charges paid for technical know-how for erection of plant &

machinery;

g. Cost of such storage tanks which store raw materials, finished

products only and are not linked with the manufacturing process;

and

h. Cost of fire-fighting equipment.

ix. Duration of the Scheme

The Scheme shal remain valid til 31-3-2020 subject to availability of funds which

means that subsidy to PLIs can be disbursed up to 31-03-2020. Further continuation

of the Scheme shal be subject to review/ evaluation.

x. Working Capital Requirements

Since success of this scheme to a large extent would depend upon the availability

of adequate working capital, lending institutions would like to be assured that the

borrowing units have made adequate arrangements for meeting the working

capital requirements. The banks should also accord priority in providing adequate

working capital support to the assisted units.

xi. Other conditions for loans

a. Promoters' contribution, security, debt-equity ratio, up-front fee, etc. wil

HANDBOOK FOR MSME ENTREPRENEURS

47

be determined by the lending agency as per its existing norms.

b. Cases covered under National Equity Fund (NEF) Scheme, which are

otherwise eligible under this scheme can also be covered under this

scheme. Besides, SC/ST MSEs which are availing financial incentives/

subsidy under any other scheme from the Government would be eligible

for subsidy under this scheme.

xi . Procedural Aspects

a. Al the eligible PLIs (excluding the nodal banks / agencies as mentioned

above) wil have to execute a General Agreement (GA) with either of the

nodal agencies for availing capital subsidy under the scheme, irrespective

of the fact whether refinance is availed by them or not.

b. After sanction of the assistance, the eligible PLI wil get an agreement

executed with the concerned SC/ST MSE on behalf of Government of India

(Gol). Format of the agreement to be executed by the eligible PLI with the

SC/ST MSE is provided in Appendix-B.

c. The PLI would obtain application for assistance under the scheme in the

prescribed form provided in Appendix-C.

d. The PLI shall furnish subsidy forecast on quarterly basis, through their

Head Office (HO), which wil act as a nodal office, to the Regional Office

(R0)/Branch Office (BO) of the SIDBI or the NABARD (as the case may be)

located in the region. The subsidy forecast information for every quarter

on or before 1st March for April- June quarter, on or before 1st June for

July- September quarter, on or before 1st September for October-December

quarter and on or before 1st December for January-March quarter, may

be furnished as per prescribed format.

e. The PLI would release the subsidy amount with each instal ment of loan

in a manner proportionate to the amount of term loan disbursed (on pro-

rata basis), subject to the ceiling of the term loan/ subsidy amount as per

applicable guidelines of the scheme.

f. The eligible PLI shal furnish details of release of subsidy to the beneficiary

units, together with the request for replenishing advance money placed

with PLI for release of subsidy, on quarterly basis on March 1, June 1,

September 1 and December 1. The requests of PLI for replenishment of

advance money for subsidy, however, would be entertained by the nodal

agencies only on receipt of complete details of subsidy released to the

beneficiary units.

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HANDBOOK FOR MSME ENTREPRENEURS

g. The PLI shall be responsible for ensuring eligibility for sanction of subsidy

to the SC/ST MSE in terms of establishing category and its status with

documentary support under this scheme and also for disbursal and

monitoring of the assisted units.

xi i. Time Limit for applying for Subsidy

Eligible claim with reference date (date of release of last installment of term loan)

of each quarter should reach up to the end of next quarter. For example, if reference

date fal ing between 1st January, 2018 to 31st March, 2018 the claim should be

forwarded latest by 30th June, 2018 to Ministry of MSME.

xiv. Mechanism for disbursement of subsidy to the unit

Subsidy is to be kept in the form of Term Deposit Receipt (TDR) for 3 years by PLI

after release by the Ministry of MSME in the concerned unit's account and interest

amount on the term loan shall be reduced accordingly. The beneficiary unit shal

remain in commercial production for a period of at least three years after

installation of eligible plant & machinery on which subsidy under SCISS has been

availed. If the unit fulfils the condition of regular payment of loan instal ments, the

TDR wil be transferred to unit's account after three years.

xv. Other Parameters

a. The Governmental assistance cannot be utilised for the purposes other

than for which it has been sanctioned. The eligible PLI shal have to strictly

fol ow this norm and no deviation would be permitted.

b. In case, it is found that capital subsidy from the Government has been

availed of on the basis of any false information, the industrial unit shall be

liable to refund the Government the capital subsidy availed, along with

interest to be charged from the date of disbursal to the date of refund. The

rate of interest shal be the prime lending rate of the PLIs concerned at the

time of invoking this penal clause.

c. The eligible PLI shall, therefore, incorporate suitable conditions in respect

of point at (b) above in their security documents entered into with the unit,

which would give necessary authorisation to proceed legal y in such

eventualities.

d. The credit risk under the Scheme wil be borne by the eligible PLI and as

such, they wil have to make their own commercial judgement while

appraising the project. The credit decision of the eligible PLI wil be final.

e. There shal not be any binding obligation on the part of the nodal banks/

HANDBOOK FOR MSME ENTREPRENEURS

49

agencies to obtain sanction from Ministry of MSME for the government

assistance in respect of the proposals which are covered under this

scheme.

f. Both the SIDBI and the NABARD shal have the right to inspect the books of

eligible PLI and the loan accounts irrespective of whether refinance is

availed or not from the Nodal Agency(ies) under this Scheme and/ or call

for any other information as may be required by from time to time.

g. Both the SIDBI and the NABARD shall have the right to recall from eligible

PLI the entire amount of the capital subsidy in respect of their assisted

units irrespective of whether or not the eligible PLI have recovered the

said subsidy from their units, if they come to the conclusion that any of the

accounts do not conform to the policies, procedures and guidelines laid

down under the SCLCSS guidelines and as stipulated by the Ministry of

MSME/the Nodal Agencies from time to time.

h. The beneficiary unit shall remain in commercial production for a period of

at least three years after installation of eligible plant and machinery on

which subsidy under this scheme has been availed.

xvi. Online system of Application

For effective implementation and transparency, Online Application and Tracking

System is adopted for submission of online application by concerned Nodal

Banks. However, no individual SC/ST MSE can directly apply for subsidy but banks

wil forward the application to Ministry of MSME.

xvi . Monitoring of the scheme

This scheme shall be monitored by the Ministry of MSME on regular basis. Any

proposal for changes/amendments in this scheme shall be placed before

Empowered Project Approval Committee for approval.

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HANDBOOK FOR MSME ENTREPRENEURS

Appendix-A

Smal Industries Development Bank of India (SIDBI)

List of Primary Lending Institutions (PLI)

1. BANKS

A. State Bank Group

1. State Bank of India

2. State Bank of Indore

3. State Bank of Mysore

4. State Bank of Bikaner & Jaipur

B. Public Sector Banks

1. Andhra Bank

2. Bank of Baroda

3. Bank of India

4. Canara Bank

5. Central Bank of India

6. Corporation Bank

7. Indian Overseas Bank

8. Punjab National Bank

9. Punjab & Sind Bank

10. Union Bank of India

11. UCO Bank

12. Vijaya Bank

13. Bank of Maharashtra

14. United Bank of India

15. Oriental Bank of Commerce

16. Indian Bank

17. Al ahabad Bank

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51

C. Private Sector Banks

1. City Union Bank Ltd.

2. Karnataka Bank Ltd.

3. Tamil Nadu Mercantile Bank Ltd.

4. Bank of Rajasthan Ltd.

5. Bharat Overseas Bank

6. KarurVysya Bank Ltd.

7. J & K Bank Ltd.

8. United Western Bank

9. ING Vysya Bank

10. UTI Bank Ltd.

11. Federal Bank Ltd.

12. Catholic Syrian Bank

D. SFCs

1. Gujarat State Financial Corporation

2. Haryana Financial Corporation

3. J & K State Financial Corporation

4. Madhya Pradesh Financial Corporation

5. Maharashtra State Financial Corporation

6. Orissa State Financial Corporation

7. Punjab Financial Corporation

8. Tamil Nadu Industrial & Investment Corporation Ltd.

9. Uttar Pradesh Financial Corporation

10. West Bengal Financial Corporation

11. Karnataka State Financial Corporation

12. Andhra Pradesh State Financial Corporation

13. Rajasthan State Industrial Development & Investment Corporation

E. Other Institutions:

The Small Industries Development Bank of India (SIDBI)

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HANDBOOK FOR MSME ENTREPRENEURS

Urban Cooperative Banks co-opted by the SIDBI under the TUFS

operated by the Ministry of Textiles

SI.

Name of the Urban Cooperative* Had Office

Head Office

No.

1

ShamraoVithal Cooperative Bank

Mumbai

2

Rupee Cooperative Bank

Pune

3

Sangli Urban Cooperative Bank Ltd.

Sangli

4

Surat People's Cooperative Bank Ltd.

Surat

5

Kalupur Commercial Cooperative Bank Ltd.

Ahmedabad

6

Rajkot NagarikSahakari Bank Ltd.

Rajkot

7

Cosmos Cooperative Bank Ltd.

Pune

8

Abhyudaya Cooperative Bank Ltd.

Mumbai

9

Saraswat Cooperative Bank Ltd.

Mumbai

10

Mumbai Mercantile Cooperative Bank Ltd.

Mumbai

11

The A.P. Mahesh Cooperative Urban Bank Ltd.

Hyderabad

12

The Ahmedabad Mercantile Cooperative Bank Ltd.

Ahmedabad

13

The Surat Textiles Traders Cooperative Bank Ltd.

Surat

14

Janata Cooperative Bank Ltd.

Nasik

15

Textile Cooperative Bank Ltd.

Bangalore

16

Ichalkaranji Janata Sahakari Bank Ltd.

Kolhapur

17

The SarvodayaSahakari Bank Ltd.

Surat

18

Surat National Cooperative Bank Ltd.

Surat

19

Solapur NagariAudyogikSahakari Bank

Solapour

20

The Bharat Cooperatives Bank (Mumbai) Ltd.

Mumbai

21

The Gujarat Industrial Cooperative Bank Ltd.

Surat

22

Prime Cooperative Bank Ltd.

Surat

23

The Nasik Merchants Cooperative Bank Ltd.

Nashik

24

ApnaSahakari Bank Ltd.

Mumbai

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53

25

DombiviliNagariSahkari Bank Ltd.

Mumbai

26

The Surat District Cooperative Bank Ltd.

Surat

27

The Zoroastrian Cooperative Bank Ltd.

Mumbai

28

Parasik Janata Sahakari Bank Ltd.

Thane

29

The Varchha Cooperative Bank Ltd.

Surat

30

Shree WaranaSahakari Bank Ltd.

Warnanagar

31

Jalgaon Janata Sahakari Bank

Jalgaon

32

The Kapol Cooperative Bank Ltd.

Surat

33

The Shirpur Peoples Cooperative Bank Ltd.

Shirpur

(Dhule)

34

Rajkot NagarikSahakari Bank Ltd.

Surat

35

Shri Veershaiv Cooperative Bank Ltd.

Kolhapur

36

The Panchsheel Mercantile Cooperative Bank Ltd.

Surat

37

The DhuleVikasSahakari Bank Ltd.

Dhule

38

The Ichalkaranji Urban Cooperative Bank Ltd.

Ichalkaranji

(Kolhapur)

39

The Udhna Citizen Cooperative Bank Ltd.

Surat

40

The Vita Merchants Cooperative Bank Ltd.

Vita(Sangli)

The above Urban Cooperative Banks wil have to sign a " General Agreement"

with either of the nodal agencies i.e. the SIDBI or the NABARD for claiming

reimbursement of capital subsidy under the SCLCSS.

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HANDBOOK FOR MSME ENTREPRENEURS

APPENDIX – B

(To be stamped as an Agreement)

Agreement for Financial Assistance under Special Credit Linked Capital

Subsidy Scheme (SCLCSS) for SC/ST Micro & Smal Enterprises

This Agreement made at…………… on this………….. day of…………. in the

year Two thousand……………. between M/s a…………………… Public/Private

Limited Company/Proprietary concern, incorporated under the Companies Act of

1956 and having its Registered Office at…………………and being an industrial

concern hereinafter called the Beneficiary(which expression shall unless

repugnant to the context or meaning thereof include its successors and assigns)

of the One Part:

OR

FOR PARTNERSHIP FIRM

(i) Shri .. . .. . . . .. . . . .. . . son of. . .. . . . .. . . . .. . . . Aged . .. . . . .. . . . .. . . . .. years residing at .............................................................................................................

(i ) Shri .. . .. . . . .. . . . .. . . son of. . .. . . . .. . . . .. . . . Aged . .. . . . .. . . . .. . . . .. years residing at .............................................................................................................

(i i) Shri .. . .. . . . .. . . . .. . . son of. . .. . . . .. . . . .. . . . Aged . .. . . . .. . . . .. . . . .. years residing at .............................................................................................................

carrying on business in partnership in the firm name and style of………….and

having their office at……………… (hereinafter referred to as 'Beneficiary' which

expression shall, unless it be repugnant to the subject or context thereof, include

its/his/her/their 11 legal representatives, heirs, administrators, successors and

assigns) of the One part.

AND

…………………………………………………(hereinafter referred to as the

financing institution/bank/which expression shal unless repugnant to the context

or meaning thereof include its successors and assigns) of the Other part.

WHEREAS

1. The Ministry of MSME appointed……………………… as Nodal Agency

(hereinafter referred to as the Agent) for channelising Special Credit Linked Capital

Subsidy Scheme (SCLCSS) for SC/ST Micro & Small Enterprises under Ministry of

MSME, Govt. of India (hereinafter referred to as "the Scheme") and permitting the

financial institution/ bank under the scheme for claiming capital subsidy on the

HANDBOOK FOR MSME ENTREPRENEURS

55

term loan sanctioned and disbursed by financing institution/ bank to the beneficiary.

2. The beneficiary has requested the financing institution/bank for providing

assistance under the Scheme to the extent…………….. of Rs

(Rupees………………. only) for purchase of plant & machinery for setting up /

expansion of Micro/Small Enterprise, which the financing institution/bank has

agreed to lend in proportion to the investment made or to be made in purchase

of machineries by the Beneficiary as per terms and conditions provided in the

Agreement executed between the financing institution/bank and the Beneficiary.

3. The Agent has agreed to act as nodal agency for Government of India for

channelising disbursement of capital subsidy sanctioned to the Beneficiary by

the financing institution /bank, and the parties hereto desire to enter into an

agreement for the said purpose, being these presents providing for the terms

hereinafter appearing.

NOW THESE PRESENTS WITNESS AND IT IS HEREBY AGREED BY AND BETWEEN THE

PARTIES HERETO AS FOLLOWS:

1. The Beneficiary, hereby, covenants:

a) That the Beneficiary wil comply with and faithful y observe all terms and

conditions of the said Scheme and also all the subsequent amendments

and modifications and additions thereto together with the conditions of

the sanction of the said financial assistance.

b) That the Beneficiary wil al ow the officers of the Agent and/or the

Government of India or any other person or persons authorized, by the

Agent or by Government of India to inspect the work for which the capital

subsidy has been granted and also the machines, plant, appliances, tools,

equipments, etc. for the procuring of which the subsidy has been granted

and will furnish such information concerning the machines, plant

implements, etc., for procuring of which the capital subsidy has been

granted or concerning the matter connected with the capital subsidy or

incidental thereto as the Agent or their nominees may, from time to time

require.

c) That the Beneficiary wil not change the place or location of the industrial

unit entirely or partly, nor enter into partnership with any one, or change its

constitution by merger, amalgamation or in any manner nor the Beneficiary

effect disposal of fixed capital investment without the express prior

permission of the Agent in writing.

d) The Beneficiary unit shal remain in commercial production for a period of

at least three years after installation of eligible plant and machinery on

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HANDBOOK FOR MSME ENTREPRENEURS

which subsidy under SCISS has been obtained, otherwise, the entire

amount of subsidy along with the interest to be charged from the date of

disbursal to the date of refund wil have to be refunded by the Beneficiary

unit. This is except in cases where the unit remains out of production for

short periods not exceeding three months due to reasons beyond its control

such as shortage of raw material / power, etc. to the satisfaction of the

lending institution / concerned PLI.

2. It is further hereby agreed and declared by and between the parties hereto,

that in any of the fol owing cases, namely,

a) where the Beneficiary has obtained the capital subsidy by

misrepresentation as to an essential fact, or by furnishing of false

information; or,

b) where the Beneficiary fails to furnish the prescribed statement or

information which it is cal ed upon to furnish, If the Beneficiary commits

breach of any one of the covenants herein contained or of the terms and

conditions of the Scheme as amended from time to time, the Beneficiary

shal refund the same forthwith to the financing institution/bank together

with interest at the then prevailing prime lending rate of financing

institution/bank.

3. The interpretation/clarification/decision of agent regarding the eligibility, subsidy

and any other benefits of a unit/borrower under the Scheme, either before or after

release of the loan facility by the financing institution/bank shal be binding on

the beneficiary and the beneficiary wil not raise any objection either against

agent/financing institution/ bank.

4. It is hereby further agreed and declared that the stamp duty chargeable on

these presents, shal be paid and borne by the Beneficiary and that the Beneficiary

wil also be liable to bear the expenses, if any, incurred by enforcing the terms

and conditions of these presents.

IN WITNESS WHEREOF the Beneficiary has caused its common seal to be affixed

hereto and to duplicate hereof on the day, month and year first hereinabove

written and the financing institution/bank has caused these presents and the

said duplicate to be executed by the hand of Shri………………. (Name &

Designation) of bank, as hereinafter appearing.

THE COMMON SEAL OF ................................................................................ LIMITED has pursuant to the Resolution of its Board of Directors passed in that behalf on

the.....day of ....hereunto been affixed in the presence of Shri………………………

and Shri……………….. Shri…………… , Director who have signed these

presents in token thereof and Shri……………………….. Secretary*/Authorised*

HANDBOOK FOR MSME ENTREPRENEURS

57

person who has signed/countersigned the same in token thereof.

SIGNED AND DELIVERED BY the within named bank by the hand of Shri

............................................................. (Name & Designation), an authorized official of financing institution/bank.

IN WITNESS WHEREOF the partners of the Beneficiary have set their respective

hand hereto and to a duplicate hereof on the day, month and year first hereinabove

written and bank has caused these presents and the said duplicate to be executed

by the hand of Shri……………………………. (Name & Designation) of financing

institution/Bank as hereinafter appearing.

1)* SIGNED AND DELIVERED BY the within named Shri……………………………

Partner Of………………………….. the within named Partnership Firm.

2)* SIGNED AND DELIVERED BY the within named…………………… By the hand

of Shri………………… in pursuance to the Board Resolution dated and common

seal has been affixed in presence of Shri…………………………. who has signed

in token thereof.

SIGNED AND DELIVERED BY the within named FI/NSIC/Bank/SFC by the hand of

Shri……………………………. authorised official. (*whichever is applicable).

Note : Relevant Board Resolution authorizing the person(s) to execute the document

on behalf of the Beneficiary has to be submitted with the Agreement.

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HANDBOOK FOR MSME ENTREPRENEURS

Appendix - C

Application Form for assistance under Special Credit Linked Capital

Subsidy Scheme (SCLCSS) for SC/ST Micro & Smal Enterprises

(To be submitted in triplicate, Photocopies may be used)

1. Name of the firm/company ................................................................................

2. Constitution (Proprietary concern, partnership firm, Pvt. Ltd. Co., Public Ltd.

Co., Coop. Societies)

3. Name(s) of sole proprietor/partners/directors .................................................

4. Category of borrower (SC/ST) ..............................................................................

5. Registered Office Address ...................................................................................

Pin ...........................................

Phone No. ....... ...... ..... ...... ...... ..... ...... ..... Fax .. ...... ...... ..... ...... ...... ..... ...... ...

Email ........................................................................................................................

6. Factory .....................................................................................................................

Address ...................................................................................................................

Pin ..............................................

Phone No. ....... ...... ..... ...... ...... ..... ...... ..... Fax .. ...... ...... ..... ...... ...... ..... ...... ...

Email ........................................................................................................................

7. Location of factory – Backward/ Non backward area/North Est Region

.............................................................

8. Date of incorporation/commencement of production .......................................

9. Product(s)/Subsector .............................................................................................

10. Instal ed capacity ......................................... ...........................................................

11. Past Performance (for last three years on the basis of audited balance

sheets – in respect of existing units. In respect of new units projections for

next three years may be given).

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59

(a) Financial position

Rupees in Lakh

Financial Year Financial Year Financial Year

(Y-1)

(Y-2)

(Y-3)

I

Net block

II

Current assets

III Current liabilities

IV Term Loan

V

Share Capital

VI Reserve & Surplus

(less accumulated

losses)

VII Net worth (V+VI)

(b) Working Results

Rupees in Lakh

Financial Year Financial Year Financial Year

(Y-1)

(Y-2)

(Y-3)

I

Total Sales

II

Gross profit

(Before interest &

depreciation)

III Depreciation

IV Interest

V

Operating Profit

VI Net Profit(after tax)

12. Total cost of scheme (as approved by Bank/FI) (Rs. in lakh)

13. Total Sources of funding (as approved by Bank/FI) (Rs. in lakh)

Term Loan ....................................................................................................

Add share capital ........................................................................................

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HANDBOOK FOR MSME ENTREPRENEURS

Internal accruals ....................................................................................................

Capital Subsidy .......................................................................................................

14. Time frame for completion of the project

15. Incremental benefits from implementation of the project (indicate in terms

of capacity utilization, increased sales, exports, reduction in cost of

production, increase in productivity, quality upgradation, attainment of

pol ution standards – give quantitative results).

16. List of eligible plant and machinery along with their detailed specifications,

rates, quantities and total value for which subsidy under SCISS is claimed.

DECLARATION

I/We, hereby declare that the information given above and the statement and

otherpapers enclosed are to the best of our knowledge and belief are true and

correct.

Place :

Signature(s)

Date :

Name and designation

HANDBOOK FOR MSME ENTREPRENEURS

61

SECTION VI

Compliances based on Formation of MSME

Hon’ble Minister of Finance, Arun Jaitley in his Budget Speech 2017-18 stated that

“156. In order to make MSME companies more viable and also to

encourage firms to migrate to company format, I propose to reduce the

income tax for smal er companies with annual turnover upto Rs. 50 crore to

25%. As per data of Assessment Year 2015-16, there are 6.94 lakh

companies filing returns of which 6.67 lakh companies fal in this category

and, therefore, percentage-wise 96% of companies wil get this benefit of

lower taxation. This wil make our MSME sector more competitive as

compared to large companies. The revenue forgone estimate for this measure

is expected to be Rs. 7,200 crore per annum.”

More than 90% of MSMEs are proprietorship or partnership enterprise. Therefore,

it is imperative to strive towards corporatisation of Smal & Medium Enterprises

for good corporate governance as wel as energise the economy as a whole.

MSME may be incorporated as:

Sole Proprietorship

Partnership

One Person Company (OPC)

Limited Liability Partnership (LLP)

Private Limited Company

Public Limited Company

Starting a business in India requires one to choose a type of business entity. In

India one can choose from different types of legal entities to conduct business.

These include Sole Proprietorship, One Person Company, Partnership Firm, Limited

Liability Partnership, Private Limited Company and Public Limited Company. The

choice of the business entity is dependent on various factors such as taxation,

owner liability, compliance burden, and investment and funding and exit strategy.

61

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HANDBOOK FOR MSME ENTREPRENEURS

Choosing a form of business organization for Start-ups:

Criteria

Most beneficial

Least beneficial

Cost of formation

Sole Proprietorship

Company

Ease of formation

Sole proprietorship

Company

Transfer of Ownership

Public Ltd Company

Partnership

Continuity

Company

Sole proprietorship

Flexibility

Sole proprietorship

Company

Availability of capital

Company

Sole proprietorship

Liability

Company and LLP

Sole proprietorship

Sole Proprietorship

A sole proprietorship is a business that is owned, managed and control ed by

one person. It is one of the most common forms of business in India, used by

small businesses operating in the unorganized sectors. Proprietorships are very

easy to start and have very minimal regulatory compliance requirement for getting

started. However, after the start-up phase, proprietorship’s do not offer the

promoter a host of other benefits such as limited liability, separate legal entity,

independent existence, transferability, etc., which are desirable features for any

business. Therefore, proprietorship’s are suited for unorganized, smal businesses

that wil have a limited existence.

There is no mechanism provided by the Government of India for the registration

or incorporation of a Proprietorship. Therefore, the existence of a proprietorship is

established only by tax registrations and other business registrations that a

Proprietorship is required to have as per the rules and regulations.

Registration of

Service Tax

MSME Registration

Proprietorship Firm

Registration

Proprietorship firm can

The identity of a

The identity of a

be done in 7 to 14 days,

Proprietorship can be

Proprietorship can be

subject to Government

established through

established by MSME

processing time.

Service Tax Registration

Registration (if

(if applicable) mentioning

applicable) mentioning

the business name.

the business name.

Service tax registration

MSME Registration can

takes 10 to 15 days,

be completed in 10 to

subject to Government

15 days, subject to

processing time.

Government

processing time.

62

HANDBOOK FOR MSME ENTREPRENEURS

63

Incorporation of Sole Proprietorship

To start a sole proprietorship in India, all we need is a bank account, a Pan Card

number and few licenses.

1. For bank Account, we have to go to a bank and then we can open a bank

account in the name of the company that we wish to operate in.

2. For PAN card we have apply online to the website of Income Tax

department and a Pan Card wil be issued to us.

3. Fol owing Licenses to be taken depending on the kind of business

• Service Tax/GST Registration,

• VAT/GST Registration,

• IEC,

• Shops & Establishment license,

• Importer Exporter Code,

• ESI,

• Professional Tax,

• Central Excise Duty/GST Registration,

• CST Registration/GST Registration,

• Employee Provident Fund Registration and many more.

After getting the respective licenses as per the sole proprietorship business~ one

can commence with his her sole proprietorship firm in India.

Annual Compliances of Sole Proprietorship

Proprietorship wil have to file their annual tax return with the Income Tax

Department. Other tax filings like service tax filing or VAT/CST/GST filing as may

be necessary from time to time, based on the business activity performed.

However, annual report or accounts need not be filed with the Ministry or Corporate

Affairs, which is required for Limited Liability Partnerships and Companies.

Partnership Firm

A business registered in the name of an individual is cal ed Sole Proprietorship.

A single person is completely responsible for the entire business with the business

and the owner not being separate from each other. The owner funds the business,

takes any profits and bears any losses.

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HANDBOOK FOR MSME ENTREPRENEURS

It does not involve any complex rules or accounting. Personal assets and business

assets are not separated from each other. Any profits from the business are just

added to the business owner’s income for taxation purposes.

Similarly, any losses become the personal losses of a business owner. In case

the business starts incurring losses and additional money is needed to

compensate those losses, the personal assets of the owner itself are put at risk.

Partnership business entities are quite similar to sole proprietorship. The basic

difference between partnership and sole proprietorship is that more than one

individual is involved in a partnership.

The roles, responsibilities and the share of each partner are specifically defined

in a legal partnership agreement. Any profit earned by the business is shared

between partners according to the legal partnership agreement. In case there

are losses, each of the partners is personal y responsible. Personal assets of

partners may be used to compensate the losses incurred, if any.

A Partnership Firm is a popular form of business constitution for businesses that

are owned, managed and control ed by an Association of People for profit.

Partnership firms are relatively easy to start and are prevalent amongst smal

and medium sized businesses in the unorganized sectors. With the introduction

of Limited Liability Partnerships in India, Partnership Firms are fast losing their

prevalence due to the added advantages offered by a Limited Liability Partnership.

There are two types of Partnership firms, registered and un-registered Partnership

firm. It is not compulsory to register a Partnership firm; however, it is advisable to

register a Partnership firm due to the added advantages. Partnership firms are

created by drafting a Partnership deed amongst the Partners.

Registration

Partnership

Partnership

Tax

of Partnership

Deed

Deed

Registration

firm

Registration

Registration of a

Partnership

Based on requirements PAN and TAN

Partnership firm

Deed that is

and the service level

registration

Can be done

acceptable to

register the Partnership can issued

startup a

all Partners

Deed with the relevant

once the

Partnership in

authorities to make the Partnership

7 to 14 days.

Partnership a

Firm

Registered Partnership

is registered.

Firm.

HANDBOOK FOR MSME ENTREPRENEURS

65

Incorporation of Partnership Firm

A partnership firm can be registered whether at the time of its formation or even

subsequently. Partners need to file an application with the Registrar of Firms of

the area in which business is located.

Application for partnership registration should include the fol owing information:

1. Name of the firm

2. Name of the place where business is carried on

3. Names of any other place where business is carried on

4. Date of partners joining the firm

5. Ful name and permanent address of partners

6. Duration of the firm

7. Every partner needs to verify and sign the application

Fol owing documents and prescribed fees are enclosed with the registration

application:

1. Application for Registration in the prescribed Form

2. Duly fil ed Specimen of Affidavit

3. Certified copy of the Partnership deed

4. Proof of ownership of the place of business or the rental/lease agreement

thereof

Compliances of Partnership Firm

Partnership is simple to form and manage compared to company and LLP. However

there are requirement of filing various forms in case of change in address, addition

/ removal of partner, change in firm name or business place etc.

S.No. Subject

Section

1.

Registration of Partnership Firm

58(1) & (1A)

2.

Change in Principal Place/ nature of

60(1)

business / firm name

3.

Opening and closing of branches

61

4.

Change in the name (person/limited

62

company and address of the partner)

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HANDBOOK FOR MSME ENTREPRENEURS

5.

Change in Constitution-Admission/

63

Retirement/Dissolution/ Death of Partner/

minor partner

6.

Minor attaining majority and elects to

63(2)

become/ not to become a Partner

7.

Appeal against refusal by registrar to

58(4)

register the firm under a particular name

ONE PERSON COMPANY

The introduction of OPC in the legal system is a move that would encourage

corporatization of micro businesses and entrepreneurship with a simpler legal

regime so that the small entrepreneur is not compelled to devote considerable

time, energy and resources on complex legal compliances. This wil not only

enable individual capabilities to contribute economic growth, but also generate

employment opportunity. One Person Company of sole-proprietor and company

form of business and has been provided with concessional /relaxed requirements

under the Companies Act, 2013. With the implementation of the Companies Act,

2013, a single national person can constitute a Company, under the One Person

Company (OPC) concept.

As per section 2(62) of the Companies Act, 2013, “One Person Company”

means a company which has only one person as a member.

ONE PERSON COMPANY V/S SOLE PROPRIETORSHIP

ONE PERSON COMPANY

SOLE PROPRIETORSHIP

Separate Legal entity

Not a Separate Legal Entity

Limited Liability

Unlimited liability

Perpetual succession

No perpetual succession

Loan -not the sole responsibility

Loan-sole responsibility of the owner

of the owner

Registration required

Registration not required

Finance –credit record of the OPC

Finance –credit record of the Owner

OPC structure would be similar to that of a proprietorship concern without the il s

general y faced by the proprietors. One most important feature of OPC is that the

risks mitigated are limited to the extent of the value of shares held by such person

HANDBOOK FOR MSME ENTREPRENEURS

67

in the company. This would enable entrepreneurial minded persons to take the

risks of doing business without the botheration of litigations and liabilities getting

attached to the personal assets. One Person Company has a separate legal identity

from its shareholders, i.e., the company and the shareholders are two different

entities for al purposes. On the other hand proprietorship does not have a separate

legal identity from its members. The existence of a One Person Company is not

dependent upon its members and hence, it has a perpetual succession, i.e. , death

of a member does not affect the existence of the company and the Sole proprietorship

is an entity whose existence depends on the life of its members and death or any

other contingency may lead to the dissolution of such an entity.

In OPC the business head is the decision maker, he is not dependent on others

for suggestions or implementation of suggestions etc., resulting in quicker and

easier decision making. He is the sole person who runs the business and hence,

the question of consensus or majority opinion etc., does not arise.

COMPANY V/S OPC

COMPANY

Common Seal

OPC

Perpetual Succession

Separate legal entity

Limited Liability

Separate Ownership

Management and Control

Salient Features of OPC

The salient features of OPC are:

• Desire for personal freedom that allows the Professional skil ed person to

adopt the business of his choice.

• Personality driven passion and implementation of a business plan.

• The desire of the entrepreneurial person to take extra risk and wil ingness

to take additional responsibility.

• Personal commitment to the business which is a sole idea of the person

and close to his heart.

• It is run by individuals yet OPCs are a separate legal entity similar to that

of any registered corporate.

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• A One Person Company is incorporated as a private limited company.

• It must have only one member at any point of time and may have only

one director.

• The member and nominee should be natural persons, Indian Citizens

and resident in India. The term “resident in India” means a person who

has stayed in India for a period of not less than 182 days during the

immediately preceding one calendar year.

• One person cannot incorporate more than 1 OPC or become nominee in

more than 1 OPC.

• If a Member of OPC becomes a member in another OPC by virtue of his

being nominee in that OPC then within 180 days he shal have to meet the

eligibility criteria of being Member in one OPC.

• OPC to lose its status if paid up capital exceeds Rs. 50 lakhs or average

annual turnover is more than 2 crores in 3 immediately preceding

consecutive years.

• No minor shal become member or nominee of the One Person Company

or hold share with beneficial interest.

• Such Company cannot be incorporated or converted into a company under

section 8 of the Companies Act, 2013.

• Such Company cannot carry out Non Banking Financial Investment

activities including investment in securities of any body corporate.

• No such company can convert voluntarily into any kind of company unless

2 years have expired from the date of incorporation, except in cases

where capital or turnover threshold limits are reached.

• An existing private company other than a company registered under

section 8 of the Act which has paid up share capital of Rs. 50 Lakhs or less

or average annual turnover during the relevant period is Rs. 2 Crores or

less may convert itself into one person company by passing a special

resolution in the general meeting.

Privileges Available to OPC

Some of the privileges and benefits identified with OPCs are:

• OPCs would provide the start-up entrepreneurs with new business idea .

• OPC provides an outlet for the entrepreneurial impulses among the

professionals.

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69

• The advantages of limited liability. The most significant reason for

shareholders to incorporate the ‘single-person company’ is certainly the

desire for the limited liability.

• OPCs are not proprietorship concerns; hence, they give a dual entity to

the company as well as the individual, guarding the individual against

any pitfalls of liabilities. This is the fundamental difference between OPC

and sole proprietorship.

• Unlike a private limited or public limited company (listed or unlisted),

OPCs need not bother too much about compliances.

• Business currently run under the proprietorship model could get converted

into OPCs without any difficulty.

• OPCs require minimal capital to begin with. Being a recognized corporate,

could wel raise capital from others like venture capital financial institutions

etc., thus graduating to a private limited company.

• Mandatory rotation of auditor after expiry of maximum term is not

applicable.

• The annual return of a One Person Company shal be signed by the

company secretary, or where there is no company secretary, by the director

of the company.

• The provisions of Section 98 and Sections 100 to 111 (both inclusive), relating

to holding of general meetings, shal not apply to a One Person Company.

• A One Person Company needs to have minimum of one director. It can

have directors up to a maximum of 15 which can also be increased by

passing a special resolution as in case of any other company.

• For the purposes of holding Board Meetings, in case of a one person

Company which has only one director, it shal be sufficient compliance if al

resolutions required to be passed by such a Company at a Board meeting,

are entered in the minutes-book, signed and dated by the member and

such date shall be deemed to be the date of the Board Meeting for all the

purposes under this Act. For other One Person Companies, at least one

Board Meeting must be held in each half of the calendar year and the gap

between the two meetings should not be less than 90 days.

• The financial statements of a one person company can be signed by one

director alone. Cash Flow Statement is not a mandatory part of financial

statements for a One Person Company. Financial statements of a one

person company need to be filed with the Registrar, after they are duly

adopted by the member, within 180 days of closure of financial year along

with all necessary documents.

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• Board’s report to be annexed to financial statements may only contain

explanations or comments by the Board on every qualification, reservation

or adverse remark or disclaimer made by the auditor in his report.

Types of OPC

• a company limited by shares; or

• a company limited by guarantee; or

• an unlimited company.

Memorandum of OPC

The memorandum of a company shal state –

 the name of the company with the last word “Private Limited”;

 the State in which the registered office of the company is to be situated;

 the objects for which the company is proposed to be incorporated and

any matter considered necessary in furtherance thereof;

 the liability of members of the company, whether limited or unlimited,

with details

 the amount of share capital with which the company is to be registered

and the division thereof as specified;

 the number of shares each subscriber to the memorandum intends to

take, indicated opposite his name;

 in the case of One Person Company, the name of the person who, in the

event of death of the subscriber, shal become the member of the company.

Directors of OPC

• Articles of a company may provide for the appointment of the first directors

• If articles are silent then the subscriber to the memorandum who is an

individual shal be deemed to be the first director of the company

• May have a single director

• Maximum-15 directors and more than 15 directors after passing Special

Resolution

• Director must have stayed in India for a total period of not less than 182

days in the previous calendar year.

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Meetings of board of OPC

• At least one meeting of the Board of Directors to be conducted in each half

of a calendar year

• Gap between the two meetings should not be less than ninety days

• Exemption – if company has only one director.

Contract by OPC

• One Person Company limited by shares or by guarantee enters into a

contract with the sole member of the company who is also the director of

the company, the terms of contract or offer are in writing or contained in a

memorandum or recorded in the minutes of the Board meeting held next

after entering into the contact.

• Inform the Registrar about every contract entered into by the company

within a period of fifteen days from the date of approval by the Board of

Directors.

• Contracts in ordinary course of business not required to comply with the

above.

Financial statement of OPC

• The financial statement, signed by one director, for submission to the

auditor for his report thereon.

• The report of the Board of Directors to be attached to the financial statement.

• Board of Directors Report of OPC means a report containing explanations

or comments by the Board on every qualification, reservation or adverse

remark or disclaimer made by the auditor in his report.

• Filed with ROC within 180 days from the closure of the financial year.

• Financial statement may not include the cash flow statement.

Exemption available to OPC

• Section 96. Option to dispense with the requirement of holding an AGM

• Section 98. Power of Tribunal to call meetings of members

• Section 100. Calling of extraordinary general meeting.

• Section 101. Notice of meeting.

• Section 102. Statement to be annexed to notice.

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• Section 103. Quorum for meetings.

• Section 104. Chairman of meetings

• Section 105.Proxies

• Section 106. Restriction on voting rights

• Section 107. Voting by show of hands

• Section 108. Voting through electronic means

• Section 109. Demand for pol

• Section 110.Postal ballot

• Section 111. Circulation of members’ resolution

Incorporation of One Person Company

Obtain Digital Signature Certificate [DSC] for the proposed Director(s)



Obtain Director Identification Number [DIN] for the proposed director(s).



Select suitable Company Name, and make an application to the Ministry of

Corporate Affairs for availability of name.



Draft Memorandum of Association and Articles of Association [MOA & AOA].



Sign and file various documents including MOA & AOA with the Registrar of

Companies electronical y.



Payment of Requisite fee to Ministry of Corporate Affairs and also Stamp Duty.



Scrutiny of documents at Registrar of Companies [ROC].



Receipt of Certificate of Registration/Incorporation from ROC.

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Reservation of name

An application for the reservation of a name shal be made in Form No. INC.1

along with the fee as provided in the Companies (Registration offices and fees)

Rules, 2014.

Application for incorporation of companies

An application shall be filed, with the Registrar within whose jurisdiction the

registered office of the company is proposed to be situated, in prescribed Form

along with the fee as provided in the Companies (Registration offices and fees)

Rules, 2014 for registration of a company:

Signing of Memorandum and Articles of Association

The memorandum and articles of association of the company shal be signed by

each subscriber to the memorandum, who shall add his name, address,

description and occupation, if any, in the presence of at least one witness who

shall attest the signature and shall likewise sign and add his name, address,

description and occupation, if any and the witness shall state that “I witness to

subscriber/subscriber(s), who has/have subscribed and signed in my presence

(date and place to be given); further I have verified his or their Identity Details (ID)

for their identification and satisfied myself of his/her/their identification particulars

as fil ed in”.

Affidavit of Subscriber and first directors

The affidavit shall be submitted by each of the subscribers to the memorandum

and each of the first directors named in the articles in Form No.INC.9

Particulars of Subscriber

Particulars of every subscriber to be filed with the Registrar at the time of

incorporation

Nomination by the subscriber or member

(1) The subscriber to the memorandum of a One Person Company shal nominate

a person, after obtaining prior written consent of such person, who shal , in the

event of the subscriber’s death or his incapacity to contract, become the member

of that One Person Company.

(2) The name of the person nominated shall be mentioned in the memorandum

of One Person Company and such nomination in Form as may be prescribed

along with consent of such nominee obtained in Form No INC.3 and fee as

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provided in the Companies (Registration offices and fees) Rules, 2014 shall be

filed with the Registrar at the time of incorporation of the company along with its

memorandum and articles.

Declaration by professionals

The declaration by an advocate, a Chartered Accountant, Cost accountant or

Company Secretary in practice shal be in Form No. INC-8.

Important Instructions - Filing of eForm for Incorporation of OPC

 For incorporation of One Person Company required filing e-Form.

 It is suggested that e-Form DIR-12 should be filed Nominee Form.

 In case the address for correspondence is not the address of the registered

office of the Company, user is required to file INC-22 within 30 days of its

incorporation.

 Stamp duty, Memorandum of Association (MoA) and Articles of Association

(AoA) can be paid electronically through the MCA portal.

 Payment of stamp duty electronical y through MCA portal is mandatory in

respect of the States which have authorized the Central Government to

col ect stamp duty on their behalf. Now e-Stamp duty payment is to be

done online through MCA portal for all the states.

 Refund of stamp duty, if any, wil be processed by the respective state or

union territory government in accordance with the rules and procedures

as per the state or union territory stamp Act.

 Scan the photograph of every subscriber with MOA and AOA.

 The company can have its registered office from the date of incorporation

or on and from the 15th day of its incorporation. Til the same is established

and intimated to the RoC, company can have its correspondence address

capable of receiving and acknowledging all communications and notices

as may be addressed to it.

 Details of registered office address of the company if the company is

having its registered office from the date of its incorporation.

 Valid email id of the company. Ensure that this email ID is valid as intimation

regarding processing of the eForms, important communication from RoC

office shall also be communicated electronical y at the email ID being

mentioned here.

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75

 Details of the address of the police station under whose jurisdiction the

registered office of the company is to be situated.

 Details of authorized and subscribed share capital break up in case of a

company having share capital.

 Minimum and maximum number of members for One Person Company

is one only.

 The subscriber to the Memorandum shall ensure that the payment for the

total amount of shares subscribed by him is made to the company upon

incorporation.

 Enter the number of shares, total amount of shares and nominal amount

per share for each type of share. At least one type of share capital (Equity/

Preference) should be greater than zero.

 In case company has shares of multiple nominal amounts per share,

then multiple nominal values per share separated by comma in the field

Nominal amount per share.

 Main division of industrial activity of the company.

 Details of promoter.

 User is required to file eForm DIR-12 in case promoter and director are not

the same persons.

 DIN or Income-tax PAN. In case DIN is entered it should be an approved

DIN.

 For cases of PAN, name and address of the promoter is required to be

entered. System shal verify the name of the promoter based on PAN

entered.

 Surname or family name in the field Family Name.

 Other relevant particulars of the promoter including duration of stay at

present address. If duration of stay is less than a year at present address,

enter the details of previous residence of the promoter. Ensure that

Promoter to One Person company is always an Indian citizen and resident

in India and promoter shal be eligible to incorporate only one OPC.

 Every One Person Company is required to indicate the name of other

person as nominee to the sole member in the memorandum and nominee

for the subscriber should be an individual who is an Indian citizen and

resident in India.

 The name of such nominee.

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 Enter the details of nominee by entering approved DIN or valid Income-

tax PAN. In case DIN is entered, the system shal automatical y display the

name, middle name, surname, father’s name and gender of such person.

 Provide details of stamp duty already paid.

 Ensure the e-Form is digitally signed by the same person whose

designation is reflected in the declaration section of the e-Form.

 In case the person digitally signing the e-Form is a Director - Enter the

approved DIN. In case the person digitally signing the e-Form is Company

Secretary - Enter valid membership number. In case the person digitally

signing the e-Form is Manager - Enter approved DIN or valid income-tax

PAN.

 It is mandatory to attach Memorandum of Association, Articles of

Association, proof of identity of the member and the nominee, residential

proof of the member and the nominee, copy of PAN card of member and

nominee, consent of nominee in Form INC-3 along with enclosures,

affidavit from the subscriber and first director to the memorandum in Form

No. INC-9.

 It is mandatory to attach Specimen Signature in Form INC-10 in case

company is ‘Not having share capital’.

 It is mandatory to attach Entrenched Articles of association if any of the

articles are entrenched.

 Proof of registered office address and copies of the utility bil s not older

than two months are required to be attached in case of address of

correspondence is the address of registered office of the company.

 It is mandatory to attach proof that the company is permitted to use the

address of the registered office of the company if the same is owned by

director/any other entity/ Person (not taken on lease by company).

 It is mandatory to attach consent to act as a director in case subscriber

and director are the same persons.

 List of all the companies (specifying their CIN) having the same registered

office address, if any.

Company can be incorporated through integrated route by filing

SPICe-Form INC-32

Procedure for Filing SPICe- FORM INC-32

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Form INC-32 must be accompanied by supporting documents including details

of Directors and Subscribers, affidavits, declarations, identity proof, address proof,

MOA, AOA etc. Once the e-form is filed, its process by MCA’s Central Processing

Centre. If found complete, Company would be registered and CIN would be

allotted. Also DINs gets issued to the proposed directors who do not have a valid

DIN. Maximum three Directors are al owed for using this integrated form for filing

application of al otment of DIN while incorporating a company.

In addition to al otment of DIN and providing of Incorporation Certificate, the

Company’s PAN, TAN and ESIC registration can also be obtained easily in a single

step while using Form INC-32.

Declaration by Professional

The digital signature of a professional (Chartered Accountant/ Company Secretary/

Cost Accountant/ Advocate) is require to file Form INC-32. The professional must

declare that al information presented in the form is correct and enter his/her

membership number and certificate number.

Documents required for SPICe FORM INC-32

The fol owing documents must be filed with SPICe Form INC-32 for incorporation

of Company:

1. Memorandum of Association – Applicable and mandatory only in case of

Section 8 company or company with foreign subscribers not having DIN

2. Articles of Association – Applicable and mandatory only in case of Section

8 Company or company with foreign subscribers not having DIN

3. Affidavit and declaration by first subscriber(s) and director(s) – Mandatory

in al cases

If the address for correspondence is the address of registered office of the

company, then fol owing attachments are mandatory:

4. Proof of office address

5. Copies of utility bil s that are not older than two months.

If proposed name require approval of Central government then attach the

fol owing:

6. Copy of approval in case the proposed name contains any word(s) or

expression(s) which requires approval from central government

If the proposed name is based on a registered trademark or is subject

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matter of an application pending for registration under the Trade Marks

Act, then it is mandatory to attach:

7. Approval of the owner of the trademark or the applicant of such trademark

for registration of Trademark

If the promoters are carrying on any Partnership firm, sole proprietary or

unregistered entity in the name as applied for, then it is mandatory to

attach:

8. NOC from the sole proprietor/ partners/other associates/ existing

company

If proposed name requires approval from any sectoral regulator, then it is

mandatory to attach (if already received):

9. In principle approval from the concerned regulator

If any subscriber to the proposed company is Foreign company and/or

company incorporated outside India, then it is mandatory to attach:

10. Copy of certificate of incorporation of the foreign body corporate and

resolution passed

Note: It is optional to attach Copy of certificate of incorporation in case the

subscriber to the proposed company is Body Corporate.

If any subscriber to the proposed company is a Company itself, then it is

mandatory to attach:

11. Resolution passed by promoter company

In case the name is similar to any existing company, then it is mandatory

to attach:

12. A certified true copy of No objection certificate by way of board resolution/

resolution

In case any of the director has any interest in the proposed company, then

it is mandatory to attach:

13. Interest of first director(s) in other entities

In case of an OPC, it is mandatory to attach:

14. Consent of nominee

15. Proof of identity and residential address of the nominee

If any one of the subscriber does not have a DIN, it is mandatory to attach:

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79

16. Proof of identity and residential address of the subscribers

If any of the director (including subscriber cum director) does not have

DIN, then it is mandatory to attach:

17. Proof of identity and residential address of such director

If SRN of INC-1 is mentioned in the form and any of the person mentioned

in INC-1 as promoter is not subscribing to MOA, then attach:

18. NOC in case there is change in the promoters (first subscribers to

Memorandum of Association)

Any other information can be provided as an optional attachment. A

separate declaration in format of INC-8 is not required to be attached.

This is recommended to name the attachments with proper name. For, e.g., If

PAN is attached as proof of identity then recommended name of the attachment

is “PAN – Proof of Identity”. This should be fol owed while attaching any attachment.

Certificate of Incorporation

Registrar after being satisfied issue Certificate of Incorporation.

Annual Compliances for One Person Companies

In addition to the compliances under MSMED Act, Labour Law, Environmental

Law etc., MSME incorporated in the form of One Person Company has to comply

fol owing compliances prescribed under Companies Act, 2013:

Particular of Compliance

 Every Director of the Company in First Meeting of the Board of Director

in each Financial Year wil disclose his interest in other entities (Form

MBP-1)

 Every Director is required to submit with the company fresh MBP-1

whenever there is change in his interest from the earlier given MBP-1.

 Every Director of the Company in each Financial Year wil file with the

Company disclosure of non-disqualification. (Form DIR-8)

 Meaning of AGM for the OPC mean “Resolution passed for the ordinary

Business entered into the Minutes Book. In case of OPC, there is no need

to hold AGM. Because there is only one Member.

 Annual Return: OPC wil file its Annual Return within 60 days of entry of

ordinary resolution in Minute Book. Annual Return wil be for the period 1st

April to 31st March. In Case of OPC, there is no need to hold AGM. (Form

MGT-7)

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 Financial Statement: The Company is required to file its Balance Sheet

along with statement of profit and Loss account and Directors’ Report in

this form.

 Attachment: Balance Sheet, Statement of Profit & Loss account, Directors’

Report, Auditors’ Report and Notice of AGM. (Form AOC-4)

 Directors’ report shal be prepared by mentioning of all the information

required for Small company under Section 134.

 It should be signed by only One Director.

 Company shall send to the Members of the Company approved financial

statement, Directors’ report and auditors’ Report at least 21 clear days

before the date of AGM.

 OPC shall hold a minimum number of Two Meetings of its Board of

Directors every year in such a manner that Minimum gap between both

the Meetings, should be not less than 90 (Ninety) days.

 Auditor wil be appointed for the 5 (Five) year and form ADT-1 wil be file

for 5-year appointment.

 After that every year in AGM, Shareholder wil ratify the Auditor but there

is no need to file form ADT-1.

LIMITED LIABILITY PARTNERSHIP

A limited liability partnership can at best be described as a hybrid between a

company and partnership that provides the benefit of limited liability but allows

its members the flexibility of organising their internal structure as a partnership

based on a mutually arrived agreement.

As the famous saying goes, “Everything is good in a limit “. The same holds true

for liability as well. A limited liability partnership (LLP) is viewed as an alternative

business vehicle in which the liability of its partners is limited to the extent of their

capital contribution or as agreed as per the Limited Liability Partnership Agreement.

The primary intention of LLP is that its external structure should mirror that of the

limited company but in terms of conduct of internal affairs it would be similar to

traditional partnership.

The existing business organization structures in India, which are most commonly

used – like proprietary concerns, partnerships and companies are subject to

varying regulatory and tax requirements and are not suitable for some businesses

and professions. In India, several professionals are barred from forming

companies with limited liability. The LLP Act, 2008 does not restrict the benefit of

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81

LLP structure only to certain classes of professionals and wil be available for use

by any enterprise that fulfils the requirements of this Act. Owing to flexibility in its

structure and operations, the LLP would be a suitable vehicle for Professionals,

Service Providers, Traders and Manufacturers, small enterprises and for

investment by venture capital.

A limited liability partnership (LLP) is a body corporate, with a distinct legal entity

separate from that of its partners. It has perpetual succession and a common

seal. A limited liability partnership, which is a separate legal person, wil be

liable to the third parties independent of the other partners. Any change in its

partners, wil not affect the existence, rights or liabilities of the limited liability

partnership. Like a company, a limited liability partnership can do all the things an

individual or company can do. It can make contracts, sue or be sued, hold property

or become insolvent.

A limited liability partnership can at best be described as a hybrid between a

company and a partnership that provides the benefits of limited liability but al ows

its members the flexibility of organizing their internal structure as a partnership

based on a mutually arrived agreement. An LLP is formed pursuant to a “Limited

Liability Partnership agreement” which means any written agreement between

the partners of the limited liability partnership or between the limited liability

partnership and its partners, which determines the mutual rights, and duties of

the partners and their rights and duties in relation to that limited liability

partnership. This form of business structure has been prevalent in many countries

including USA, UK, Japan, and Singapore.

Key Characteristics of LLP:

 Separate Legal Entity: LLP is a separate legal entity from its partners.

 Limited liability: Liability of the partner is limited to the extent of his

contribution in the LLP. No exposure of personal assets of the partner,

except in cases of fraud.

 Right to manage business: Unlike corporate shareholders, the partners

have the right to manage the business directly.

 Perpetual succession: It has perpetual succession. It means LLP has

existence, no matter how many changes occur in membership.

 Profit motive: It should be ‘for profit’ business.

 Agreement: The rights and duties of partners in LLP wil be governed by

the agreement between partners and the partners have the flexibility to

devise the agreement as per their choice.

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 Legal proceedings: It is a legal entity which can sue and be sued.

 Compliances: There are minimum compliances required to be complied

with under LLP Act.

 Related Party Transactions: There is no restriction for entering into

contracts with related parties.

 Tax benefit: Profit wil be taxed only in the hands of LLP and not in the

hands of its partners. Thus, it helps avoiding double taxation.

 No requirement for Minimum Capital Contribution: There is a

requirement for a minimum capital contribution from the partners, which

then shall be available for the Creditors of the LLP or for a guarantee from

the partners for the obligations of the LLP.

 Rights of Partners are transferable: LLP Act, 2008 provides that the

rights of a partner to a share of the profits and losses of the LLP and to

receive distributions in accordance with the LLP agreement are transferable

either whol y or in part.

 Partner can enter into transactions and give loan to the LLP: LLP Act

provides that a partner may lend money to and transact other business

with the LLP and has the same rights and obligations with respect to the

loan or other transactions as a person who is not a partner.

 Contributions may be given in Instalments: The Act does not prevent a

partner from making his contributions in instalments. However the Partner

shal remain liable for the ful amount that he has agreed to contribute but

has not been paid up.

LLP alternative to traditional form of Partnership

LLP is defined as a partnership firm registered under the Act. It shal have a

written agreement either between partners or between partners and LLP. Such

agreement to provide for mutual rights and duties of the partners amongst

themselves and in relation to LLP. A traditional partnership firm can be brought

into existence either by an oral or by a written agreement. It may be registered

(with written agreement) under the Indian Partnership Act, 1932. Unlike an

incorporated company, a traditional partnership does not have a legal personality

of its own and, therefore, the partners are liable for the debts of the firm.

An alternative is available under Indian law to register a partnership under the

LLP Act, 2008. LLP is a body corporate, separate from its partners. It shall have

perpetual succession, meaning, partners may come and partners may go, but

LLP continues. Any change in partners shall not affect the existence, rights and

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83

liabilities of the LLP. Where a partnership is registered under the LLP Act, then the

provisions of the Partnership Act 1932 shall not apply to it.

Advantage of LLP over traditional form of Partnership

In traditional partnerships, the partners are ful y liable for the debts of the firm.

Each partner’s personal asset is at risk irrespective of culpability. Indian traditional

partnerships are, therefore, restricted to persons who know each other closely.

With the enactment of the LLP Act, such liability of partners wil no longer be

unlimited. Limited partners are liable only to the extent of their investment. Just

like an incorporated company, LLP have a legal personality of its own and,

therefore, partners are not liable for the debts of the LLP firm. LLP can sue in its

own name and be sued by others. LLP can own property in its own name. Where

a partner of LLP does any wrongful act or omits to do an act, in the course of

business of LLP or where such act or omission of a partner is in exercise of

authority of LLP, then in such cases, liability if any, shall be that of LLP only and not

of the partner who did or omitted any act. This is similar to a private limited

company, where for any wrong done, general y the private limited company

would be liable and not its directors.

Like private limited company, LLP is considered as a separate legal entity, different

from its partners. However where such an act (wrongful act) or omission (to do) is

not in the course of the business of LLP or not under the authority of LLP, then such

partner who acts or omits to do any act, shall alone be liable and not any other

partner of LLP. This is different from traditional partnership where act of one partner

binds the other and hence makes al partners liable. An obligation of LLP, whether

arising in contract or otherwise, shall solely be the obligation of the LLP only.

Since partners of LLP are not liable, those who deal with LLP need to take adequate

precautions, which may comprise of knowing. Liabilities of the LLP shal be met

out of the property of the LLP.

Thus, LLP is different from traditional partnership, amongst other things, in the

sense that property of the partners is not affected in discharging obligation of LLP.

 Limited liability - reduced risk to personal wealth from creditors’ claims;

 Internal flexibility - facilitates participation in management and

maintenance of ethos of partnership.

Advantages of LLP form

LLP form is a form of business model which:

 is organized and operates on the basis of an agreement.

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 provides flexibility without imposing detailed legal and procedural

requirements.

 enables professional/technical expertise and initiative to combine with

financial risk taking capacity in an innovative and efficient manner.

Comparative Analysis – Partnership vs. LLP

PARTNERSHIP

LIMITED LIABILITY PARTNERSHIP

Partnership under Indian

Limited Liability Partnership under LLP

Partnership Act

Act

Unlimited personal liability of each

Liability limited to the properties of LLP

partner for dues of the partnership

except in case of unauthorized fraud

firm.

and negligence of partner(s) when the

delinquent partner wil be acts,

personally liable.

Registration of partnership is not

Incorporation of partnership as LLP is

mandatory

mandatory.

Not a legal entity separate from its

Legal entity separate from its partners.

partners. Firm cannot hold property The firm may hold property in its own

in its own name (only in the names name and sue or be sued in its own

of the partners); cannot sue or be

name.

sued in its own name.

Partnership deed is executed.

Incorporation Document’ is

executed.

LLP Agreement/First Schedule governs

the mutual rights and duties of

partners inter se and between the

partners and the LLP.

Minimum 2 partners

Minimum 2 partners; no maximum

limit.

Documents are required to be filed MCA/ROC LLP is the administrative

withRegistrar of firms (of respective ministry/authority.

states).

Partners are liable for statutory

Only Designated Partners are liable

compliances.

for statutory compliances except

when LLP has only one Designated

Partner (when all the partners are

liable).

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Partner cannot enter into business

Partners may enter into contracts with

with firm since the latter is not a

their LLP including lending of money;

separate legal entity.

they have rights and obligations

therefor as in the case of third parties/

outsiders.

Every partner of a firm is an agent of Every partner of LLP is an agent only of

the firm and also of other partners.

the firm and not of the other partner(s).

No filing of Accounts or Solvency

Accounts, Solvency Statement and

Statement or Annual Return with

Annual Return are to be filed with RoC

Registrar of Firms.

each year.

Partnership firm can be dissolved

LLP to be wound up and dissolved as

as per Act/Partnership Deed.

per LLP Act.

Comparative Analysis - Limited Company v. LLP

LIMITED COMPANY

LIMITED LIABILITY PARTNERSHIP

Memorandum & Articles of

Incorporation document and LLP

Association to be filed with RoC.

Agreement to be filed. First Schedule

Table A applies in the absence

applies in the absence of LLP

of Articles.

Agreement.

Name to end with ‘Limited or

Name to end with ‘Limited Liability

‘Private Limited’ (Government

Partnership or ‘LLP’.

Companies exempted from latter).

Managing Director/Manager vested Management rests with those

with powers of day to day

Partners (including designated

administration subject to the

partners) who are authorised by LLP

supervision, control and direction

agreement (As Designated Partners

of the Board of directors.

they are responsible only for legal

compliances).

Certain restrictions on remuneration No legal restriction on remuneration

payable to the Directors, their

to partner. Partners wil be eligible for

relatives etc.

remuneration as per LLP Agreement.

Charges/mortgages to be valid

No such provision for LLPs.

should be registered with RoC.

AGM of shareholders mandatory

No AGM of partners.

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Restrictions exist on inter-corporate No such restrictions

investments and loans.

Incorporation fee and Document

Moderate fee for incorporation and

Registration fees are high - also

Filing of documents -only annual

many forms to be filed.

filing.

Partners for an LLP

Every LLP shall have:

 at least two partners. Both of them shall be individuals. In case where an

LLP has only body corporate as partners, atleast two of its nominee shall

be individuals. If, for a period of more than six months, the number of

partners of the LLP is reduced below two, it may be wound up.

 at least two designated partners (who shal be individuals. Body corporate

cannot be designated partner of LLP. However individual nominee of body

corporate can be designated partner).

 one of the designated partners, shall be resident in India (i.e. stayed in

India for atleast 182 days during previous one year. Term ‘year’ is not

defined and hence shall have its meaning as per the General Clauses Act

– i.e. calendar year as per Georgian Calendar i.e. from January to

December).

Who can be partner in LLP

 An individual (other than one who has been found to be of unsound mind

by Court, an un discharged insolvent; has applied to be adjudged insolvent

and application is pending)

 Indian private and/or public company

 foreign company

 any other LLP

 LLP registered outside India

Who cannot be partner in a LLP?

 a corporation sole

 a co-operative society

 a HUF or its karta

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Disqualification of a Partner

LLP Act specifies the disqualifications that wil prevent an individual from becoming

a Partner. Accordingly, an individual shall not be capable of becoming a partner

of a limited liability partnership, if –

(a) he has been found to be of unsound mind by a Court of competent

jurisdiction and the finding is in force;

(b) he is an un discharged insolvent; or

(c) he has applied to be adjudicated as an insolvent and his application is

pending.

The LLP Act, 2008 has not specified the qualifications to be a partner but has

specified the above three disqualifications in respect of an individual. It is to be

noted that these are apart from the eligibility by the conditions and requirements

as may be prescribed by the Central Government in respect of designated partners

as laid down in the LLP Rules and Forms, 2008 as well as the requirements in LLP

Agreement.

Designated Partners

“Designated partner” means any partner designated as such pursuant to section

7 of the said Act .Every LLP should have at least 2 designated partners and at least

1 should be resident in India.

The term “resident in India” means a person who has stayed in India for a period

of not less than one hundred and eighty-two days during the immediately

preceding one year.

The Incorporation document of the LLP can specify the names of the designated

partners and if so, they wil become designated partners. The Incorporation

Document can also state that every person who from time to time is Partner wil

be Designated Partner.

The Individual should have given his consent to act as a designated partner in the

form and manner prescribed and every designated partner of a limited liability

partnership wil have to obtain a Designated Partner Identification Number (DPIN)

from the Central Government. The designated partner shall be answerable for

doing of al acts, matters and things as are required to be done by LLP pursuant to

the Act and wil be responsible for filing of documents, returns, statements and

the like pursuant to the provisions of this Act and as may be specified in the LLP

agreement. The designated partners are liable to all penalties imposed on the

LLP for any contravention of the specified provisions. Notice has to be filed with

the Registrar when changes occur in the partnership and/or designated

partnership of a LLP within 30 days of the change.

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Where an LLP does not have a Designated Partner or has only one Designated

Partner, every partner of LLP shal be treated as designated partner. Any partner of

LLP can become and cease to be its ‘designated partner’ as per LLP agreement.

The First Schedule to the Act contains mutual rights and duties of (i) partners and

(i ) LLP and partners. In the absence of LLP agreement as to any matter, provisions

of the first schedule shall apply. The First Schedule does not contain any provision

pertaining to manner of becoming/appointing and cease to be ‘designated

partner’. Hence, the LLP agreement shall contain provisions for making a partner

as ‘designated partner’ as wel as for cessation of ‘designated partner’. Prior

consent of an individual shal be obtained to make him ‘designated partner’.

‘Designated partner’ shal have a DPIN (Designated Partner Identification Number).

Designated Partner shall ensure compliance of the LLP Act and are liable:

 for penalties imposed under the Act on them and

 for penalties imposed under the Act on LLP.

Capital/Contribution of LLP

Partners of LLP can contribute in cash and/or kind or even by agreeing to perform

services. LLP agreement to specify about nature and amount of contribution. The

law does not prescribe any minimum or maximum amount of capital/contribution.

Liability of partners of LLP is to the extent of contribution agreed in the LLP

agreement.

Pre-incorporation Contracts

Prior to registration of LLP, a contract can be entered into by persons who become

partners of LLP upon its registration. Such contract can become binding on LLP if

after its registration, all partners of LLP Rules such agreement.

Name of LLP

Elaborate provisions have been made regarding the name and incorporation

requirements. The name of LLP shal end with “Limited Liability Partnership” or

“LLP”.

The name of LLP shal be such that in the opinion of the Central Government, is

not:

 undesirable,

 identical or too nearly resembles to name of:

– other partnership firm, or

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– LLP, (Indian or foreign), or

– company (Indian or foreign), or

– other body corporate, or

– registered trade mark of other person or

– a trade mark of other person, whose registration is applied for

registration and is pending for registration.

Registered Office

Every LLP shall have a registered office in India.

Limitation of liability

A limited liability partnership is not bound by anything done by a partner in

dealing with a person if –

(a) the partner in fact has no authority to act for the limited liability partnership

in doing a particular act; and

(b) the person knows that he has no authority or does not know or believe

him to be a partner of the LLP.

The LLP is liable if a partner of the LLP is liable to any person as a result of the

wrongful act or omission on his part in the course of the business of the LLP or

with its authority. The LLP wil have unlimited liability when any activity is carried

out with intent to defraud creditors of the limited liability partnership or any other

person, or for any fraudulent purpose, unless it is proved that such acts were

without the knowledge or authority of the LLP. An obligation of the LLP whether

arising in contract or otherwise, is solely the obligation of LLP. The liabilities of the

limited liability partnership shall be met out of the property of the limited liability

partnership.

Do we need a Limited Liability Partnership agreement?

Partners in a limited liability partnership are not obliged to enter into a formal LLP

agreement. In practice, however, they wil almost certainly get together to decide

on the structure and regulation of all aspects of their limited liability partnership,

in just the same way as prospective partners in a traditional partnership. The

agreement they make is then binding on them after the limited liability partnership

has been properly registered. According to section 2(1)(o) of the LLP Act 2008,

Limited Liability Partnership Agreement means any written Agreement between

the partners of the LLP, or between the LLP and its Partners, which determines the

mutual rights and duties of the partners and their rights and duties in relation to

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the LLP. It is not mandatory by law to enter into a formal LLP agreement, but it

should be done as it avoids unnecessary disputes in the future.

Where no LLP agreement has been executed between the partners of LLP or the

agreement is silent on certain issues, the provisions of the First Schedule to the

LLP Act 2008 shal apply. LLP Agreement is the most important document and

execution of LLP agreement and any changes made therein should be filed with

the Registrar in Form 3 annexed to the LLP Rules 2009 within 30 days from the

date of incorporation of LLP/date of change made in LLP agreement, as the case

may be, along with the filing fee as per Annexure A of the LLP Rules 2009.

The LLP Agreement is important for the fol owing reasons:

 The effect of LLP Agreement is that it defines the rights, duties and liabilities

between partners inter se and of partners with the LLP, and helps in

avoiding any disputes

 Execution of a LLP agreement provides for efficient running of the company.

 Among other things, the LLP Agreement defines the form of contribution

and liability for contribution of the partners.

 A written LLP agreement wil assist in assessing the profitability of partners

for taxation purposes under the Income Tax Act 1961.

Content of LLP Agreement

 Mutual rights and duties of the partners

 Mutual rights and duties of the limited liability partnership and its partners.

 Entitlement of partners to share in the capital, profits and losses of the

limited liability partnership

 Indemnity of partner

 Participation of partner in the management of the limited liability

partnership.

 Partner remuneration

 Change in the nature of business of the limited liability partnership

 decisions taken by it are recorded in the minutes

 Consent of the limited liability partnership, if any partner carries on any

business of the same nature

 Expulsion of partner

 Arbitration mechanism

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Books of Accounts and Audit

LLP to maintain prescribed books of accounts. Basical y books showing receipt,

payment, assets and liabilities are to be maintained. Book keeping can be on

cash (suitable for professionals) or accrual basis on double entry system of

accounting. It shall be maintained at the registered office of the company. Books

to be preserved for eight years. LLP whose turnover does not exceed, in any

financial year, Rs. 40,00,000, or

whose contribution does not exceed Rs. 25,00,000 shal not be required to get its

accounts audited. However it may voluntarily get the accounts audited.

Forms and Fees

Every LLP shal use the forms annexed to the LLP Rules 2009 for the purpose of the

LLP Act 2008, and shall specify therein its limited liability partnership identification

number (LLPIN). The electronic form shall be authenticated by authorized

signatories using digital signatures. “Digital signature” means authentication of

any electronic record by a subscriber by means of an electronic method or

procedure.

The fees payable in pursuance of the various provisions of the Act and the rules

shall be as mentioned in Annexure ‘A’ to the LLP Rules 2009, and shall be paid

into the Public Account of India. However, where the amount involved does not

exceed 50/-, the fees payable to the Registrar may be paid also through postal

orders or through bank drafts payable at and/or drawn on post offices or banks,

as the case may be, located at the same city or town where the office of the

Registrar is situated. Such fee shal not be deemed to have been paid unless and

until the relevant postal orders or drafts are en cashed and the amount credited.

Where an application is filed through electronic media or through any other

computer readable media, the user may choose any one of the fol owing payment

options namely,

(i) Credit Card; or

(i ) Internet Banking; or

(i i) Remittance at the Bank Counter; or

(iv) any other mode as approved by the Central Government.

Business Activities of LLP

Section 11(1) of the LLP Act 2008 states that two or more persons associated for

carrying on a lawful business with a view to profit can incorporate an LLP. Therefore,

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an LLP cannot be created for non-profit making activities and existence of business

is a pre-requisite for the legal existence of LLP.

There is no universal definition of the term ‘business’. However generally in its

most broadest meaning it includes all activity by the community of suppliers of

goods and services. The expression ‘business’ is defined in the Income Tax Act,

1961, as any trade, commerce, manufacture or any adventure or concern in the

nature of trade, commerce or manufacture.

Section 2(1) (e) of the LLP Act 2008 has defined the term ‘Business’ to include

‘every trade, profession, service and occupation’. However, the Act does not

define the terms trade, profession, service and occupation.

Incorporation of Limited Liability Partnership

1. Deciding the Partners and Designated Partners

A LLP can be incorporated with a minimum of at least two partners who can be

Individuals or bodies Corporate through their nominees. Further for incorporating

an LLP, of the total number of partners, at least two shal be Designated Partners,

of which at least one must be an Indian Resident.

Parameters for deciding the Partners and Designated Partners:

 At least Two Partners; Individual or Body Corporate through individual

nominees.

 Minimum of Two Individuals as Designated Partners, of total no. of Partners.

 At least One Designated Partner to be Resident Indian.

A person ‘Resident in India’ means a person who has stayed in India for a period

of not less than one hundred and eighty two days during the immediately

preceding one year.

‘Designated Partner’ means a partner who is designated as such in the

incorporation documents or who become a designated partner by and in

accordance with the Limited Liability Partnership Agreement.

2. To obtain Director Identification Number (DIN) & Digital Signature Certificate:

 Al designated partners of the proposed LLP shall obtain “Director

Identification Number (DIN)” by filing an application individually online in

Form - DIN 1.

 Partner/Designated partner of LLP/proposed LLP, whose signatures are to

be affixed on the e-forms has to obtain class 2 or class 3 Digital Signature

Certificate (DSC) from any authorized certifying agency.

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3. To Apply for Name of LLP:

 To file Form-1 for reservation of name and fil in the details.

 Any partner or designated partner in the proposed LLP may submit

Form-1.

 Details of minimum two designated partners of the proposed LLP, one of

them must be a resident of India, is required to be fil ed in the application

for reservation of name. Only individuals or nominees on behalf of the

bodies corporate as partners can act as designated partners.

The name of the limited liability partnership shall not be similar or identical with

Company or LLP already registered in India and it should not contain words

prohibited under the ‘Emblems and Names (Prevention of improper use) Act,

1950 or which are also not ‘Undesirable’ in the opinion of Central Government or

which satisfies the conditions prescribed under rule 18(2).

In case any Body Corporate is partner, copy of Board resolution authorizing the

incorporation of LLP shall be attached.

4. After Name Approval following procedure is to be followed:

 To file Form-2 “Incorporation Document and Statement” & Pay the

prescribed registration fee as per the slab given in Annexure A of the LLP

Rules, 2009, based on the total monetary value of contribution of partners

in the proposed LLP.

 Statement in the e-form is to be digital y signed by a person named in the

incorporation document as a designated partner having permanent DIN

and also to be digital y signed by an advocate/company secretary/

chartered accountant/ cost accountant in practice and engaged in the

formation of LLP.

 On submission of complete documents the Registrar after satisfying

himself about compliance with relevant provisions of the LLP Act wil

register the LLP, maximum within 14 days of filing of Form-2 and wil issue

a certificate of incorporation in Form-16.

5. To File LLP agreement (i.e. Form-3) and Partners’ details (i.e. Form-4):

 Form 3 - Information with regard to LLP agreement and changes, if any

made therein In case the LLP Agreement is executed outside India, then it

must be notarized and consularized.

 Form-4 (Notice of Appointment of Partner/Designate Partner, his consent

etc.)-Consent of each partner to become a partner of Limited Liability

Partnership along with their address and identity proof to be filed with the

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Registrar of Companies in Form 4 with the prescribed fee simultaneously

at the time of filing Form-2 or within 30 days of the date of incorporation.

6. Subscription Sheet:

 Just like in case of Company formation, the partners are required to

subscribe their names along with signatures to the subscription sheet,

which shall be witnessed by any chartered Accountant/Company

Secretary/Advocate in practice.

 In case the subscription sheet is executed outside India, then it must be

notarized and consularized.

7. Stamp Duty

The Stamp Duty payable of LLP Agreement is a State subject and same may be

paid as per the State Stamp Act. Til the time specific Stamp Duty is prescribed in

respective Stamp Act, the Stamp duty on LLP Agreement may be paid as per the

stamp duty payable on partnership agreement in view of the Finance Bil , 2009.

Annual Compliances for LLP

In addition to the compliances under MSMED Act, Labour Law, Environmental

Law etc., MSME incorporated in the form of LLP has to comply following

compliances prescribed under LLP Act, 2008:

Filing with Registrar of LLP

1. Filing of Annual Return :-

An LLP is required to file the Annual Return with the Registrar of LLP (Form 11)

within 60 days of closure of its financial year. An LLP has to close its financial year

on every 31st March. So, the Annual Return is to be filed on or before 30th May

Every year.

2. Filing of Annual Accounts :-

Every LLP has to maintain books of accounts as per double entry system of

accounting and prepare a Statement of Accounts and Solvency (Accounts) every

year ending on 31st March. LLP has to file such Accounts to the Registrar of LLP

(Form 8) within 30 days from the end of 6 months of such financial year. So, the

filing of Accounts is to be filed on before 30th October every year.

In case of an LLP whose annual turnover exceeds Rs. 40 lakhs or whose

contribution exceeds Rs. 25 lakhs, shall be required to get its accounts audited by

a qualified Chartered Accountant.

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Income Tax

As per Income Tax Act, LLP has to close its financial year as on 31st March ever

year and has to file the returns with Income Tax Department.

In Case of LLP whose annual turnover is more than 60 Lakhs, the accounts have

to be audited as required under Income Tax Act as well.

A LLP have to file its Income tax Returns on or before the due dates as fol ows:

LLP whose accounts are not required 31st July of every year

to be audited under any Law

LLP whose accounts are subject to

30th September of every year or such

Audit under any Law

other date as may be notified by the

Income Tax authorities.

Other Statutory Compliances

A. To maintain financial affairs and file accounts

a) To maintain proper books of accounts relating to its affairs for each year

on cash or accrual basis and according to the double entry system of

accounting and shal maintain the same at the registered office of the

company.

b) The accounts of LLP shall be audited by an auditor.

B. Returns and records required by LLP

Books of Account

LLP should maintain proper books of account.

Minute Book

Minute book should be maintained to record

minutes of meetings of partners and managing/

executive committee of partners.

Change in partners

Any change in partner and designated partner

(admission, resignation, cessation, death,

expulsion) should be filed electronically in e-form

4 within 30 days of change with fees.

Supplementary LLP

Such admission and cessation wil alter mutual

agreement

rights and duties of partner shall change. Hence,

supplementary LLP agreement wil be required

which is also required to be filed in e-form 3 within

30 days of change with fees

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Statement of Account

Statement of Account and Solvency (SAS) is to be

and solvency

filed annual y in e-form 8 with required fees. It is to

be filed within 30 days from expiry of 6 months

from end of each financial year i.e. by 30th October.

Annual Return

Annual Return should be filed with ROC in e-form

11 with filing fees, within 60 days from close of

financial year i.e. by 30thMay

Heavy penalty

Heavy penalty of Rs 100 per day for late filing of

returns

Inspection of

Incorporation document (form 2), Annual Return

documents

(form 11), Statement of Account and Solvency (SAS)

(form 8 ) and Name of partners and changes, if any,

made therein (form 4) are available for public

inspection on payment of fees but LLP agreement

is not available for public inspection.

C. Compliance of Meetings of LLP as per LLP agreement

Sr. No Nature of Meeting

Number of meetings Period

1.

First General

N.A

Within 30 days

of incorporation

2.

General Meeting

1

In 1 Financial Year

3.

Executive Committee

2

In 1 Financial Year

PUBLIC COMPANY/PRIVATE COMPANY

Categories of Companies

• Public Company

• Private Company

o One Person Company

o Small Company

The above said companies may be classified as [Section 3(2)]:

• Company limited by shares [as defined in Section 2(22)]: a company having

the liability of its members limited by the memorandum to the amount, if

any, unpaid on the shares respectively held by them.

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• Company limited by guarantee [as defined in Section 2(21)]: a company

having the liability of its members limited by the memorandum to such

amount as the members may respectively undertake to contribute to the

assets of the company in the event of its being wound up.

• Unlimited Company [defined in section 2(92)]: a company not having any

limit on the liability of its members.

Public Limited Company

• No Minimum paid-up share capital

• Minimum Subscribers-7

• Minimum Directors-3

Private Limited Company including Smal Companies

• No Minimum paid-up share capital

• Minimum Subscribers-2

• Minimum Directors-2

One Person Company

• No Minimum paid-up share capital

• Minimum & Maximum Subscriber-1

• Minimum Director-1

Memorandum of Association

• The Memorandum of Association is the charter of a Company. It is a

document, which amongst other things defines the area within which the

company can operate.

• As per section 2(56) “memorandum” means the memorandum of

association of a company as originally framed or as altered from time to

time in pursuance of any previous company law or of this Act.

• The Memorandum of a company shall be in respective forms specified in

Tables, A, B, C, D and E in Schedule I as may be applicable to such company.

• The Memorandum of a limited company must state the fol owing Six

clauses i.e.

– Name Clause: The name wil be the name which got reserved with

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ROC. The Last word of the name of company wil include “Limited” in

case of Public Company and “Private Limited” in case of Private

Company

– Registered Office Clause (also called Situation Clause)

– Object Clause

– Liability clause

– Capital Clause

– Subscriber’s clause

– Nominee Clause (In case of OPC)

Articles of Association

• The articles of association of a company are bye-laws or rules and

regulations that govern the management of internal affairs and the conduct

of business. The articles deals with the rights of the members of the

company inter se. They are subordinate to and are control ed by the

memorandum of association.

• According to Section 2(5) of the Companies Act, 2013, ‘articles’ means the

articles of association of a company as originally framed or as altered

from time to time or applied in pursuance of any previous company law or

of this Act.

• As per section 5(3) of the Companies Act, 2013, an entrenchment provision

in Articles enables a company to fol ow a more restrictive procedure than

passing a special resolution for altering a specific clause of articles of

association. A private company can include entrenchment provisions only

if agreed by al its members or, in case of a public company, if a special

resolution is passed.

• The articles of a company shal be in respective forms specified in Tables,

F, G, H, I and J in Schedule I as may be applicable to such company.

Signing of MOA & AOA

• The Memorandum and Articles of the company would be signed by

subscribers as per section 7(1)(a) read with Rule 13 of Companies

(Incorporation) Rules, 2014.

• Subscribers Clause wil have to take into consideration and mention

fol owing:-

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– Name

– Fathers name

– Occupation

– Residential Address

– Share subscribed

– Affix one Passport Size Photo graph

– Signed in given column

– One person wil act as witness and wil sign in the witness column

along with mentioning fol owing details:

o Name

o Address

o Description

o Signature

DIFFERENCE BETWEEN PUBLIC AND PRIVATE COMPANY

AS PER COMPANIES ACT, 2013

Private Limited Company

Public Limited Company

Minimum Capital- NIL

Minimum Capital- NIL

Right to transfer the shares:

Right to transfer of shares are allowed

Restricted

Minimum members 2 (Two),

Minimum members 7 (Seven)

Maximum members 200

Maximum members No Limits

(Two Hundred)

Public offer is not applicable and no In case of public offer of securities, the

requirement of dematerialization

securities have to be in Dematerialized

of securities

Form

Listing of securities on Stock

Securities offered in Public Offer, to be

exchange Not Applicable

listed in Recognized Stock Exchanges

Quorum of Meetings

Quorum of Meetings

Two members personal y present

Five in case of Members up to 1000;

Fifteen in case of Members more than

1000 up to 5000;

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Thirty in case of Members exceed

5000.

No restriction on amount of

Managerial Remuneration is restricted

managerial remuneration

to 11% of Net profit (subject to

conditions); OR at least Rs. 30 lakh

p.a. depending upon paid up capital

Retire by rotation

At least two-third of total number of

directors be liable to retire by rotation

Not Applicable

and eligible of being re-appointed in

AGM

Incorporation of Company (Private/Public)

There are two routes to Incorporate Companies:

a) Through various stage wise forms.

b) Simplified Proforma for Incorporating Company Electronical y (Spice)

E-Form.

A. Through various stage wise forms.

Incorporation of Public /Private Company

Application for Director Identification Number and Digital Signature Certificate

– Every person intended to be appointed as Director must first obtain Digital

Signature Certificate and then apply to the Central Government for grant of

Director Identification Number in Form DIR-3 pursuant to section 152 read

with rule 9(1) of Companies (Appointment and Qualification of Directors)

Rules, 2014.

Reservation of Name with ROC

– File e-Form INC-1 under Section 4(4) of the Companies Act, 2013 read with

Rule 8 & 9 of Companies (Incorporation) Rules, 2014 with ROC with payment

of prescribed fees.

– The name should not be undesirable i.e. identical, resembling, restricted

or prohibited as per the conditions specified in Rule 8.

– The name shall stand reserved for a period of 60 days from the date of

application for reservation of name. (Section 4(5))

Drafting of MOA & AOA

– MOA & AOA shal be drafted in accordance with the formats prescribed in

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Schedule I as may be applicable. Both shal be signed by Subscribers.

[MOA-Tables A, B, C, D, E; AOA-Tables F, G, H, I, J]

– The names of First Directors are mandatory to be given in AOA.

It should be noted that the main objects should match with the objects

shown in e-Form INC.1, i.e., Name Approval

Filing of Forms*

– File e-form INC-7 for incorporation of company with ROC pursuant to

Section 7 (1) of the Companies Act, 2013 read with Rule 10, 12, 14 and 15 of

Companies (Incorporation) Rules, 2014.

– File e-Form INC-22 for notice of Registered Office of the Company with

ROC pursuant to Section 12 (2) & 12 (4) of the Companies Act, 2013 read

with Rule 25 & 27 of the Companies (Incorporation) Rules, 2014.

– File e-Form DIR-12 for Appointment of Directors with ROC pursuant to

section 7(1)(c) read with Rule 17 of the Companies (Incorporation) Rules,

2014.

Issue of Certificate of Incorporation by Registrar

– Registrar on being satisfied with the documents submitted under section

7(2) wil grant the Certificate of Incorporation in e-form INC-11.

– A Certificate of Incorporation given by the Registrar shal be the conclusive

evidence that al requirements of the Act have been complied with.

Al otment of Corporate Identification Number

– The Registrar would al ot distinct Corporate Identification Number (CIN)

which shall be mentioned on the Certificate of Incorporation.

Attachments

e-Form INC-1 (Application for reservation of name)

o Trademark or authorization to use trade mark, if the name of the company

is based on trade mark or application for deed of assignment or a copy of

application of registered trademark.

o In case the proposed name contains such word or expression for which

the approval of Central Government is required, a copy of Central

Government’s approval.

o Proof of relation is required to be attached if the proposed name(s) include(s)

the name of relatives.

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o In principal approval from the concerned regulator wherever is applicable.

o NOC from sole proprietor/ partners/ other associates.

o NOC from existing company

o Copy of affidavit in case of proposed name includes phrase ‘Electoral

Trust’

o NOC as required in Rule 8(4) if proposed name includes name of

promoters or their closed relatives.

e-Form INC-7 [Application for Incorporation of Company (other than OPC)]

o Copy of Memorandum of Association and Articles of Association

o Declaration by Professionals (CA/CS/CWA) in form INC-8. [Section 7(1) (b)

and rule 14 of the Companies (Incorporation) Rules, 2014]

o Affidavit from the subscriber to the memorandum in Form No. INC-9

[Section 7(1)(c) read with rule 15 of the Companies (Incorporation) Rules,

2014]

o Proof of residential address which should not be older than two months,

and proof of identity of subscribers.

o Specimen Signature in Form INC-10. [Rule16(1)(q) of Companies

(Incorporation) Rules, 2014]

o Entrenched Articles of association if any of the articles are entrenched.

o NOC in case there is change in the promoters (first subscribers to

Memorandum of Association)

o Proof of nationality in case the subscriber is a foreign national

o PAN card (in case of Indian national)

o Copy of certificate of incorporation of the foreign body corporate and proof

of registered office address

o Certified true copy of board resolution/consent by all the partners in case

subscriber is Body Corporate.

o Principal approval taken from RBI for carrying NBFC activity as the case

may be.

– Trademark or authorization to use trade mark, if the name of the

company is based on trade mark or application for deed of

assignment or a copy of application of registered trademark.

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103

– In case the proposed name contains such word or expression for

which the approval of Central Government is required, a copy of

Central Government’s approval.

– Proof of relation is required to be attached if the proposed name(s)

include(s) the name of relatives.

– In principal approval from the concerned regulator wherever is

applicable.

– NOC from sole proprietor/ partners/ other associates.

– NOC from existing company

– Copy of affidavit in case of proposed name includes phrase ‘Electoral

Trust’

– NOC as required in Rule 8(4) if proposed name includes name of

promoters or their closed relatives.

e-Form INC-22 (Notice of situation or change of situation of registered office)

• Proof of registered office’s address (Conveyance/ Lease deed/ Rent

Agreement etc. along with the rent receipts).

• Copies of the utility bil s (proof of evidence of any utility service like

telephone, gas, electricity etc. depicting the address of the premises not

older than two months).

• Proof that the company is permitted to use the address as the registered

office of the Company (Authorization from the owner or occupant of the

premises along with proof of ownership or occupancy and it is mandatory

if registered office is owned by any other entity/ person (not taken on

lease by company).

• e-Form DIR-12

• Declaration by first director in Form INC-9

• Interest in other entities of director in case number of entities entered is

more than one.

• Declaration of the appointee director in Form No. DIR-2.

• Proof of identity and Address.

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B. SIMPLIFIED PROFORMA FOR INCORPORATING COMPANY

ELECTRONICALLY (SPICE) E-FORM

The Ministry of Corporate Affairs has taken another bold initiative in Government

Process Re-engineering (GPR) and launched Simplified Proforma for Incorporating

Company Electronically (SPICe) e-Form, on the occasion of Gandhi Jayanthi 2016,

with the specific objective of providing speedy incorporation related services

within stipulated time frames which are in line with international best practices.

SPICe’s is as fol ows: -

• Simplified and completely Digital form for Company Incorporation

• Standard format of e-Memorandum of Association as per Companies

Act, 2013

• Standard format of e-Articles of Association as per Companies Act, 2013

• Memorandum and Articles wil now be filed as linked e-forms (except for

Section 8 companies)

• Provision to apply for Company Incorporation with a preapproved

Company Name

• Mandatory DSCs of Subscribers and Witnesses (max 7+1) in SPICe MOA

and SPICe AOA

• Back Office productivity gains due to faster review of e-MOA and e-AOA

by approving authories.

• Resulting in doing away of filing of the fol owing e-forms:

– Form DIR-3 (Application for al otment of DIN in case proposed

Directors have no DIN)

– Form INC-1/INC-2 (Application for Reservation of name)

– Form INC-7 (Application for incorporation of a company other than

OPC)

– Form DIR-12 (Details of Directors)

– Form INC-22 (Details of registered office) (Optional at the time of

incorporation)

• Filing Fees:- Fee for Integrated Incorporation Form is Rupees 2,000 (Two

Thousand Only)

• Scope of E-Form INC-32:- The fol owing types of companies can be

registered:

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105

– Private Limited Company

– Public Limited Company

– One Person Company

– Section 8 Company

– Procedure Company

Procedure for Filing SPICe- FORM INC-32

Form INC-32 must be accompanied by supporting documents including details

of Directors and Subscribers, affidavits, declarations, identity proof, address proof,

MOA, AOA etc. Once the e-form is filed, its process by MCA’s Central Processing

Centre. If found complete, Company would be registered and CIN would be

allotted. Also DINs gets issued to the proposed directors who do not have a valid

DIN. Maximum three Directors are al owed for using this integrated form for filing

application of al otment of DIN while incorporating a company.

In addition to al otment of DIN and providing of Incorporation Certificate, the

Company’s PAN, TAN and ESIC registration can also be obtained easily in a single

step while using Form INC-32.

Declaration by Professional

The digital signature of a professional (Chartered Accountant/ Company Secretary/

Cost Accountant/ Advocate) is require to file Form INC-32. The professional must

declare that al information presented in the form is correct and enter his/her

membership number and certificate number.

Documents required for SPICe FORM INC-32

The fol owing documents must be filed with SPICe Form INC-32 for incorporation

of Company:

1. Memorandum of Association – Applicable and mandatory only in case of

Section 8 company or company with foreign subscribers not having DIN

2. Articles of Association – Applicable and mandatory only in case of Section

8 Company or company with foreign subscribers not having DIN

3. Affidavit and declaration by first subscriber(s) and director(s) – Mandatory

in al cases

If the address for correspondence is the address of registered office of the

company, then fol owing attachments are mandatory:

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4. Proof of office address

5. Copies of utility bil s that are not older than two months.

If proposed name require approval of Central government then attach the

fol owing:

6. Copy of approval in case the proposed name contains any word(s) or

expression(s) which requires approval from central government

If the proposed name is based on a registered trademark or is subject

matter of an application pending for registration under the Trade Marks

Act, then it is mandatory to attach:

7. Approval of the owner of the trademark or the applicant of such trademark

for registration of Trademark

If the promoters are carrying on any Partnership firm, sole proprietary or

unregistered entity in the name as applied for, then it is mandatory to

attach:

8. NOC from the sole proprietor/ partners/other associates/ existing

company

If proposed name requires approval from any sectoral regulator, then it is

mandatory to attach (if already received):

9. In principle approval from the concerned regulator

If any subscriber to the proposed company is Foreign company and/or

company incorporated outside India, then it is mandatory to attach:

10. Copy of certificate of incorporation of the foreign body corporate and

resolution passed

Note: It is optional to attach Copy of certificate of incorporation in case the

subscriber to the proposed company is Body Corporate.

If any subscriber to the proposed company is a Company itself, then it is

mandatory to attach:

11. Resolution passed by promoter company

In case the name is similar to any existing company, then it is mandatory

to attach:

12. A certified true copy of No objection certificate by way of board resolution /

resolution

In case any of the director has any interest in the proposed company, then

it is mandatory to attach:

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107

13. Interest of first director(s) in other entities

In case of an OPC, it is mandatory to attach:

14. Consent of nominee

15. Proof of identity and residential address of the nominee

If any one of the subscriber does not have a DIN, it is mandatory to attach:

16. Proof of identity and residential address of the subscribers

If any of the director (including subscriber cum director) does not have

DIN, then it is mandatory to attach:

17. Proof of identity and residential address of such director

If SRN of INC-1 is mentioned in the form and any of the person mentioned

in INC-1 as promoter is not subscribing to MOA, then attach:

18. NOC in case there is change in the promoters (first subscribers to

Memorandum of Association)

Any other information can be provided as an optional attachment. A

separate declaration in format of INC-8 is not required to be attached.

This is recommended to name the attachments with proper name. For e.g. If PAN

is attached as proof of identity then recommended name of the attachment is

“PAN – Proof of Identity”. This should be fol owed while attaching any attachment.

Certificate of Incorporation

Registrar after being satisfied issue Certificate of Incorporation.

Annual Compliances for Private Limited Company

In addition to the compliances under MSMED Act, Labour Law, Environmental

Law etc., MSME incorporated in the form of Private Company has to comply

fol owing compliances prescribed under Companies Act, 2013:

Particular of Compliance

 Every Director of the Company in First Meeting of the Board of Director

in each Financial Year wil disclose his interest in other entities (Form

MBP-1)

 Every Director is required to submit with the company fresh MBP-1

whenever there is change in his interest from the earlier given MBP-1.

 Every Director of the Company in each Financial Year wil file with the

Company disclosure of non-disqualification. (Form DIR-8)

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 Annual Return: Every Company wil file its Annual Return within 60 days

of holding of Annual General Meeting. Annual Return wil be for the period

1st April to 31st March. (Form MGT-7)

 Financial Statement: The Company is required to file its Balance Sheet

along with statement of profit and Loss account and Directors’ Report in

this form.

 Attachment: Balance Sheet, Statement of Profit & Loss account, Directors’

Report, Auditors’ Report, Cash Flow Statement and Notice of AGM. (Form

AOC-4)

 Private Company: Having paid up share capital of 10 Crore or more or

turnover of Rs. 50 crore or more shall be certified by a Company Secretary

in Practice. (Form MGT-8)

 Directors’ report shal be prepared by mentioning of all the information

required for Small company under Section 134.

 It should be signed by the “Chairperson” authorized by the Board, Where

he is not so authorized by at least 2 Directors.

 Company wil send to the Members of the Company approved financial

statement (including consolidated Financial Statement), cash flow

statement, Directors’ report and auditors’ Report at least 21 clear days

before the Annual General Meeting.(Except in case of AGM is cal ed on

Shorter Notice).

 Every Notice of Annual General Meeting wil be prepared as per Section

101 of Companies Act 2013 and Secretarial Standard – I .

 Notice of Annual General Meeting wil be send to fol owings:

• Al Directors, Members, Statutory Auditor.

 Every Company shall hold a minimum number of FOUR Meetings of its

Board of Directors every year in such a manner that maximum gap between

two Meetings should not be more than 120 (One hundred Twenty) days.

Company should hold at least 1 (one) Board Meeting every quarter of

calendar year.

 Auditor wil be appointed for the 5 (Five) year and form ADT-1 wil be file

for 5-year appointment.

 After that every year in AGM, Shareholder wil ratify the Auditor but there

is no need to file formADT-1.

 Company wil maintain the fol owing mandatory Registers:

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109

• Register of Director, Director Shareholding, Members.

 Annual Return of Every Private Company (Except Small Company) should

be signed by Company Secretary in Practice.

Annual Compliances for Unlisted Public Limited Companies

In addition to the compliances under MSMED Act, Labour Law, Environmental

Law etc., MSME incorporated in the form of Unlisted Public Company has to

comply fol owing compliances prescribed under Companies Act, 2013:

Particular of Compliance

 Every Director of the Company in First Meeting of the Board of Director

in each Financial Year wil disclose his interest in other entities (Form

MBP-1)

 Every Director is required to submit with the company fresh MBP-1

whenever there is change in his interest from the earlier given MBP-1.

 Every Director of the Company in each Financial Year wil file with the

Company disclosure of non-disqualification. (Form DIR-8)

 Every Company wil file its Annual Return within 60 days of holding of

Annual General Meeting. Annual Return wil be for the period 1st April to

31st March. (Form MGT-7)

 The Company is required to file its Balance Sheet along with statement of

profit and Loss account, Cash Flow Statement and Directors’ Report in this

form.

 Balance Sheet, Statement of Profit & Loss account (Including Consolidated

Financial Statement), Director Report, Auditors’ Report, Cash Flow Statement

and Notice of AGM(Form AOC-4)

 Company wil file MGT-14 along with copy of Board Resolution within 30

days of Board Meeting.

 Every Company Having paid up share capital of 10 Crore or more or

turnover of Rs. 50 crore or more shall be certified by a Company Secretary

in Practice. (Form MGT-8)

 Directors’ report wil be prepared by mention of al the information required

for Small company under Section 134.It should be signed by the

“Chairperson” authorized by the Board, Where he is not so authorized by

at least 2 Directors; one of them should be Managing Director if any .

 Company wil send to the Members of the Company approved financial

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statement (including consolidated Financial Statement), cash flow

statement, Directors’ report and auditors’ Report at least 21 clear days

before the Annual General Meeting.(Except in case of AGM is cal ed on

Shorter Notice).

 Every Notice of Annual General Meeting wil be prepared as per Section

101 of Companies Act 2013 and Secretarial Standard – I . If there is more

than 200 Members then Company wil give e-voting Facility.

 Notice of Annual General Meeting wil be send to fol owings:

• Al Directors, Members, Statutory Auditor.

• Secretarial Auditor, If any.

• Debenture Trustee, if any

 Every Company shall hold a minimum number of FOUR Meetings of its

Board of Directors every year in such a manner that maximum gap between

two Meetings should not be more than 120 (One hundred Twenty) days.

Company should hold at least 1 (one) Board Meeting every quarter of

calendar year.

 Auditor wil be appointed for the 5 (Five) year and form ADT-1 wil be file

for 5-year appointment.

 After that every year in AGM, Shareholder wil ratify the Auditor but there

is no need to file formADT-1.

 Company wil maintain the fol owing mandatory Registers:

 Register of Director, Director Shareholding, Members.

 Register of Loan, Guarantee, Investment made by the Company.

 Register of Contract with Related Parties.

 Annual Return of Every Private Company (Except Small Company) should

be signed by Company Secretary in Practice.

Annual Compliance for Unlisted Public Companies (Based on Paid-up

share capital/turnover)

Particular of Compliance

 Company if accept deposit during the year then required to file return of

deposit within 30 days of end of financial year. (Form DPT- 3)

 Return of appointment and re-appointment of Managing Director or Whole

time Director or Manager or KMP. ( Form MR-1)

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111

 Appointment of Independent Director. (Form DIR-12)

 Appointment of Women Director. (Form DIR-12)

 Appointment of Internal Auditor. (Form MGT-14)

 Al below mentioned company are required to get Secretarial Audit of the

Company from the Practicing Company Secretary and report of PCS wil

be part of Directors’ Report (MR-3).

a) Al Listed Companies

b) Every Public Company having;

 Paid-Up Share Capital of Rs. 50 Crore (fifty crore rupees) or more; or

 Every Public Company having a Turnover of Rs. 250 Crore (two hundred

fifty crore rupees) or more.

 All below mentioned companies are required to constitute a

Audit Committee and meetings of Committee wil be as per Secretarial

Standard-I:

• Al public companies with a paid up capital of ten crore rupees or more;

• Al public companies having turnover of one hundred crore rupees

or more;

• Al public companies, having in aggregate, outstanding loans or

borrowings or debentures or deposits exceeding fifty crore rupees

or more.

 Al below mentioned companies are required to constitute a Nomination

& Remuneration Committee

• Al public companies with a paid up capital of ten crore rupees or

more;

• Al public companies having turnover of one hundred crore rupees

or more;

• Al public companies, having in aggregate, outstanding loans or

borrowings or debentures or deposits exceeding fifty crore rupees

or more

 All below mentioned companies are required to constitute a Vigil

Mechanism:

• The Companies which accept deposits from the Public;

• The Companies which have borrowed money from banks and public

financial institutions in excess of fifty crore rupees.

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LISTING OF SPECIFIED SECURITIES OF SMALL AND MEDIUM

ENTERPRISES ON THE INSTITUTIONAL TRADING PLATFORM IN A SME

EXCHANGE WITHOUT MAKING AN INITIAL PUBLIC OFFER

In order to facilitate capital raising by smal and medium enterprises including

start-up companies which are in their early stages of growth and to provide for

easier exit options for informed investors like angel investors, VCFs and PEs etc.,

from such companies, it has been decided to permit listing without an Initial

Public Offer and trading of specified securities of small and medium enterprises

(SMEs) including start-up companies on Institutional Trading Platform (ITP) in SME

Exchanges.

The legal framework for such listing and trading of the specified securities on the

ITP was laid down vide SEBI (Listing of Specified Securities on Institutional Trading

Platform) Regulations, 2013(ITP Regulations) vide Gazette notification No. LAD-

NRO/GN/2013-14/27/6720 dated October 08, 2013. In this regard, through said

ITP Regulations, necessary amendments have been made in the SEBI (Issue of

Capital and Disclosure Requirements) Regulations 2009 (ICDR Regulations) by

inserting a “Chapter XC” on “Listing and Issue of Capital by Small and Medium

Enterprises on Institutional Trading Platform without initial public offering”. Further,

vide said ITP Regulations, consequential amendments have also been made to

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and SEBI

(Delisting of Equity Shares) Regulations, 2009.

The Institutional Trading Platform

(i) The ITP shall be a platform for listing and trading of specified securities of smal

and medium enterprises including start-up companies in a ‘SME Exchange’ as

defined under regulation 106N(1)(c) of ICDR Regulations;

(i ) The ITP shal be accessible only to informed investors who are either individuals

or institutions and the minimum trading lot shall be ten lakh rupees on this

platform;

(i i) Companies listed on ITP shal not make a public issue of its securities.

Eligibility for Listing

A public company seeking listing on ITP should comply with the fol owing

requirements:

(i) the company, its promoter, group company or director does not appear in

the wilful defaulters list of Reserve Bank of India as maintained by Credit

Information Bureau (India) Limited;

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113

(i ) there is no winding up petition against the company that has been

admitted by a competent court;

(i i) the company, group companies or subsidiaries have not been referred to

the Board for Industrial and Financial Reconstruction within a period of five

years prior to the date of application for listing;

(iv) no regulatory action has been taken against the company, its promoter or

director by SEBI, Reserve Bank of India, Insurance Regulatory and

Development Authority or Ministry of Corporate Affairs within a period of

five years prior to the date of application for listing;

(v) the company has at least one ful year’s audited financial statements, for

the immediately preceding financial year at the time of making listing

application;

(vi) the company has not completed a period of more than 10 years after

incorporation and its revenues have not exceeded one hundred crore

rupees in any of the previous financial years;

(vi ) the paid up capital of the company has not exceeded twenty five crore

rupees.

(vi i) In addition to the above requirements, the company should have received

certain minimum investment from at least any one of the fol owing

categories of investors as specified below in order to qualify for listing on

ITP:

(i) Atleast one alternative investment fund, venture capital fund or other

category of investors/lenders approved by SEBI, has invested a

minimum amount of fifty lakh rupees in the equity shares of the

company.

(i ) One or more angel investor who is a member of an association /

group of angel investors which fulfils the criteria laid down by the

recognised stock exchange, has invested a minimum amount of

fifty lakh rupees in the equity shares of the company through the

association/group.

(i i) The company has received finance from a scheduled bank for its

project financing or working capital requirements and a period of

three years has elapsed from the date of such financing and the

funds so received have been ful y utilized.

(iv) A registered merchant banker has exercised due diligence and has

invested not less than fifty lakh rupees in equity shares of the

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company which shall be locked in for a period of three years from

the date of listing.

(v) A qualified institutional buyer has invested not less than fifty lakh

rupees in the equity shares of the company which shall be locked in

for a period of three years from the date of listing.

(vi) A specialized international multilateral agency or domestic agency

or a public financial institution under section 2(72) of the Companies

Act, 2013 has invested in the equity capital of the company. For the

purposes of sub-clause (i ) above, investments as facilitated through

the angel association/group after due process fol owed by such

association alone shall be eligible. Investments made by the angel

investor on his own individual initiative shall not be eligible. For the

purposes of sub-clause (vi) above, domestic agency means a

domestic developmental institution like Small Industries

Development Bank of India (SIDBI) or National Bank for Agriculture

or Rural Development (NABARD).

Process of Listing

(i) A company which meets the requirements of the Regulations may apply to the

recognised stock exchange for listing along with the information document

containing disclosures as specified under Schedule XIX A of ICDR Regulations.

This Information document shal be made available to public through the website

of the recognised stock exchange.

(i ) The concerned recognised stock exchange may issue an in-principle approval

to companies eligible for listing on ITP.

(i i) A company which has received in-principle approval from a recognised stock

exchange for listing of its specified securities on ITP shall be deemed to have

been waived by SEBI from rule 19(2)(b) of Securities Contracts (Regulation) Rules,

1957 for the limited purpose of listing on ITP.

(iv) Such listing shal not be accompanied by any issue of securities or capital

raising from public in any manner.

Capital Raising

(i) A company listed on ITP shall not make an initial public offer while being listed

on the platform.

(i ) Such a company may raise capital through private placement or through a

rights issue.

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115

(i i) In case of a rights issue, there shall be no option for renunciation of rights and

the company seeking to get listed on ITP shal agree to make necessary

amendments to its articles of association to this effect.

(iv) Such companies raising funds through private placement shall be governed

by the specific requirements in this regard such as, obtaining in-principle approval

of the recognised stock exchange prior to al otment, obtaining shareholders’

approval under section 81(1A) of the Companies Act, 1956 (Now section 62 of

Companies Act, 2013), completing al otment within two months of such approval,

disclosures to be made in explanatory statement to the notice to shareholders

and pricing norms as elaborated in Chapter XC of ICDR Regulations.

(v) the company making a rights issue shal send a letter of offer to its shareholders

through registered post or speed post or electronic mode and the same shall be

made available on the website of the company and the recognised stock exchange.

Minimum Promoter Shareholding and Lock In

Not less than twenty percent of the post listing capital of the company shall be

held by the promoters at the time of listing and the same shall be locked-in for a

period of three years from date of listing.

Exit from the Platform

(i) A company listed on ITP may exit the platform voluntarily after obtaining

approval of its shareholders as below:

(a) its shareholders approve such exit by passing a special resolution through

postal ballot where ninety per cent. of total votes and the majority of non-

promoter votes have been cast in favour of such proposal;

(b) it shall also obtain the SME Exchange’s approval.

(i ) In the event of any of the fol owing, the company would be required to exit the

platform within 18 months from the occurrence of such event:

a. the company has been listed on ITP for a period of 10 years;

b. the company has paid up capital of more than twenty five crore rupees;

c. the company has revenue of more than three hundred crore rupees in the

last audited financial statement;

d. the company has market capitalization of more than five hundred crore

rupees: For the purposes of clause (d) above, the market capitalization

shall be calculated based on the average closing price of the shares for

the previous three months.

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(i i) A company listed on ITP shall be delisted and permanently removed from that

under any of the fol owing circumstances:

(a) failure to file periodic filings with the recognised stock exchange for more

than one year;

(b) failure to comply with corporate governance norm(s) for more than one

year;

(c) notwithstanding (a) and (b) above, non-compliance of the condition of

listing as may be specified by the recognised stock exchange.

Liabilities

(i) The draft and final information memorandum shall be approved by the board

of directors of the company and shal be signed by al directors, the Chief Executive

Officer, i.e., the Managing Director or Manager within the meaning of the

Companies Act, 1956 (Now Companies Act, 2013) and the Chief Financial Officer,

i.e., the whole-time finance director or any other person heading the finance

function and discharging that function.

(i ) The signatories shal further certify that al disclosures made in the information

document are true and correct.

(i i) In case of misstatement in the information document or any omission therein,

any person who has authorized the issue of information document shal be liable

in accordance with the provisions of the SEBI Act, 1992 and regulations made

there under.

Some Other Concept

A company seeking listing on ITP shal enter into an agreement with the recognized

stock exchange. Provisions regarding minimum public shareholding do not apply

to companies listed on this platform since they are not al owed to make public

issues while being listed on ITP and hence the same has been excluded from

this listing agreement.

Al recognised stock exchanges have been advised to:

(i) execute a listing agreement with companies seeking listing on ITP in line

with the Model listing agreement, without limiting or diluting any of the

requirements thereof;

(i ) make necessary and consequential amendments, if any, to their bye-

laws for the implementation of Regulations;

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(i i) Disseminate the contents of this circular on their website for easy access

to the small and medium enterprises and informed investors; and

(iv) Communicate to SEBI, the status of the implementation of the provisions

of this circular in the Monthly Development Report.

General Benefits of Listing at SME Platform in India

1. Future Financing Opportunities

Going public would provide the MSME’s with equity financing opportunities to

grow their business - from expansion of operations to acquisitions. The option of

equity financing through equity market al ows the company to raise long-term

capital and also get further credits from banks or other financial institutions on the

basis of additional equity infusion. The issuance of public shares expands the

investor base, and this in turn wil help set the stage for secondary equity

financings, including private placements.

In addition, companies often receive more favourable lending terms when

borrowing from financial institutions. In addition, equity financing lowers the debt

burden leading to lower financing costs and healthier balance sheets for the

firms.

The continuing requirement for adhering to the stock market rules for the issuers

lowers the on-going information and monitoring costs for the banks. Equity

financing also lowers the debt burden, leading to lower financing costs and

healthier balance sheets for the firms.

2. Increased visibility and prestige

Going public is likely to enhance the company’s visibility. Greater public awareness

gained through media coverage, publicly filed documents and coverage of stock

by sector investment analysts can provide the SME with greater profile and

credibility. This can result in a more diversified group of investors, which may

increase the demand for the company’s shares, leading to an increase in the

company’s value.

3. Venture Capital (VC)

It has been seen that there is greater vitality of venture capital in stock market

centered systems. The underdeveloped equity culture has made it difficult for

companies to get into the VC phase as wel as graduate from venture capital/

start-up phase to a scale of operations that would make them internationally

competitive. A vibrant equity market would prove to be an added incentive for

greater venture capital participation by providing an exit option, leading to a

reduction in their lock-in period.

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4. Liquidity for shareholders

Becoming a public company establishes a market for the company’s shares,

providing its investors with an efficient and regulated vehicle in which to trade

their own shares. Greater liquidity in the public market can lead to better valuation

for shares than would be seen through private transactions.

5. Create employee incentive mechanisms

The employees of the SME enterprises can participate in the ownership of their

own company and benefit from being shareholders. This can serve to ensure

stronger employee commitment to the company’s performance and success.

6. Facilitate growth through Mergers and Acquisitions

As a public company, company’s shares can be utilized as an acquisition currency

to acquire target companies, instead of a direct cash offering. Using shares for an

acquisition can be a tax efficient and cost effective vehicle to finance such a

transaction.

7. Encourages Innovation & Entrepreneurial Spirit

The ability of companies in their early stages of development to raise funds in the

capital markets allows these companies to grow very quickly. This growth helps

speed up the dissemination of new technologies throughout the economy. In

addition, by raising the returns available from pursuing new ideas, technologies,

etc., the capital markets facilitate entrepreneurial activities.

8. Efficient Risk Distribution

The development of the capital markets has helped distribute risk more efficiently

by transfer of risk to those best able to bear it. Thus, the capital markets ensure

that capital flows to its best uses and that riskier activity with higher payoffs are

funded.

9. Migration to Main Board Al companies listed on SME Exchange can migrate

to the Main Board of BSE at any time, provided that the shareholders approval is

accorded.

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SECTION VII

Labour Laws Applicable for MSMEs

The prosperity of any economy largely depends on industry. There can be no

labour without activity of industrial nature. The industrial law covers a spectrum

of activities like manufacturing, trading, transporting, exporting, importing, storing,

polishing, packaging etc. It also covers conditions of labour including wages

deductions against Provident Fund, ESI, employment of contractual labour etc.

Mention should be made that labour law focuses its attention more on work

aspects and the consequent remuneration whereas industrial law aims at the

origin, growth and regulation of industries, employing large number of workers

including women and children. Labour legislations are aimed at achieving

congenial relationship between employer and workmen.

Two basic features of labour legislation are that:

(i) It aims at the establishment of amicable relationship between a worker

and employer to emphasize the need for healthy participation in the

production of goods and provision of services and thereby constitute

measures for strengthening the economy of the nation.

(i ) It emphasizes that both, management and labour, belong to a single

family and should endeavour to improve the standard of living of the

workers, giving room for labour harmony.

Need for Labour Laws Compliance

It is important to mention that existing labour laws are applicable to al the sectors,

but unfortunately Indian labour for whom these laws have been enacted are not

much conversant about these laws. The malice of unfair labour practice and

victimization is stil at large. Compliance of labour legislations is neglected and

nobody treats non-compliance as a heinous crime. Besides, no government

machinery comes to the rescue of the workers at the time of distress.

Business enterprises employing personnel, both in the executive cadre as also

those categorized as workers in the context of labour laws are required to be ful y

aware of these laws. Further, considering the number and complexity of the

labour laws, professional help and assistance of an independent qualified

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professional are essentially required on a prompt and proficient basis to deal

with counselling and advise on the interpretation and compliance of applicable

legal provisions in a variety of circumstances. To ensure compliance of all these

laws, there is a need to introduce labour laws compliance by the MSMEs.

The fol owing laws are applicable for Micro, Media and Smal Scale Industries

in India:

 Employee’s Provident Funds and Miscellaneous Provisions Act, 1952

 Employees State Insurance Act, 1948

 The Contract Labour (Regulation & Abolition) Act, 1970

 Employee’s Compensation Act, 1923

 Equal Remuneration Act, 1976

 The Factories Act, 1948

 Maternity Benefit Act, 1961

 The Payment of Bonus Act, 1965

 The Payment of Gratuity Act, 1972

 The Payment of Wages Act, 1936

 Minimum Wages Act, 1948

 The Child and Adolescent Labour (Prohibition & Regulation) Act, 1986

 Industrial Employment (Standing Orders) Act, 1948

 The Industrial Disputes Act, 1947

 The Trade Union Act, 1926

 The Apprentice Act, 1961

 Labour Laws (Simplification of Procedure for Furnishing Returns and

Maintaining Registers by Certain Establishments) Act, 1988

 The Shops and Establishments Act, 1953

 The Bidi and Cigar Workers (Conditions of Employment) Act, 1966

 The Inter-state Migrant Workmen (Regulation of Employment and

Conditions of Service) Act, 1979

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Employee’s Provident funds and

Miscel aneous Provisions Act, 1952

Objectives

 To make provisions for the future of the industrial worker after he retires or

for his dependents in the case of his early death.

 Employees’ Provident Fund Scheme (EPF)

 Employees’ Family Pension Scheme (EPS)

 Employees’ Deposit linked insurance Scheme(EDLI)

Applicability

 Every establishment which is factory engaged in any industry specified in

Schedule 1 and in which 20 or more persons are employed.

 Any other establishment employing 20 or more persons which Central

Government may, by notification, specify in this behalf.

 Any establishment employing even less than 20 persons can be covered

voluntarily u/s 1(4) of the Act.

Major Compliance

 The employer shal pay the contribution payable to the EPF, EDLI and

Employees’ Pension Fund in respect of the member of the Employees’

Pension Fund employed by him directly by or through a contractor.

 It shall be the responsibility of the principal employer to pay the

contributions payable to the EPF, EDLI and Employees’ Pension Fund by

himself in respect of the employees directly employed by him and also in

respect of the employees directly employed by him and also in respect of

the employees employed by or through a contractor.

UNDER EPF

 The contributions are payable on maximum wage ceiling of Rs. 15,000 by

employee and employer.

 The employee can pay at a higher rate and in such case employer is not

under any obligation to pay at such higher rate.

 To pay contribution on higher wages, a joint request from Employee and

employer is required. In such case employer has to pay administrative

charges on the higher wages (wages above Rs. 15,000)

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 For an International Worker, wage ceiling of Rs. 15000/- is not applicable.

UNDER EPS

 Contribution is payable out of the employer’s share of PF and no contribution

is payable by employee.

 Pension contribution not to be paid:

 When an employee crosses 58 years of age and is in service (EPS

member’s ceases on completion of 58 years).

 When an EPS pensioner is drawing Reduced Pension and re-joins as an

employee.

In both the cases the Pension Contribution @8.33% is to be added to the Employer

Share of PF.

In case an employee, who is not existing EPF/EP member joins on or after 01-09-

2014 with wages above Rs. 15000/-

In these cases the pension contribution part wil be added to employee share,

EPF.

 In al other cases Pension Contribution is payable. A member joining after

50 years age, if not a pensioner does not have choice of not getting the

Pension Contribution on grounds that he wil not complete 10 years of

eligible service. The social security cover is applicable til he/she is a

member.

UNDER EDLI:

1. Contribution to be paid on up to maximum wage ceiling of Rs. 15,000

even if PF is paid on higher wages.

2. Each contribution is to be rounded to nearest rupee. (Example for each

employee getting wages above Rs.15000)

3. EDLI contribution to be paid even if member has crossed 58 years of age

and pension contribution is not payable. This is to be paid as long as the

member is in service and PF is being paid.

Benefits

 Apart from terminal disbursal of non-refundable withdrawals for Life

Insurance Policies

 Family pension

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 Retirement-cum-withdrawal benefits

 Employees’ Deposit Linked Insurance Scheme.

 House building

 Medical treatment

 Marriage

 Higher education

Main requirements of Compliance

1. The provident fund, pension and insurance benefits are protected against

attachment. It cannot be assigned or charged and shal not be liable to

attachment under any decree or order of any court.

2. Employee’s Provident Fund as also Provident Fund of exempted

establishments is a recognized provident fund under the Income Tax Act,

1961.

3. An employee is eligible to avail the rebate on income tax on is provident

fund contributions subject to ceiling prescribed under the Income Tax Act,

1961.

4. Non payment of employees provident fund dues by an employer may

lead to recovery action by regional provident fund commissioner such as

prosecution, attachment of Bank account, property, arrest and detention.

5. Non payment of employees contribution recovered from the wages of the

employees would constitute “Criminal Breach of Trust” punishable under

section 406/409 IPC.

6. Employee’s Provident Fund dues paid after due date (15th of the fol owing

month) wil result in payment of interest and penalty by employer.

7. Employee’s Provident Fund account of an employee can be transferred to

any place in the country.

8. Employee’s Provident Fund may be withdrawn partial y for certain specified

purposes such as housing, marriage, il ness, etc.

9. Al Provident Fund claims of the member are deposited by EPF office within

30 days.

10. Members are given the benefit of fil ing nomination of provident fund/

pension and employees deposit linked insurance.

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11. The annual provident fund balance is informed to every employee by the

Employee’s Provident Fund before 30th September of each year.

12. The Employee’s Provident Fund organization is marching ahead to achieve

its goal for total computerization and inter connection of all its officers in

the country so as to ensure service delivery within 2-3 days and anywhere,

at all time service and issue of social security number to all its members.

13. In order to simplify the process of PF settlement, it is instructed by EPFO

that, henceforth amount of PF Accumulation / Withdrawal Benefit may

also be credited in the Joint Bank Account of the Member as against

earlier it was being credited only in the single Bank account of the Member.

14. While joining an establishment, employee shall furnish details of previous

employment, if any, with Provident Fund Account number and Scheme

Certificate.

15. In case of exiting Provident Fund/Pension A/c apply for transfer of previous

balance to the present A/c number

16. Employee may apply for Nomination of his family members.

17. Employer shal ensure that enrolment to Employee Provident Fund/

Employee Pension Scheme is done immediately on joining of the

establishment.

18. Employee can contribute more than 12% to the Fund. However, Employer

contribution is restricted to 12%.

19. The wages of any employee should not be reduced by the employer to

meet any liability by the employer to pay contribution of PF or pension or

any charges under the Act.

20. Arrears of employees’ contribution cannot be recovered from the

subsequent wages unless specifical y permitted by the Provident Fund

Inspector.

Compliance requirement to be verified

 Whether the EPF Act, 1952 applicable to the Company

 Whether timely deposit of Employer and Employee’s dues with the

Provident Fund Commissioner/Trust.

 Whether any proceedings under the Act have been initiated against the

Directors for recovery of dues.

 If the Employer has created its own trust, whether the terms of trust are

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more beneficial than those provided under the trust?

 Whether conditions imposed by PF Commissioner for the creation of Trust

is satisfied.

 Whether the periodical returns sent by employer to the Provident Fund

Office.

 Number of members in the Employee Family Pension Scheme

 Number of members in the Employees’ Deposit Linked Insurance

Scheme

Employees’ Provident Fund Scheme (EPF)

Claim Forms

1. For final settlement by member: Form 19

2. For Transfer of old account to the new one: Form 13

3. For withdrawal in certain cases: Form 31

4. For financing LIC Policy: Form 14

5. For final settlement in favour of nominee/beneficiary of a deceased

member: Form 20

The Employees’ Pension Scheme 1995 (EPS)

Claim Forms

1. For Monthly Pension: Form 10D

2. For Withdrawal Benefit and Scheme Certificate: Form 10C

The Employees’ Deposit Linked Insurance Scheme 1976 (EDLI)

Claim Forms

1. For Claiming Insurance benefit by a nominees/beneficiary in case of

member’s death while in service: Form 51F

As on date, the Act extends to 187 classes of establishments. Any establishment

fal ing in any of the 187 categories mentioned above and employing more than

19 persons automatically comes under the purview of the EPF & MP Act, 1952. On

coming under the purview of the Act the employers are required to submit

Particulars of Ownership, [Form 5A] and comply with the relevant statutory

provisions.

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Employees State Insurance Act, 1948

Objective

To provide for health cover, Medical care and Cash benefits for

• Sickness

• Maternity

• Employment injury

• Pensions to dependents in case of Death (or) Employment injury

Applicability

• Al factories running with the aid of power and employing 10 or more

persons

• Shops (Factories not running with the aid of Power or establishment)

employing 20 or more persons

Eligibility

Employees drawing salary / wages not exceeding Rs. 21,000/- per month are

covered under the provisions of ESI Act.

Benefits

Various benefits that the insured employees and their dependents are entitled to

are as fol ows

 Medical Benefits

 Sickness Benefits

 Maternity Benefits

 Disablement Benefits

 Dependent Benefits

 Other Benefits (like funeral expenses, vocational rehabilitations, free supply

of physical aids etc.)

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ESI Contribution Rate

Obligation

Monthly Contribution

Employer Obligation

4.75% of the wages payable to an employee

Employee’s Obligation

1.75% of the wages payable to an employee

Main Requirements

 Principal employer is required to pay employees contribution at the first

instance and recover employee’s contribution from employee’s wages

for related period.

 Principal employer to require every employee before taking him into

service to furnish his particulars and that of his family in Form I.

 Principal employer shall pay for extra expenditure incurred as sickness

benefit by the corporation, if it is due to insanitary conditions at work place

or residence of the insured person, attributable to the principal employer.

 Not to discharge/ dismiss/ punish an employee during the period of

receipt of sickness benefit, maternity benefit, temporary disablement or

under medical treatment or absence due to il ness duly certified except

for reasons specified under regulation 98.

 Not to reduce the wages of employee for payment of employer’s

contribution.

 The employer is required to give all assistance to corporation in the

registration of his factory or establishment and of his employees particularly

in photographing the employees and affixing the photographs on identity

cards.

Compliances

 Every principal employer is required to register his establishment under

Section 2A.

 Principal employer shall send to the office of the corporation in Form 3 all

declaration forms by registered post/ special messenger along with

temporary identification certificate.

 Principal employer shall send family declaration in Form 1A or Form 2

submitted by the insured employee to appropriate Government.

 Principal employer shall submit annual information to Regional office in

Form 1-A.

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 To issue certificate of employment, if so requested by an insured person

who has lost his Temporary Identification Certificate.

 To furnish to corporation information of abstention of insured person in

respect of sickness/ temporary disablement benefit in Form 10.

 To record entry of accident in the accident book/ in other book either

under regulation 65 or 67 and send a report of the accident, maintenance

of accident book, to furnish particulars of accident and report of death etc.

as stipulated under the heads ‘accident’ and ‘death’ mentioned above

and furnish further particulars of accident.

 Make available records/ information to the Inspectors for the purpose of

enquiry etc.

 To maintain and submit returns and registers.

 Payment of Contribution on or before due dates.

Compliance requirement to be verified

 Whether the ESI Act applicable to the company

 Whether registration of factories and establishment under the Act

 Whether Rate of Contribution of the Employers’ in accordance with the Act

 Whether Rate of Contribution of the Employees’ in accordance with the

Act

 Whether the manner and time Limit for making payment of contribution in

accordance to the Act

 Whether Registers to be maintained by the employers

 Whether Maternity Benefits availed by any employees under the Act

 Whether Medical Benefit availed by any employees under the Act

 Whether disablement benefit given to any employee

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THE CONTRACT LABOUR (REGULATION & ABOLITION) ACT, 1970

Objectives

To regulate the employment of contract labour in certain establishments and to

provide for its abolition in certain circumstances and for matters connected

therewith.

Applicability

• Every establishment in which 20 or more workmen are employed or

were employed on any day of the preceding 12 months as contract labour.

• Every contractor who employs or who employed on any day of the

preceding twelve months 20 or more workmen.

Benefits

Fol owing benefits are provided to the employees under this Act:-

 First Aid Facilities

 Canteens Facilities

 Drinking Water Facilities

 Latrines and Urinals Facilities

 Washing Facilities

 Rest room Facilities etc.

Main requirement:

Registration of Establishment (Section 7)

 Every Principal Employer of an establishment to which this Act applies

shall, make an application to the registering officer in the prescribed

manner for registration of the establishment.

 Principal employer can take temporary registration for immediately

engaging contract labour in case of emergency for a period of not more

than 15 days.

Licensing of Contractor (Section 12)

No contractor to whom this Act applies, shall undertake or execute any work

through contract labour except under and in accordance with a license issued in

that behalf by the licensing officer.

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Responsibility

 No contractor to whom this Act applies shall undertake or execute any

work through contract labour except under and in accordance with a

license issued in that behalf by the licensing officer.

 Fol ow all the instructions mentioned in the License.

Effect of non-registration and absence of license

 The principal employer /contractor cannot employ contract labour

 They render themselves liable for prosecution for contravention under

the Act.

 It opens the possibility for contractor and the contract worker to put forward

a claim to be regular employees of the principal employer.

Practical tips for Employers

 The principal employer, while selecting a contractor shall ensure that the

contractor has adequate experience in the execution of the work that is

contracted out and his past conduct in compliance of the Act is good.

 The principal employer shall not intervene in the supervision and control

of the contract labour and it should be left entirely to the contractor

otherwise the principal employer may have to face claims to permanency

by contract labour.

 The principal employer shal ensure through his representative the

contractor is paying proper wages /minimum wages to the workers on

the due date.

 He should ensure that the PF and ESI contributions are deducted from

wages thus paid.

 Establishment shall check respective State Rules to decide applicability

and coverage under the Act.

 Establishment shall check respective State Rules in respect of registers/

forms and returns to be maintained under the Act.

Major Compliances

 Principle employer must ensure the provision for canteen, restrooms,

sufficient supply of drinking water, latrines and urinals, washing

facilities.

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131

 Contract labour either one hundred or more employed by a contractor for

one or more canteens shal be provided and maintained by the Contractor.

 Contractor must ensure the provisions for First Aid facilities, Number of

rest-rooms as required under the Act, Drinking water, latrines and washing

facilities.

 Contractor must maintain the Muster Rol , Wages Register, Deduction

Register and Overtime Register.

 To display an abstract of the act and Rules in English and Hindi and in the

language spoken by the Majority of workers in such forms as may be

approved by appropriate authority.

 To display notices showing rates of wages, hours of work, wage period,

dates of payment, names and addresses of the inspector and to send

copy to the inspector and any change for with.

Compliance requirement to be verified

 Whether the contractors have obtained license from the Licensing Authority

for the jobs assigned to them.

 Whether the Contractors get their license renewed in time?

 If not, whether the contractors have made requisite application for renewal

in time.

 Whether the contractors are employing workmen as per license and

registration certificate.

 Whether the number of workmen actual y employed by the contractors

tal ies with the number of workmen shown in the license.

 Whether the contractors are sending half-yearly and yearly returns in

time.

 Whether the contractors are issuing wages slips one day in advance from

the payment

 Whether Principle Employer maintains form in respect of contractors.

 Whether annual return is being sent by the Principle Employer in specified

form to the registering Authority.

 Whether minimum rate of wages are being paid to the contractor Labour

in the presence of authorized representative of the Principle employer.

 Whether the authorized representative of the Principle Employer gives a

certificate to this effect at the end entries in the register of wages.

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 Whether the contractors are properly depositing ESI, EPF contributions in

respect of his workmen and submitting copies of the Chal an to the HR

Department.

 Whether the contract Labour is provided the facility of rest room, canteen,

wash room etc.

 Whether the contract Labour is provided the leave with wages.

 Whether the contract Labour is being paid over time at the double rate.

 Whether the contractor workmen are ensured benefits from ESI Scheme

including issue of cards, temporary slips and are provided medical

facilities.

 Whether the contract Labour is being given contribution slips of EPF issued

by the Regional Provident Commissioner?

 In case of problem whether the HR Department or contractor render

necessary help in cases of PF and ESI.

 Whether the payment to contract Labour is being made on the pay day of

the establishment.

 Do the names of contract Labour appear on any of the shift schedules of

the company?

 Whether the leave applications and gate passes of the contract Labour

are being signed by Contractor and his agent.

 Whether the gate passes to the contract Labour are issued and signed by

the company’s employees.

 Whether the contractors are maintaining Muster Rol .

 Whether the contractors are maintaining Wages Register.

 Whether principal employer is maintaining a help desk in the company to

address the complaints / problems of the workmen.

EMPLOYEE’S COMPENSATION ACT, 1923

Objectives

The Act has been enacted to provide payment of compensation to workmen or

their dependants in case of injury / accident arising out of and in the course of

employment and resulting in disablement or death.

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133

Applicability

• It applies to workmen employed in factories, mines, plantations,

mechanical y propelled vehicles, construction works and certain other

hazardous occupations in any such capacity as is specified in Schedule I

of the Act.

• It applies to persons recruited for working abroad and who is employed

outside India in any such capacity as is specified in Schedule I of the Act.

• It also applies to a person recruited as driver, helper, mechanic, cleaner

or in any other capacity in connection with a motor vehicle and to a captain

or other member of crew of an aircraft.

Eligibility

The workmen or their dependants shall be entitled for compensation under the

Act in case of injury / accident arising out of and in the course of employment and

resulting in:

• Death, or

• Permanent Total Disablement, or

• Permanent Partial Disablement, or

• Temporary Disablement (whether total or partial)

Benefits

The workmen or their dependants shall be entitled for compensation under the

Act in case of injury / accident arising out of and in the course of employment

resulting in disablement or death.

Main Requirements

If personal injury is caused to a by accident arising out of and in the course of his

employment, his employer shal be liable to pay compensation in accordance

with the provisions of this Chapter:

Provided that the employer shal not be so liable –

(a) in respect of any injury which does not result in the total or partial

disablement of the for a period exceeding three days;

(b) in respect of any injury, not resulting in death or permanent total

disablement caused by an accident which is directly attributable to –

(i) the employee having been at the time thereof under the influence of

drink or drugs, or

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(i ) the wil ful disobedience of the employee to an order expressly given,

or to a rule expressly framed, for the purpose of securing the safety

of employees, or

(i i) the wil ful removal or disregard by the employee of any safety guard

or other device which he knew to have been provided for the purpose

of securing the safety of employee

Practical tips for Employers

 Establishment shall check respective State Rules to decide applicability

and coverage under the Act.

 Establishment shall check respective State Rules in respect of registers/

forms and returns to be maintained under the Act.

 Establishment shall consult insurance companies and cover al direct

and indirect employees

Compliance Requirement

Death

50 % of monthly wages X relevant factor or 1,20,000

whichever is more

Permanent total

60% of monthly wages X relevant factor or 1,40,000

disablement

whichever is more

Permanent partial (If scheduled injury )- % of compensation for total

disablement

disablement as loss of earning capacity(If nonscheduled

injury )- % of compensation for total disablement in

proportion to loss of earning capacity

Temporary

25% monthly wages in half monthly payments

disablement

THE MINIMUM WAGES ACT, 1948

Objectives

The Act has been enacted to provide the minimum wages in certain specified

employments. The Minimum Wages Act binds the employers to pay the minimum

wages fixed under the Act from time to time. Under the provisions of the Act both

the Central and State Government have authority to fix, review, revise and enforce

the minimum wages to workers employed in scheduled employment under

their respective jurisdictions.

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135

Applicability

It applies on persons employed in an employment specified in Part I (Non-

agricultural Employment) & Part II (Agricultural Employment) of the Schedule to

the Minimum Wages Act, 1948.

The Central Government and the State Governments have fixed different rate of

minimum wages for different spheres / sectors of employment in their

respective jurisdictions.

Main provisions

 Fixation of minimum wage of employees.

 Procedure for fixing and revising minimum wages.

 Obligation of employees.

 Rights of workers.

Practical tips for the Employer

 An establishment may seek appropriate permission for maintenance of

certain records like attendance, salary statement, leave with wage register,

etc. Such establishment shal submit an application in writing to the Labour

Commissioner for this purpose.

 The Government revised the minimum wages once/twice/thrice during

the financial year and the Establishment has paid to all its employees’

minimum wages in accordance with the rates at respective point of time

and at respective rates specified in notification under Section 5 of the Act.

 Basic salary and Dearness allowance should be equal to or more than

minimum wages prescribed by the Government from time to time.

 Establishment shall not make any unauthorized deductions from wages

of its employees and give an opportunity of being heard before imposing

any fine or recovering damages from wages of its employees.

 Establishment shall check respective State Rules to decide applicability

and coverage under the Act.

 Establishment shall check respective State Rules in respect of registers/

forms and returns to be maintained under the Act.

Compliances Requirement

 Payment of minimum wages and extra remuneration for extra work, i.e.,

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overtime in respect of work for more than 9 hours on any day and 48

hours in any week and such overtime payment is double the ordinary rate

of wages.

 Adhere to norms as to work hours and spread over etc.

 Grant a day of rest in a week with wages.

 Pay wages even a workers work for less than normal working hours.

 Pay wages in cash and if permitted by Appropriate Government in kind.

 Pay wages on working day on 7th or 10th of every month.

 Maintain Register of fines/damages or loss, overtime, muster rol , wage

slip, inspection book and wage register etc.

 Maintain records for 3 years.

 Produce al records/ register on demand by the Inspector appointed under

the Act.

 Display notice of minimum wages and extracts of the Act.

 The employer shal intimate the employee in writing about the act or

omission or damage or loss for which the deduction and the amount

thereof is proposed and offer him an opportunity to submit his explanation

in the presence of another person and stick to the limits of deduction.

 Al deductions to be recorded in the register.

THE PAYMENT OF WAGES ACT, 1936

Objectives

The Act has been enacted to regulate the payment of wages of certain specified

classes of workers. The Act provides for prompt and effectual remedy to the

workers against il egal and unjustified deductions from their wages. Further, the

Act also seeks to ensure timely payment of wages to workers and prescribes

mode of payment of wages to the employed persons.

Applicability

 It applies to al persons employed, whether directly or through contractors,

in a factory or certain specified industrial or other establishments.

 Applicable on employees drawing wages up-to Rs. 18000/- per month.

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Main Provisions

 Responsibility of the employer for payment of wages and fixing the wage

period.

 Procedures and time period in wage payment.

 Payment of wages to discharged workers.

 Permissible deductions from wages.

 Nominations to be made by employees.

 Penalties for contravention of the Act.

 Equal remuneration for men and women.

 Obligations and rights of employers.

 Obligations and rights of employees.

Main Requirements:

 Every employer shal be responsible for the payment to persons employed

by him of all wages required to be paid under this Act.

 The main objective of the Act is to avoid unnecessary delay in the payment

of wages and to prevent unauthorized deductions from the wages.

 The total deductions in any wage period shal not exceed 75% of wages

in case of deductions made to co-operative societies and in all other

cases 50%.

 Wages must be paid on a working day and not on holiday.

 Establishment employing less than 1,000 persons must pay wages before

the expiry of the 7th day of every month and other establishment must pay

wages before the expiry of the 10th day of every month.

 When the employment of any person is terminated, the wages earned by

him must be paid before the expiry of the second working day from the

day of termination.

 An advance of wages shall not exceed four months wages and the

advance may be recovered in instalments by deductions from wages

spread over not more than 18 months. No instalment shal exceed 1/3rd of

the wages for the month. The rate of interest charged for advance shal

not exceed 6.25 % per annum.

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Practical tips to Employees

 Payment of wages by credit to the bank account of respective employee

is considered as compliance of this Act. Labour Authorities may consider

payment of wages in cash as bogus payment.

 In one of the case Supreme Court held that a right to carry on business is

subject to compliance of constitutional obligations and as such financial

stringencies may not a ground for non-payment of wages to the

employees.

 Every year the employer shal give increment in salary to all its employees

based on their performance and efficiency unless the establishment has

become economical y weak.

 Establishment shall check respective State Rules to decide applicability

and coverage under the Act.

 Establishment shall check respective State Rules in respect of registers/

forms and returns to be maintained under the Act.

Compliance requirement to be verified

 Whether the Payment of Wages Act, 1936 applicable to the company.

 Number of employee drawing average wage per month as prescribed

under the Act.

 Whether the numbers of employees are less than 1000 or more than

1,000.

 Whether the payment of wages made before the due date as per Payment

of Wages Act, 1936.

 When less than 1000 persons are employed wages shall be paid before

the expiry of the 7th day of the fol owing month. When more than 1000

workers, wages shall be paid before the expiry of the 10th day of the

fol owing month.

 Whether any deduction has been made from the wages of the employee.

If yes whether the deduction are eligible deduction or not

 Eligible deduction: Deductions such as, fine, deduction for amenities and

services supplied by the employer, advances paid, over payment of wages,

loan, granted for house-building or other purposes, income tax payable,

in pursuance of the order of the Court, PF contributions, cooperative

societies, premium for Life Insurance, contribution to any fund constituted

by employer or a trade union, recovery of losses, ESI contributions etc.

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 Whether any deduction has been made on account of damage or loss.

 If any deduction has been made on account of damage or loss, whether

any Show cause notice has been given to the employee.

 Whether any deduction has been made on unauthorized absence. If yes,

whether the opportunity of being heard is given or not.

 Whether registers and records giving particulars of persons employed,

the work performed by them, the wages paid to them, the deductions

made from their wages, the receipts given by them are maintained and

preserved for a period of 3 years or more.

 Whether employer display the abstract of the Act and Rules made

thereunder .

MATERNITY BENEFIT ACT, 1961

Objectives

The Act has been enacted to regulate the employment of women in certain

establishments for a certain period before and after the child birth and also to

provide for maternity and other benefits.

Applicability

 It applies to every establishment being a factory, mine or plantation

including any such establishment belonging to Government and to every

establishment wherein persons are employed for the exhibition of

equestrian, acrobatic and other performances;

 It also applies to every shop or establishment within the meaning of any

law for the time being in force in relation to shops and establishments in

a State, in which 10 or more persons are or were employed on any day of

the preceding 12 months;

Eligibility

 Every woman shal be entitled to maternity benefit;

 No woman shall be entitled to maternity benefit unless she has actually

worked in an establishment for a period not less than 80 days during 12

months immediately preceding the date of her expected delivery.

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Benefits

 Maternity Benefits may be claimed for a maximum period of twenty-six

weeks of which not more than eight weeks shall precede the date of her

expected delivery.

 Maternity Benefits are calculated at the rate of Average Daily Wages for

the period of her actual absence.

Main Requirements

 Minimum 80 days of actual work (includes lay off / holidays) with the

employer, in 12 months prior to date of expected delivery.

 She should take payment for the first six weeks before she goes on leave

 She wil get the payment for the six weeks after child birth within 48 hours

of giving proof that she has delivered a child.

 Employer shal be responsible for the payment of bonus of Rs. 3500 (or as

amended from time to time) to woman employee who is entitled to receive

the maternity benefit. The medical bonus shall be paid along with the

second installment of the maternity benefit.

 She wil be entitled to two nursing breaks of 15 minutes each in the course

of her daily work, til her child is 15 months old.

 Her employer cannot discharge her or change her conditions of service

while she is on maternity leave.

 On receipt of notice in writing in Form I cum nomination for maternity

benefit, the employer shall permit the woman to absent herself from the

workplace.

 She has to produce the production of certificate in Form 2 from Registered

Medical Practitioner certifying the proof of pregnancy, delivery, miscarriage

or il ness arising out of pregnancy etc

 She wil get additional leave of one month with pay if the woman shows

the proof of il ness due to the pregnancy, delivery, miscarriage or premature

birth of child.

 Employer cannot discharge or terminate her while she is on maternity

leave.

 Women discharged for gross misconduct cannot claim maternity

benefit.

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141

Compliance requirement to be verified

 Whether the Maternity Benefit Act, applicable to the company

 Whether the employer knowingly employing a woman in any

establishment during the six weeks immediately fol owing the day of her

delivery or her miscarriage.

 Whether any pregnant woman made any request, not to give her any

work which is of an arduous nature or which involves long hours of

standing, etc. during the period of one month immediately preceding the

period of six weeks, before the date of her expected delivery .

 Whether any woman employee entitled maternity benefit, medical bonus

and nursing break .

 Whether the employer exhibited the abstract of the provisions of the Act

and the rules made thereunder in a conspicuous place in every part of the

establishment in which women are employed.

 Whether the employer maintain a muster rol in the prescribed form.

 Whether the employer submitted annual returns in the prescribed forms.

THE CHILD AND ADOLESCENT LABOUR

(PROHIBITION AND REGULATION) ACT, 1986

Objective

To prohibit the engagement of children in all occupations and to prohibit the

engagement of adolescents in hazardous occupations and process and the

matters connected there with or incidental thereto.

Applicability

It extends to the whole of India.

Main Provisions

 Prohibition of employment of adolescent in certain occupations and

processes

 Child Labour Technical Advisory Committee

 Hours and period of work

 Weekly holidays

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 Notice to Inspector

 Maintenance of register

 Health and safety

Compliance requirement to be verified

 Whether Employer employed any adolescene labour in hazardous

occupations or process set forth in the schedule.

 Whether maintain Register in respect of adolescent employed or permitted

to work

 Whether maintain Certificate of age whenever required by the Inspector.

EQUAL REMUNERATION ACT, 1976

Objectives

The Act provides for the payment of equal remuneration to men and women

workers for the same work or work of a similar nature and for the prevention of

discrimination on the ground of sex against women in the matter of employment.

Main Provisions of the Act

 No employer shall pay to any worker employed by him remuneration at

rates less favourable than those at which remuneration is paid by him to

the workers of the opposite sex for performing the same work or work of

similar nature.

 No employer shall make any discrimination against women while

making recruitment for the same work or work of a similar nature.

 Every employer shall maintain in the prescribed form a register in relation

to the workers employed by him.

Benefits

 Act provides for the payment of equal remuneration to men and women

workers for the same work or work of a similar nature and for the prevention

of discrimination on the ground of sex against women in the matter of

employment.

 Right of Complaints with regard to the contravention of any provision of

the Act and claims arising out of non-payment of wages at equal rates to

men and women workers for the same work or work of similar nature.

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Compliance Requirements

 Employer shall not pay less remuneration to workers than that paid to

workers of opposite sex for same work or work of similar nature.

 Employer shall not reduce rate of remuneration of any worker.

 Employer shal not make any discrimination against women at the time of

recruitment for same work or work of similar nature.

 Employer shall check respective State Rules to decide applicability and

coverage under the Act.

 Employer shall check respective State Rules in respect of registers/forms

and returns to be maintained under the Act.

THE FACTORIES ACT, 1948

Objectives

The Act has been enacted to regulate the working conditions in factories and to

ensure provision of the basic minimum requirements for safety, health and welfare

of the workers as wel as to regulate the working hours, leave, holidays,

employment of children, women, etc.

Applicability

 Any premises including the precincts thereof where 10 or more workers

are or were working on any day of the preceding 12 months and in any

part of which a manufacturing process is being carried on with the aid of

power or is ordinarily so carried on; or

 Any premises including the precincts thereof where 20 or more workers

are or were working on any day of the preceding 12 months and in any

part of which a manufacturing process is being carried on without the aid

of power or is ordinarily so carried on

Main Requirements

Formalities before Starting a Factory

 Submit a plan of factory to Chief Inspector or State Government.

 Obtain permission of the site of Factory from Chief Inspector or State

Government

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 Pay prescribed registration and license fees

 Give notice of occupation of factory with all details.

 Submit a plan of factory to Chief Inspector or State Government.

 Obtain permission of the site of Factory from Chief Inspector or State

Government

 Pay prescribed registration and license fees

 Give notice of occupation of factory with all details.

Duties of Occupier

 Submit a plan of factory to Chief Inspector or State Government.

 Obtain permission of the site of Factory from Chief Inspector or State

Government

 Pay prescribed registration and license fees

 Give notice of occupation of factory with all details.

Provisions for Health

 Health and Safety policy

 Cleanliness- to keep free from effluents, dirt, drains, clean and white

wash.

 Disposal of wastes and effluents

 Ventilation and temperature

 Artificial Humidification

 Provision for exhaust appliances

 Overcrowding

 Lighting – artificial and natural

 Drinking water

 Latrines and urinals

Provisions for Safety

 Fencing of machinery

 Precautions for work on or near machinery in motion

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 Employment of young persons

 Striking gear

 Self acting machines

 Casing of machinery

 Employment of women and Children

 Lifting machines, chains etc

 Revolving machinery

 Pressure Plants

 Floor Stairs

 Pits and Sumps

 Excessive weights

 Protection of eyes

 Dangerous fumes

 Explosive or inflammable light

 Fire

Provisions for Welfare

 Washing facilities

 Storing and drying wet clothes

 Sitting facilities

 First aid box, ambulance room and dispensary

 Canteen

 Shelters/ Rest room / Lunch room

 Crèches

Benefits

 Prevent haphazard growth of factories through the provisions related to

the approval of plans before the creation of a factory.

 Regulates working condition in factories.

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Compliance requirement to be verified

 Focus of Compliances shall be on Health, Safety, Welfare and security of

the employee.

 Establishment shall check respective State Rules to decide applicability

and coverage under the Act.

 Establishment shall check respective State Rules in respect of registers/

forms and returns to be maintained under the Act.

 Whether the Factories Act, 1948 applicable to the company

 Whether the Employer to ensured with the health of workers pertaining to

cleanliness, overcrowding etc.

 Whether the Employer appointed the Manager/Occupier of the factory

under the Act and sent notice to the Inspector of Factory

 Whether Safety Measures taken by the Employer and appointed safety

officer

 Whether Welfare Measures taken by the Employer and appointed Welfare

office where there are 500 or more workers are working.

 Whether the employer complied with the Working Hours, Spread Over

and Overtime of Adults

 Whether the employer complied with the provisions relating to Annual

Leave with Wages

 Whether the employer complied with the provisions relating to

Employment of Young Persons

 Whether the employer complied with the washing facilities like facilities

for storing and drying clothing.

 Whether the employer complied with the First-aid appliances – one first

aid box not less than one for every 150 workers.

 Whether the employer complied with the provision of crèches when there

are 30 or more women workers.

 Whether the employer complied with the provisions of canteens when

there are 250 or more workers.

 Whether the employer complied with the provisions of shelters, rest rooms

and lunch rooms when there are 150 or more workers employed.

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THE PAYMENT OF GRATUITY ACT, 1972

Objectives

The Act has been enacted to provide for a scheme for payment of gratuity to

employees engaged in factories, mines, oilfields, plantations, ports, railway

companies, shops or other establishments upon their superannuation, retirement,

resignation, death or disablement due to accident or disease.

Applicability

 It applies to every factory, mine, oilfield, plantation, port and railway

company, shop or establishment in which 10 or more persons are or were

employed on any day of the preceding 12 months;

 It applies to all such other establishments or class of establishments in

which 10 or more persons are or were employed on any day of the

preceding 12 months as the Central Government may, by notification,

specify in this behalf.

Eligibility

 Gratuity is payable to employees who have rendered continuous service

of at least 5 years.

 Act provides a scheme for payment of gratuity to employees engaged in

their superannuation, retirement, resignation, death or disablement due

to accident or disease.

Compliance requirement to be verified

 Whether the Gratuity Act applicable to the company

 Whether there are employees who has worked for continuous period of 5

years or more

 Whether proper provisions has been made in the books of accounts for

the payment of Gratuity.

 Whether any gratuity has been paid to any employee. If yes, check the

calculation of the gratuity.

• Generally @ 15 days’ wages for every completed year as if the

month comprises of 26 days at the last drawn wages.

• In case of Piece-rated employee: @ 15 days wages for every

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completed year on an average of 3 months’ wages

• In case of Seasonal employee: @ 7 days’ wages for every completed

year of service

• The maximum ceiling of Gratuity is Rs. 10 Lakhs

 Whether details of nomination as sent by employee kept in safe custody

 Whether gratuity of any employee has been forfeited. If yes whether an

opportunity of being heard is given or not.

 Whether the gratuity has been for forfeited for the reasons as specified in

the Act or not.

 Whether employer display the abstract of the Act and Rules made

thereunder at or near the main entrance.

THE PAYMENT OF BONUS ACT, 1965

Objectives

The Act has been enacted to provide & regulate the payment of bonus to

employees in certain specified establishments either on the basis of profits or on

the basis of productivity of the establishment.

Applicability

• Payment of Bonus Act, 1965 applies to every factory and to every other

establishment in which 20 or more persons are employed on any day

during an accounting year;

• The Government may also apply the act on any factory or establishment

in which has less than 20 but not less than 10 persons are employed;

• Payment of Bonus Act, 1965 is applicable on every employee whether

doing any skilled, unskilled, manual, supervisory, managerial,

administrative, technical or clerical work for hire or reward and whether

the terms of employment are express or implied.

Eligibility

• Payment of Bonus Act, 1965 is applicable on employees drawing wages

/ salary up-to 21,000/- per month.

• Only those employees are entitled for bonus, who has worked for at least

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149

30 working days in an accounting year.

Main Requirements

 Payment of Minimum bonus: 8.33% of Salary or Wages (Basic + DA) or

Rs. 100, whichever is higher

 Payment of Maximum : 20% of Salary or Wages

 The principle behind fixing a minimum and maximum limit for payment of

Bonus is that rate of Bonus should not fluctuate widely from year to year.

 If an employee has not worked for all the working days in an accounting

year the minimum bonus shall be proportionately reduced. Computation

of Available Surplus: Gross Profit minus sums deductible u/s 6 like

Depreciation, Taxes, Dividend etc and sums mentioned in Schedule I I.

 Calculate Al ocable Surplus: 60%of Available Surplus.

 Set On- if allocable surplus exceeds maximum bonus.

 Set off- if al ocable surplus fall short of minimum bonus.

Bonus Act Not Applicable to:

 To the employees of insurer carrying on the business of general insurance

and employees of LIC

 Seaman, Dock workers

 Establishments belonging to Governments

 Employees of Red cross Society, Universities and other educational

institutions

 Employees of RBI

 Employees of IFCI, UTI, IDBI, NABARD etc

 Employees of inland water transport establishments

Compliance requirement to be verified

 Whether the Payment of Bonus Act, 1965 applicable the company

 Whether Computation of available surplus, allocable surplus and

Components of Bonus are accurately computed by the company.

 Whether any amount Deducted from Bonus

 Checked the eligibility of employees for entitlement of Bonus

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 Whether minimum amount of bonus payable by the company

 Whether maximum amount of bonus payable by the company

 Whether company adhered to time line for payment of bonus

 Whether company Maintained of Registers and Records etc showing

details of amount of bonus due to each employee

 Whether company submitted to the Inspector the Return of payment of

bonus

 Whether the Set-off and Set-on of bonus as per Schedule IV of the Act.

THE APPRENTICES ACT, 1961

Applicability

The Act is applicable only to any area or to any industry within the meaning of

section 2(k) of the Act as notified by central Government or to any special

apprenticeship scheme for imparting training to apprentices as notified by Central

Government. Thus it is not applicable to any area industry without Government

notification.

Main Requirements

 A person shall not be qualified for being engaged as an apprentice to

undergo apprenticeship training in any designated trade, unless he-

• Is not less than fourteen years of age, and

• Satisfies such standards of education and physical fitness as may

be prescribed:

• Different standards may be prescribed in relation to apprenticeship

training in different designated trades

 He has entered into a contract of apprenticeship with the employer

Compliance requirement to be verified

 Whether the Apprentices Act, 1961 applicable to the company.

 Whether the age of Apprentice is more than 14 years or not.

 Whether the Apprentices employed in designated trade.

 Whether the physical fitness of the Apprentices is as per the prescribed

standard.

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151

 Whether the working hours, overtime, leave and holidays of apprentices

are within the limit as prescribed in the Act.

 Whether an agreement has been entered with the Apprentice.

 Whether minimum stipend paid by the employer.

 Whether the Register of attendance of apprentice undergoing apprentice

training maintained by the employer.

 Whether provisions for reservation of apprentice training places for SC/

ST/OBC in designated trade.

 Whether contract of Apprenticeship send by employer to the

Apprenticeship Advisor for registration.

THE INDUSTRIAL EMPLOYMENT (STANDING ORDERS) ACT, 1946

Applicability

Act applicable to industrial establishment where one hundred or more (fifty or

more for Karnataka & Maharashtra States) workmen are employed, or were

employed on any day of the preceding twelve months.

Main requirements

 The employer has to submit to the certifying officer draft standing orders

for certification within 6 months from the date of applicability of the Act.

 The draft standing orders should provide for every matter set out in the

Schedule.

 The employer has to pay subsistence allowance at prescribed rates if he

suspends an employee pending investigation / enquiry into the charges.

 Posting of Standing Orders or Model Standing Orders along with al the

amendments, finally certified prominently on special board in English or

in the language understood by majority of workmen.

 Filing a copy of the certified standing orders in the register in Form I I.

Matters to be provided in standing orders under the Act

1. Classification of workmen e.g.: whether permanent, temporary,

apprentices, probationers, or badlis.

2. Manner of intimating to workmen, periods and hours of work, holidays,

pay days, wage rates.

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3. Shift Working

4. Attendance and late coming.

5. Conditions of, procedures in applying for, and the authority which may

grant leave and holidays.

6. Requirement to enter premises by certain gates, and liability to search.

7. Closing and reopening of sections of the industrial establishment, and

temporary stoppage of work and the rights and liabilities of the employer

and workmen arising there from

8. Termination of employment, and the notice thereof to be given by the

employer and workmen.

9. Suspension or dismissal for misconduct, and acts for omissions which

may constitute misconduct.

10. Means of redress for workmen against unfair treatment or wrongful

exactions by the employer or by his agents or servants.

Compliance requirement to be verified

 Whether the Industrial Employment (Standing Order) Act, 1946 applicable

to the company.

 Whether one hundred or more workmen are employed, or were employed

on any day of the preceding twelve months.

 Whether the industrial establishment submitted to the Certifying Officer,

five copies of the draft Standing Orders proposed by him for adoption in

the establishment.

 Whether the text of the Standing Orders as finally certified prominently

posted by the company in English and in the language understood by the

majority of workmen on special boards to be maintained for the purpose.

 Whether the industrial establishment modified the Standing Orders, on

agreement between the employer and the workmen or a trade union or

other representative body of the workmen.

 Whether any workman suspended by the industrial establishment

pending investigation or inquiry into complaints or charges of misconduct.

 Whether the industrial establishment paid any subsistence allowance to

any suspended employees.

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LABOUR LAWS (SIMPLIFICATION OF PROCEDURE FOR

FURNISHING RETURNS AND MAINTAINING REGISTERS BY

CERTAIN ESTABLISHMENTS) ACT, 1988

Applicability

 Small Establishment & Very Small Establishment

 Smal establishment means an establishment in which not less than ten

and not more than forty persons are employed or were employed on

any day of the preceding twelve months.

 Very small establishment means an establishment in which not more

than nine persons are employed or were employed on any day of the

preceding twelve months.

 Establishment has the meaning assigned to it in a Scheduled Act, and

includes –

(i) an “industrial or other establishment” as defined in Sec. 2 of the

Payment of Wages Act, 1936 ;

(i ) a “factory” as defined in Sec. 2 of the Factories Act, 1948 ;

(i i) a factory, workshop or place where employees are employed or

work is given out to workers, in any scheduled employment to

which the minimum wages Act, 1948 , applies.

(iv) a “plantation” as defined in Sec. 2 of the Plantations Labour Act,

1951; and (v) a “newspaper establishment” as defined in Sec. 2 of

the Working Journalists and other Newspaper Employees

(conditions of Service) and Miscel aneous Provisions Act, 1955.

Fol owing are the sixteen Acts specified in the Schedule. They are as under:

1. The Payment of Wages Act, 1936

2. The Weekly Holidays Act, 1942

3. The Minimum Wages Act, 1948

4. The Factories Act, 1948

5. The Plantations Labour Act, 1951

6. The Working Journalists and other Newspaper Employees (Conditions of

Service) and Miscellaneous Provisions Act, 1955

7. The Motor Transport Workers Act, 1961

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8. The Payment of Bonus Act, 1965

9. The Beedi and Cigar Workers (Conditions of Employment) Act, 1966

10. The Contract Labour (Regulation and Abolition) Act, 1970

11. The Sales Promotion Employees (Conditions of Service) Act, 1976

12. The Equal Remuneration Act, 1976

13. The Inter-State Migrant Workmen (Regulation of Employment and

Conditions of Service) Act, 1979

14. The Dock Workers (Safety, Health and Welfare) Act, 1986

15. The Child Labour (Prohibition and Regulation) Act, 1986

16. The Building and Other Construction Workers (Regulation of Employment

and Conditions of Service) Act, 1996

Compliance requirement to be verified

 Employer of very small establishments furnishes annual return in Form I

 Employer of very smal establishments maintains at the work spot a register

in Form I I

 Employer of small establishments furnishes annual return in Form I

 Employer of small establishments maintains at the work spot registers in

Form I and Form I I

 Every such employer shal continue to issue wage slips in the Form

prescribed in the Minimum Wages (Central) Rules, 1950 made under

sections 18 and 30 of the Minimum Wages Act, 1948

 Every such employer to issue slips relating to measurement of the amount

of work done by piece-rated workers required to be issued under the

Payment of Wages (Mines) Rules, 1956 made under sections 13A and 26

of the Payment of Wages Act, 1936

 Every such employer to file returns relating to accidents under sections 88

and 88A of the Factories Act, 1948 and sections 32A and 32B of the

Plantations Labour Act, 1951.

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 Annual return in Form I and the registers in Forms I and I I and wage slips,

wage books and other records, may be maintained by an employer either

in physical form or on a computer, computer floppy, diskette or other

electronic media.

 In case of computer, computer floppy, diskette or other electronic form, a

printout of such returns, registers, books and records or a portion thereof

is made available to the Inspector on demand.

RECOMMENDED BEST PRACTICES TO EMPLOYER

 If you are in doubt about applicability of certain provisions in labour laws,

please approach local labour authorities

 It is appropriate to seek exemption from applicability of certain provisions

than presuming those provisions would not apply to your entity/

establishment e.g. many companies provide benefits to women in excess

of those required under Maternity Benefits Act. It would be inappropriate

to presume exemption under this law, without obtaining formal approval

from Labour authorities.

 One should keep track of amendments to Labour Laws and keep

management advised of those changes.

 An establishment should present compliance statement to the

management highlighting non-compliances, if any.

 In the event of any non-compliance, establishments should not hesitate

to contact local labour authorities in order to promptly remediate the breach.

 Establishments may consider making effective use of MS Word/ Excel (or

comparables) or robust tool for maintaining database of employees

containing data required under various labour laws e.g. name, address

grade, date of joining….etc.

FOR NEWLY SET UP ESTABLISHMENTS

 To develop good understanding on basic facts about the establishment,

its operations, nature of business, network of branches/ factories etc.

 To check applicability of laws (and specific terms used under labour laws

e.g. workman, factory, apprentice etc.)

 To ensure compliance under local State laws (including rules)

 To seek appropriate professional advice on case to case basis to avoid

potential breach scenarios.

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 To prepare list of compliances applicable to such establishment or its

respective branches/ factories/ units (depending on the facts)

 To al ocate the role of implementing and tracking compliances on regular

basis

 To conduct training/ awareness sessions for those who are having

responsibility for compliance

 To encourage team members to attend training programs on labour laws

to understand industry practices and develop knowledge

 Conducting sessions for benefit of employees to explain new provisions

e.g. Sexual Harassment related legislation etc.

PRACTICAL TIPS FOR EMPLOYERS

 Enhance awareness about Labour Laws

 Seek clarification from Labour authorities, if in doubt.

 Set mechanism to review applicability of Laws

 Review company policies to ensure alignment with Labour Laws.

 Send do’s and don’ts to employees to avoid loss of benefit to employees

due to ignorance

 Take corrective steps in case of non-compliance

 Set up Compliance Check-List

 Keep track of amendments

 Do not Treat compliance casually

 Do not Ignore key definitions for each Labour Law

 Do not Fol ow malpractices

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SECTION VIII

ENVIRONMENTAL LAWS COMPLIANCES FOR MSMEs

Introduction

India’s economic development propelled by rapid industrial growth and

urbanization is causing severe environmental problems that have local, regional

and global significance. Deforestation, soil erosion, water pol ution and land

degradation continue to worsen and are hindering economic development in

rural India, while the rapid industrialization and urbanization in India’s booming

metropolises are straining the limits of municipal services and causing serious

environmental problems.

The Government of India has established an environmental legal and institutional

system to meet these challenges within the overall framework of India’s

development agenda and international principles and norms. The National

Environment Policy of 2006 provides a guide to action in regulatory reform,

environmental conservation, and enactment of legislation by government

agencies at all levels. India also has a number of national policies governing

environmental management, including the National Policy on Pol ution Abatement

(NPPA, 1992) and the National Conservation Strategy and Policy Statement on

Environment and Development (NCS/PSED, 1992). While these national policies

are not judicially enforceable, they serve as guiding principles for the Central and

State Governments to fol ow.

Legal Framework

India has an elaborate legal framework with over number of laws relating to

environmental protection. Key national laws for the prevention and control of

industrial and urban pol ution include the fol owing:

 Water (Prevention and Control of Pol ution) Act, 1974;

 Water (Prevention and Control of Pol ution) Cess Act, 1977;

 Air (Prevention and Control of Pol ution) Act, 1981;

 Environment (Protection) Act, 1986;

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 The Public Liability Insurance Act, 1991;

 The Biodiversity Act, 2002

 The National Green Tribunal Act, 2010

 Hazardous Wastes (Management, Handling and Transboundary

Movement) Rules, 2016.

The Water (Prevention and Control of Pol ution) Act, 1974 has been enacted to

provide for the prevention and control of water pol ution and maintaining or

restoring wholesomeness of water, for the establishment of Boards, with a view

to carrying out these purposes, for the prevention and control of water pol ution,

for conferring on and assigning to such Boards powers and functions relating

thereto and for matters connected therewith.

The Air (Prevention and Control of Pol ution) Act, 1981 provides for the prevention,

control and abatement of air pol ution. The Air Act gave the central and state

boards authority to issue consents to industries operating within designated air

pol ution control areas. States also prescribe emission standards for stationary

and mobile sources.

The Environment Protection Act, 1986 provides for the protection and

improvement of environment and the prevention of hazards to human beings,

other living creatures, plants and property.

The Act fixes responsibility on persons carrying on industrial operations for

handling hazardous substances to comply with certain safeguards for the

prevention, control and abatement of environmental pol ution and also enjoins

upon them responsibility to furnish certain information to the authorities in certain

cases. The Central Government has been granted general powers for taking all

necessary measures for protecting the quality of the environment, for laying

down standards for emission or discharge of environmental pol utants, and

safeguards for prevention of accidents and in respect of handling hazardous

substances, requiring persons to furnish certain information, issuing directions to

persons, planning nationwide pol ution control programmes and co-ordination

of the actions of various agencies and authorities etc.

Among other relevant legislation, the Public Liability Insurance Act, 1991

mandates that business owners operating with hazardous substances take out

insurance policies covering potential liability from an accident and establish

Environmental Relief Funds to deal with accidents involving hazardous

substances.

Biological Diversity Act, 2002 provides for conservation of biological diversity,

sustainable use of its components and fair and equitable sharing of the benefits

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159

arising out of the use of biological resources, knowledge and for matters connected

therewith or incidental thereto.

The Biological Diversity Act, 2002 outcome of India’s attempt to realise the

objectives enshrined in the United Nations Convention on Biological Diversity

(CBD) 1992 which recognizes the sovereign rights of states to use their own

Biological Resources. The Biological Diversity Act, 2002 aims at the conservation

of biological resources and associated knowledge as wel as facilitating access

to them in a sustainable manner and through a just process.

Taking into account the large number of environmental cases pending in higher

courts, a need was felt to establish a specialized Tribunal to handle the

multidisciplinary issues involved in environmental cases. Accordingly, Parliament

enacted a law to provide for the establishment of the National Green Tribunal for

effective and expeditious disposal of civil cases relating to environmental

protection and conservation of forests and other natural resources including

enforcement of any legal right relating to environment.

The National Green Tribunal Act, 2010 intends to provide for the establishment

of a National Green Tribunal for the effective and expeditious disposal of cases

relating to environmental protection and conservation of forests and other natural

resources including enforcement of any legal right relating to environment and

giving relief and compensation for damages to persons and property and for

matters connected therewith or incidental thereto.

National Green Tribunal is a specialized body equipped with the necessary

expertise to handle environmental disputes involving multidisciplinary issues.

The Tribunal shal not be bound by the procedure laid down under the Code of

Civil Procedure, 1908, but shal be guided by principles of natural justice. The

Tribunal’s dedicated jurisdiction in environmental matters shall provide speedy

environmental justice and help reduce the burden of litigation in the higher Courts.

The Central Government has enacted the National Green Tribunal Act, 2010

thereby repealing National Environment Tribunal Act, 1995 and National

Environment Appellate Authority Act, 1997.

AIR (PREVENTION AND CONTROL OF POLLUTION) ACT, 1981

Objective

The objective of the Act is to provide for the prevention, control and abatement of

air pol ution, for the establishment, with a view to carrying out the aforesaid

purposes, of Boards, for conferring on and assigning to such Boards powers and

functions relating thereto and for matters connected therewith.

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Scope and coverage

 The Act is applicable to whole India.

 Central / State Govt. in consultation with SPCB is vested with power to

declare AIR POLLUTION CONTROL AREA in which the provisions of the Act

shal be applicable.

 No person can establish or operate any industrial plant without the

consent of State Pol ution Control Board shall complete the formalities to

either grant or refuse consent

Major Requirements

 Comply with the conditions in the “Consent to Establish” or “Consent to

Operate”

 Not to discharge air pol utant(s) in excess of the prescribed standards

 Furnish information to the SPCB of any accident or unforeseen act or event

 Al ow entry to the SPCB to ascertain that provisions of the Act are being

complied with

 Provide information to enable SPCB to implement the Act

 Provide access to the SPCB for taking samples

 Comply with the directions issued in writing by the SPCB

 Apply for the renewal of “Consent to Operate” before expiry of the validity

period

 Consent to be deemed as granted after four months from the date of

receipt of application if no communication from the SPCB is received

 A prior “Notice of Inspection” to be served by the SPCB

 Industry to ensure that specified emission sampling procedure is being

fol owed by the SPCB

 Opportunity to file objections with the SPCB within 15 days from the date of

service of notice

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THE NOISE POLLUTION

(REGULATION AND CONTROL) RULES, 2000

Objective

Aiming to regulate and control noise from sources like, industrial activity,

construction activity, generator sets, loud speakers, public address systems, music

systems, vehicular horns and other mechanical devices.

Major Compliances

 The noise levels in any area/zone shal not exceed the ambient air quality

standards in respect of noise as specified in the Schedule.

 A loud speaker or a public address system shall not be used except after

obtaining written permission from the authority

 A loud speaker or a public address system shal not be used at night

(between 10.00 p.m. to 6.00 a.m.) except in closed premises for

communication within, e.g. auditoria, conference rooms, community halls

and banquet hal s.

Role of State Government and other authorities:

 The State Government may categorize the areas into industrial,

commercial, residential or silence areas/zones for the purpose of

implementation of noise standards for different areas.

 The State Government shal take measures for abatement of noise

emanating from vehicular movements and ensure that the existing noise

levels do not exceed the ambient air quality standards specified under

these rules.

 Al development authorities, local bodies and other concerned authorities

while planning developmental activity or carrying out functions relating to

town and country planning shall take into consideration all aspects of

noise menace and to achieve the objective of maintaining the ambient air

quality standards in respect of noise.

 An area comprising not less than 100 metres around hospitals, educational

institutions and courts may be declared as silence area/zone for the

purpose of these rules.

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Ambient Air Quality Standards in respect of Noise

Area Code

Category of

Limit in dB(A)

Leq*

Area/Zone

Day Time 1

Night Time 2

(A)

Industrial area

75

70

(B)

Commercial area

65

55

(C)

Residential area

55

45

(D)

Silence area

50

40

*Leq: It is energy mean of the noise level over a specified period.

1. Day time shall mean from 6.00 a.m. to 10.00 p.m.

2. Night time shall mean from 10.00 p.m. to 6.00 a.m.

Compliance requirement to be verified

 Whether the company comply with the direction for use of approved fuel –

Adhering to the directions of State Government regarding use of approved fuel.

 Whether the company made an application for consent to establish or

operate any industrial plant in air pol ution control area-

A company shall have to obtain prior consent of the State Board, to establish or

operate any industrial plant in an air pol ution control area. Upon consent being

granted by the State Board to the Company, the Company shall comply with the

conditions as may be imposed by the State Board within the stipulated period.

 Whether the company complied with the specification regarding the control

equipment –

After consent has been granted by the State Board it, shall have to comply with

the fol owing :-

(i) the control equipment of such specification as the State Board may approve

in this behalf shall be instal ed and operated in the premises where the

industry is carried on/ proposed to be carried on;

(i ) the existing control equipment, if any, shal be altered or replaced in

accordance with the directions of the State Board; the control equipment

referred to in clause (i) or clause (i ) shall be kept at al times in good

running condition.

Chimney, wherever necessary, of such specifications as the State Board may

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163

approve in this behalf shal be erected or re-erected in such premises;

Such other conditions as the State Board may specify in this behalf shall be

complied with within such period as the State Board may specify in this behalf.

 Whether the company allowed emission of any air pol utant in excess of

the prescribed standards –

Company not to operate any industrial plant, in any air pol ution control

area, which shall discharge or cause or permit to be discharged the

emission of any air pol utant in excess of the standards laid down by the

State Board.

 Whether the company furnish the information to the State Board

regarding emission of any air pol utant into the atmosphere in excess of

the standards –

Where in any area the emission of any air pol utant into the atmosphere

in excess of the standards laid down by the State Board occurs or is

apprehended to occur due to accident or other unforeseen act or event,

the person in charge of the premises from where such emission occurs or

is apprehended to occur shal forthwith intimate the fact of such occurrence

or the apprehension of such occurrence to the State Board and to the

prescribed authorities or agencies.

 Whether the company render al assistance to the authorised person –

The Company operating any control equipment or any industrial plant, in

an air pol ution control area shal be bound to render all assistance to the

person empowered by the State Board for carrying out the functions and if

he fails to do so without any reasonable cause or excuse, he shall be

guilty of an offence under this Act.

 Whether the company cooperate to the authorised person in the discharge

of his duties –

If any person wil ful y delays or obstructs any person empowered by the

State Board in the discharge of his duties, he shall be guilty of an offence

under this Act.

 Whether the company complied with the direction of State Board-

If any direction is given by the State Board, the Company is to comply with

such direction.

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THE WATER (PREVENTION AND CONTROL

OF POLLUTION) ACT, 1974

Objective

This was enacted for the prevention and control of water pol ution and maintaining

or restoring wholesomeness of water.

Scope and coverage

 It applies in the first instance to the whole of the States of Assam, Bihar,

Gujarat, Haryana, Himachal Pradesh, Jammu and Kashmir, Karnataka, Kerala,

Madhya Pradesh, Rajasthan, Tripura and West Bengal and the Union territories;

and it shal apply to such other State which adopts this Act by resolution

passed in that behalf under clause (1) of article 252 of the Constitution.

 It shal come into force, at once in the States of Bihar, Gujarat, Haryana,

Himachal Pradesh, Jammu and Kashmir, Karnataka, Kerala, Madhya

Pradesh, Rajasthan, Tripura and West Bengal and in the Union territories,

and in any other State which adopts this Act under clause (1) of article 252

of the Constitution on the date of such adoption and any reference in this

Act to the commencement of this Act shal , in relation to any State or Union

territory, mean the date on which this Act comes into force in such State or

Union territory.

Major Compliances

 Comply with the conditions in the “Consent to Establish” or “Consent to

Operate”

 Apply for renewal of the “Consent to Operate” before the expiry of validity

period

 Consent to be deemed as granted automatical y and unconditional y after

four months from the date of application already given or refused before

this period

 Refusal of “Consent” to be recorded in writing

 Pay Water Cess as indicated in the assessment order

 Affix water meters of the prescribed standards

 Provide access to SPCB

 Pay interest in case of delay in paying the Water Cess

 Pay penalty for non-payment of Cess

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 Industry is entitled to 25% rebate if meeting certain conditions

Compliance requirement to be verified

 Whether the company complied with the direction of State Government –

Directions from state government regarding abstracting water from any stream

or wel as also discharge of sewage and effluents.

 Whether the company knowingly cause or permit any poisonous, noxious

or pol uting matter on use of streams or wel for the disposal of water

pol utant –

A company shall not knowingly cause or permit any poisonous, noxious

or pol uting matter determined in accordance with such standards as

may be laid down by the State Board to enter (whether directly or indirectly)

into any stream or well or sewer or on land to enter into any stream any

other matter which may tend, either directly or in combination with similar

matters, to impede the proper flow of the water of the stream in a manner

leading or likely to lend to a substantial aggravation of pol ution due to

other causes or of its consequences.

 Whether the company made an application to State Board for establish or

take any steps to establish any industry –

A company to take previous consent of the State Board by making

Application in prescribed form :

(i) to establish or take any steps to establish any industry, operation or

process, or any treatment and disposal system or any extension or

addition thereto, which is likely to discharge sewage or trade effluent

into a stream or well or sewer or on land or

(i ) to bring into use any new or altered outlet for the discharge of

sewage or

(i i) to begin to make any new discharge of sewage.

 Whether the company intimate the occurrence of any accident act or

event to the State Board –

If at any place where any industry, operation or process, or any treatment

and disposal system or any extension or addition thereto is being carried

on, due to accident or other unforeseen act or event, any poisonous,

noxious or pol uting matter is being discharged, or is likely to be discharged

into a stream or wel or sewer or on land and, as a result of such discharge,

the water in any stream or well is being pol uted, or is likely to be pol uted,

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then the person in charge of such place shall forthwith intimate the

occurrence of such accident act or event to the State Board.

THE ENVIRONMENT (PROTECTION) ACT, 1986

Objective

This Act is an umbrella legislation designed to provide a framework for the co-

ordination of central and state authorities established under the Water (Prevention

and Control) Act, 1974 and Air (Prevention and Control) Act, 1981. Under this Act,

the central government is empowered to take measures necessary to protect

and improve the quality of the environment by setting standards for emissions

and discharges; regulating the location of industries; management of hazardous

wastes, and protection of public health and welfare.

Applicability

It extends to the whole of India.

Major Compliances

 Comply with the directions issued by the Central Government. The direction

may include:

• closure, prohibition or regulation of any industry, or

• stoppage or regulation of the supply of electricity, water or any other

service

 Prevent discharges or emissions excess of the prescribed standards

 Furnish information of any accidental or unforeseen event

 Al ow entry and inspection to ascertain compliance

 Al ow samples to be taken

 Submit an “Environmental Statement” every year before 30th September

to the SPCB

 Obtain prior “Environmental Clearances” from Ministry of Environment

and Forests, in case of a new project or for modernization/expansion of

the existing project

Compliance requirement to be verified

 Whether the company compiled with the directions received from Central

Government –

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A company has to fol ow directions given by the Central Government. The

direction shall specify the nature of action to be taken and the time within

which it shall be complied with by the company.

The Directions may include closure, prohibition of industry, process or operation,

stoppage of electricity or water etc.

 Whether the company complied with the prescribed standards regarding

discharged of any environmental pol utant in excess of standard –

A company carrying on any industry, operation or process shall not

discharge or emit or permit to be discharged or emitted any environmental

pol utant in excess of such standards as may be prescribed.

 Whether the company Compiled with the safeguard measure as

prescribed for handling any hazardous substance –

Company not to handle or cause to be handled any hazardous substance except

in accordance with such procedure and after complying with such safeguard as

may be prescribed.

 Whether company take step to prevent or mitigate the discharge of

environmental pol utant in excess of prescribed standard –

A company shall be responsible for the discharge of any environmental

pol utant in excess of the prescribed standard due to any accident or other

unforeseen act or event and the person in charge the place at which such

discharge occurs or is apprehended to occur shal be bound to prevent or

mitigate the environmental pol ution caused as a result of such discharge

and shall also forthwith – (i) intimate the fact of such occurrence or

apprehension of such occurrence (i ) be bound, if called upon, to render

all assistance, to such authorities or agencies as may be prescribed.

 Whether the company render all assistance to authorised person –

A company has to assist the person empowered by the Central

Government for carrying out the functions.

 Whether company facilitate to authorised officer to col ect samples -

A company has to give access to the Central Government or any offices

empowered by it to col ect samples of air, water, soil or other substance

from the factory, premises or other place in such manner as may be

prescribed.

 Whether company furnish of information to authorised person where the

discharge of environmental pol utant in excess of the prescribed standard –

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Where the discharge of environmental pollutant in excess of the

prescribed standard occurs or is apprehended to occur due to any accident,

the person in charge of the place at which such discharge occurs or is

apprehended to occur shall forthwith intimate the fact of such occurrence

to the authorities as specified in these provisions.

 Whether company submitted Environmental Audit Report in Form-V -

Every person carrying on an industry, operation or process requiring

consent under Section 25 of the Water (Prevention and Control of Pol ution)

Act, 1974 or under section 21 of the Air (Prevention and Control of Pol ution)

Act, 1981 or both or authorization under the Hazardous Wastes

(Management and Handling) Rules, 1989 issued under the Environment

(Protection) Act, 1986 shal submit an environmental audit report for the

financial year ending the 31st March in prescribed form to the concerned

State Pol ution Control Board.

THE PUBLIC LIABILITY INSURANCE ACT, 1991

Objective

The main objective of the Public Liability Insurance Act, 1991 is to provide for

damages to victims of an accident which occurs as a result of handling any

hazardous substance.

Scope and coverage

 The Act applies to all owners associated with the production or handling

of any hazardous chemicals.

 The Public Liability Insurance Act, 1991 is an Act to provide for public

liability insurance for the purpose of extending immediate relief to the

persons affected by accident occurring while handling any hazardous

substance in a project, industry or storage and for matters connected

therewith or incidental thereto.

Major Compliances

 Owner of the project is to provide relief, as specified, in case of death, or

injury to any person (other than workman); or damage to property from an

accident occurring while handling specified hazardous substances, on

the principle of no fault

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169

 Owner is to draw an insurance policies equal to the paid up capital of the

undertaking, but less than or equal to Rs. 50 Crores (maximum).

 “Paid up Capital” in case of an owner not being a company (may be

proprietorship partnership firm) implies the market value of all assets and

stocks of the undertaking or the date of insurance.

 Owner is to pay additional amounts, as prescribed, to the insurer not

exceeding the amount of premium, as contribution to the Environmental

Relief Fund established under the Act.

 Owner is to pay the amount of an award as specified by the Col ector in

the prescribed manner.

 Owner is to comply with the directions under the Act issued in writing by

the Central Government, within the specified time, as mentioned in the

order. The directions may include:

– Prohibition or regulation of handling of any hazardous substances;

or

– Stoppage or regulation of the supply of electricity, water or any other

service.

HAZARDOUS AND OTHER WASTES

(MANAGEMENT & TRANSBOUNDARY MOVEMENT) RULES, 2016

The salient features of the Rules

i. The ambit of the Rules has been expanded by including ‘Other Waste’.

i . Waste Management hierarchy in the sequence of priority of prevention,

minimization, reuse, recycling, recovery, co-processing; and safe disposal

has been incorporated.

i i. Al the forms under the rules for permission, import/export, filing of annual

returns, transportation, etc. have been revised significantly, indicating the

stringent approach for management of such hazardous and other wastes

with simultaneous simplification of procedure.

iv. The basic necessity of infrastructure to safeguard the health and

environment from waste processing industry has been prescribed as

Standard Operating Procedure (SOPs), specific to waste type, which has to

be complied by the stakeholders and ensured by SPCB/PCC while granting

such authorisation.

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v. Procedure has been simplified to merge al the approvals as a single

window clearance for setting up of hazardous waste disposal facility and

import of other wastes.

vi. Co-processing as preferential mechanism over disposal for use of waste

as supplementary resource, or for recovery of energy has been provided.

vii. The approval process for co-processing of hazardous waste to recover

energy has been streamlined and put on emission norms basis rather

than on trial basis.

vii . The process of import/export of waste under the Rules has been

streamlined by simplifying the document-based procedure and by revising

the list of waste regulated for import/export.

ix. The import of metal scrap, paper waste and various categories of electrical

and electronic equipments for re-use purpose has been exempted from

the need of obtaining Ministry’s permission.

x. The basic necessity of infrastructure to safeguard the health and

environment from waste processing industry has been prescribed as

Standard Operating Procedure (SOPs) specific to waste type.

xi. Responsibilities of State Government for environmentally sound

management of hazardous and other wastes have been introduced as

fol ows:

 To set up/ al ot industrial space or sheds for recycling, pre-processing

and other utilization of hazardous or other waste

 To register the workers involved in recycling, pre-processing and

other utilization activities.

 To form groups of workers to facilitate setting up such facilities;

 To undertake industrial skil development activities and ensure safety

and health of workers.

xi . List of processes generating hazardous wastes has been reviewed taking

into account technological evolution in the industries.

xi i. List of Waste Constituents with Concentration Limits has been revised as

per international standard and drinking water standard.

The following items have been prohibited for import:

 Waste edible fats and oil of animals, or vegetable origin;

 Household waste;

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171

 Critical Care Medical equipment;

 Tyres for direct re-use purpose;

 Solid Plastic wastes including Pet bottles;

 Waste electrical and electronic assemblies scrap;

 Other chemical wastes especially in solvent form.

State Government is authorized to prepare integrated plan for effective

implementation of these provisions, and have to submit annual report to Ministry

of Environment, Forest and Climate Change.

State Pol ution Control Board is mandated to prepare an annual inventory of the

waste generated; waste recycled, recovered, utilised including co-processed;

waste re-exported and waste disposed and submit to the Central Pol ution Control

Board by the 30th day of September every year.

Compliance requirement to be verified

 Whether the occupier engaged in handling of hazardous wastes as

specified in the Schedules.

 Whether the occupier takes adequate steps for safe and environmentally

sound handling of hazardous wastes generated in his establishment.

 Whether the occupier give to the operator of a facility information regarding

disposal of hazardous wastes as determined by the State Pol ution Control

Board.

 Whether the occupier take all adequate steps while handling hazardous

wastes.

 Whether the occupier obtained authorization for handling hazardous

wastes.

 Whether the occupier maintain the record of hazardous wastes handled

by him.

 Whether the occupier prepares and submitted to the State Pol ution Control

Board, an annual return on or before the 30th day of June fol owing to the

financial year to which that return relates.

 Whether the occupier made an application for the renewal of an

authorization before its expiry to the State Pol ution Control Board.

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SECTION IX

GST VIS-A-VIS MSME

GST is one indirect tax for the whole nation, which wil make India one unified

common market.GST is a single tax on the supply of goods and services, right

from the manufacturer to the consumer. Credits of input taxes paid at each stage

wil be available in the subsequent stage of value addition, which makes GST

essentially a tax only on value addition at each stage. The final consumer wil

thus bear only the GST charged by the last dealer in the supply chain, with set-off

benefits at all the previous stages.

At the Central level, the fol owing taxes are being subsumed in to GST:

a. Central Excise Duty,

b. Additional Excise Duty,

c. Service Tax,

d. Additional Customs Duty commonly known as Countervailing Duty, and

e. Special Additional Duty of Customs.

At the State level, the fol owing taxes are being subsumed in to GST:

a. Subsuming of State Value Added Tax/Sales Tax,

b. Entertainment Tax (other than the tax levied by the local bodies), Central

Sales Tax (levied by the Centre and col ected by the States),

c. Octroi and Entry tax,

d. Purchase Tax,

e. Luxury tax, and

f. Taxes on lottery, betting and gambling.

The benefits of GST can be summarized as under:

For business and industry

 Easy compliance : A robust and comprehensive IT system would be the

foundation of the GST regime in India. Therefore, al tax payer services

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173

such as registrations, returns, payments, etc. would be available to the

taxpayers online, which would make compliance easy and transparent.

 Uniformity of tax rates and structures : GST wil ensure that indirect tax

rates and structures are common across the country, thereby increasing

certainty and ease of doing business. In other words, GST would make

doing business in the country tax neutral, irrespective of the choice of

place of doing business.

 Removal of cascading: A system of seamless tax-credits throughout the value-

chain, and across boundaries of States, would ensure that there is minimal

cascading of taxes. This would reduce hidden costs of doing business.

 Improved competitiveness: Reduction in transaction costs of doing

business would eventually lead to an improved competitiveness for the

trade and industry.

 Gain to manufacturers and exporters: The subsuming of major Central

and State taxes in GST, complete and comprehensive set-off of input goods

and services and phasing out of Central Sales Tax (CST) would reduce the

cost of locally manufactured goods and services. This wil increase the

competitiveness of Indian goods and services in the international market

and give boost to Indian exports. The uniformity in tax rates and procedures

across the country wil also go a long way in reducing the compliance

cost.

For Central and State Governments

 Simple and easy to administer: Multiple indirect taxes at the Central and

State levels are being replaced by GST. Backed with a robust end-to-end

IT system, GST would be simpler and easier to administer than all other

indirect taxes of the Centre and State levied so far.

 Better controls on leakage: GST wil result in better tax compliance due to

a robust IT infrastructure. Due to the seamless transfer of input tax credit

from one stage to another in the chain of value addition, there is an in-

built mechanism in the design of GST that would incentivize tax

compliance by traders.

 Higher revenue efficiency: GST is expected to decrease the cost of

col ection of tax revenues of the Government, and wil therefore, lead to

higher revenue efficiency.

For the consumer

 Single and transparent tax proportionate to the value of goods and services:

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Due to multiple indirect taxes being levied by the Centre and State, with

incomplete or no input tax credits available at progressive stages of value

addition, the cost of most goods and services in the country today are

laden with many hidden taxes. Under GST, there would be only one tax

from the manufacturer to the consumer, leading to transparency of taxes

paid to the final consumer.

 Relief in overal tax burden: Because of efficiency gains and prevention of

leakages, the overall tax burden on most commodities wil come down,

which wil benefit consumers.

The macroeconomic impact of introduction of the GST could turn out tobe significant

in the years ahead, given the dominance of the services sector in India.

Besides giving a major boost to tax revenue, the larger impact on the fiscal health

would be from reduction in the administrative compliance cost. GST is likely to be

supportiveof fiscal consolidation without compromising capital expenditure.

Under the prevailing tax structure inIndia, investment is discouraged throughthe

application of excise duties and VAT on capital goods, for which no set off or

inputtax credit is provided. For example, input tax credits are not allowed for

union exciseduties on capital equipment acquired for nonmanufacturing sectors;

similarly, no credit is allowed for the state VAT on capital goods acquired by the

services sector.

Moreover, GST implementation is likely to boost the smal and medium scale

enterprises (SME)sector by

(i) improving their ease of doing business;

(i ) lowering logistical costs;

(i i) extendingoutreach beyond state borders; and

(iv) aiding SMEs dealing in sales and services.

Furthermore, economic activity would also benefit from exports becoming more

competitive as the GST regime wil eliminate the cascading impact of taxes.

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SECTION X

ROLE OF COMPANY SECRETARIES

India is witnessing a phenomenal growth and expansion in the corporate sector.

The growing demand for specialists in almost every sphere of the corporate

functions has led to emergence of professionals who can perform specialized

skil s with near perfection in their respective fields. A company secretary is one

such professional who is responsible for efficient management of the corporate

sector. He ensures compliance of various company legislations and advises

directors on statutory requirements of the company. Apart from carrying out these

functions, he also looks after finance, accounts, legal, secretarial, personnel and

administrative functions in private as wel as public sectors.

The Companies Act, 2013 confers a special status to Company Secretary as the

key managerial personnel and has bracketed him along with Managing Director

(MD) or Chief Executive Officer (CEO) or Manager, Whole-time director(s) or Chief

Financial Officer (CFO). Every listed company and every other public company

having a paid up share capital of ten crore rupees or more has to appoint a whole

time Key Managerial Personnel. Whole time Company Secretary is also required

to be appointed in other companies which have a paid up share capital of five

crore rupees or more.

Almost every kind of organization whose affairs are conducted by boards, councils

or other corporate structures, be it a company, trust, association, federation,

authority, commission or the like, find it useful to appoint a person who holds the

qualification of Company Secretaryship in key administrative position. Practising

Company Secretaries have been authorized to issue Certificate regarding

compliance of conditions of Corporate Governance. Practising Company

Secretaries have also been recognized to appear before various Tribunals such

as NCLT, NCLAT, Securities Appellate Tribunal, Competition Commission of India,

Telecom Disputes Settlement and Appel ate Tribunal, Consumer Forums, Tax

Tribunals etc. Reserve Bank of India has also recognized the Practising Company

Secretaries to undertake Diligence Report for Banks.

The rapid corporatisation has brought about a sea change in the role and profile

of a company secretary. They are now being seen as corporate development

planners. Besides embarking upon traditional areas of practice, Company

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Secretaries in Practice are increasingly required to advise and guide on legal

aspects of business which intimately concern areas such as production, sales,

marketing and administration for identifying expansion opportunities, issuing

due diligence or comfort certificate, arranging foreign collaborations,

amalgamations, mergers, acquisition, takeovers, setting up of subsidiaries and

joint ventures within and outside India etc. The new opportunities offered by the

growing capital markets and financial services have greatly contributed to the

development of the practice side of the profession.

Company Secretaries – One Stop Professional Advisory Services to

SMEs

Company Secretaries can offer One Stop Professional Advisory Services to SMEs

in the fol owing areas:

 Legal Setting up of SMEs - Getting Basic Registrations for startup- PAN-

TAN-VAT-MSME etc.

 Selection of Organization Structure for SME - Sole Proprietor, Partnership,

LLP, Limited Liability Company (Private-Public), OPC

 Incentives available to SMEs

 Financial Advisory Services for SMEs

 Funding Options for SMEs

 Labour Laws aspects for SMEs

 Taxation aspects for SMEs

 Listing of SMEs

 Legal & Regulatory Compliances

 Corporate Governance for SMEs

Thus, a Company Secretary can help SMEs and its directors operate within the law.

Company Secretaries - Single Window Services to SMEs

Some other ways in which a company secretary can help the SMEs include:

 Obtaining Project Financing and Term Loans.

 Co-ordinating the process of obtaining funds from Angel Investors / Venture

Capital Funds / Private Equity.

 Conducting Secretarial Audit / Due Diligence which wil of great help

before approaching for funds.

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177

 Providing Compliance Certificate to ensure compliance of various

regulatory prescriptions in case of listing in SME Exchange.

 Helping in converting Sole Proprietor / Partnerships to Companies

 Management of the public issue if a company goes public

 Maintaining Statutory Registers;

 Monitoring changes in the share ownership of the company;

 Ensuring that the company files statutory information promptly;

 Monitoring changes in the relevant legislation and the regulatory

environment and taking appropriate action;

 Developing and overseeing the systems that ensure that the company

complies with all applicable codes as well as its legal and statutory

requirement.

 Drafting documents and filing with RBI under FDI guidelines and ECB norms.

 Act as legal advisor and representative

 Sign the annual returns of the company, as also represent the company

when a situation demands it.

 Handle matters related to central/state sales tax, GST, excise laws, labour

laws and corporate laws

 Handle matters related to obtaining institutional finance. Responsibilities

in this regard would include getting project approvals, obtaining relevant

licences and permits, zeroing in on al requirements under the Competition

Act and FEMA (Foreign Exchange Management Act) and any other relevant

legislation.

Company Secretaries - Guide and Support in MSME Financing

Financing is the lifeblood of Smal and Medium Enterprises and Practising

Company Secretary can effectively guide and support SMEs as fol ows:

 Timely & adequate availability of finance

 Reasonable cost

 Simple delivery process

 Single window for all financing requirements

 Transparency in dealings

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 Awareness of schemes of Banks

 Support and Handholding services

Company Secretaries - SME Exchange

In order to provide better, focused and cost effective financing service to the

SMEs, SEBI set up dedicated exchanges and/or dedicated platforms of the

exchanges for listing and trading of securities issued by SMEs.

Certain relaxations are provided to the issuers whose securities are listed on

SME exchange in comparison to the listing requirements in Main Board.

Some of the services that could be provided by Company Secretaries (both in

employment and practice) with regard to SME Exchange include:

 Advisor/consultant for SMEs on listing at SME Exchange

 Advisor to Public Issue by SME

 Compliance Officer for SME

 Compliance Certificate for issue / listing of shares by SMEs. The purpose

of this certification is to provide comfort and assurance to the Regulator

and Stock Exchanges to the effect that the proposed listing of SMEs

conforms to all regulatory prescriptions. This Compliance Certificate wil

enable the SMEs to seek the ‘in-principle’ approval for listing of shares in

SME Exchange.

Company SecretaryGuide in development of Business policies and

implementation

A Company Secretary can guide the MSMEs both at policy and operational level

in formulation of various responsible Business policies, implementation of the

principles enshrined, al ocation of budgets and approval of the budgets al ocated

for these activities and reporting & disclosures.

Company Secretaries can also help MSMEs to comply with environmental

regulations and assist in funding of compliance programs to meet the pol ution

standards and also avail of government sponsored incentives and training

assistance.

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179

SECTION XI

CHECKLIST FOR COMPLIANCES

CHECK LIST FOR INCORPORATION

Incorporation as One Person Company

S.No.

Compliance

Action

1.

Obtain Digital Signature Certificate [DSC] for the

proposed Director(s)

2.

Obtain Director Identification Number [DIN] for

the proposed director(s).

3.

Select suitable Company Name, and make an

application to the Ministry of Corporate Affairs

for availability of name

4.

Draft MOA & AOA

5.

Sign and file various documents including MOA

& AOA with the Registrar of Companies

electronical y

6.

Payment of Requisite fee to Ministry of Corporate

Affairs and also Stamp Duty.

7.

Receipt of Certificate of Registration/Incorporation

from ROC

Incorporation as Smal Company

1.

Obtain Digital Signature Certificate [DSC] for the

proposed Director(s)

2.

Obtain Director Identification Number [DIN] for

the proposed director(s).

3.

Select suitable Company Name, and make an

application to the Ministry of Corporate Affairs

for availability of name

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4.

Draft MOA & AOA

5.

Sign and file various documents including MOA

& AOA with the Registrar of Companies

electronical y

6.

Payment of Requisite fee to Ministry of Corporate

Affairs and also Stamp Duty.

7.

Receipt of Certificate of Registration/Incorporation

from ROC

Incorporation as Private Limited Company

1.

Obtain Digital Signature Certificate [DSC] for the

proposed Director(s)

2.

Obtain Director Identification Number [DIN] for

the proposed director(s).

3.

Select suitable Company Name, and make an

application to the Ministry of Corporate Affairs

for availability of name

4.

Draft MOA & AOA

5.

Sign and file various documents including MOA

& AOA with the Registrar of Companies

electronical y

6.

Payment of Requisite fee to Ministry of Corporate

Affairs and also Stamp Duty.

7.

Receipt of Certificate of Registration/Incorporation

from ROC

Incorporation as Public Limited Company

1.

Obtain Digital Signature Certificate [DSC] for the

proposed Director(s)

2.

Obtain Director Identification Number [DIN] for

the proposed director(s).

3.

Select suitable Company Name, and make an

application to the Ministry of Corporate Affairs

for availability of name

4.

Draft MOA & AOA

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181

5.

Sign and file various documents including MOA

& AOA with the Registrar of Companies

electronical y

6.

Payment of Requisite fee to Ministry of Corporate

Affairs and also Stamp Duty.

7.

Receipt of Certificate of Registration/Incorporation

from ROC

Incorporation as Limited Liability Partnership

1.

Deciding the Partners and Designated Partners

2.

To obtain Director Identification Number (DIN) &

Digital Signature Certificate

3.

To Apply for Name of LLP ( LLP-1)

4.

After Name Approval file form 2 and Form 18 to

the ROC

5.

After that File LLP agreement (i.e. Form-3) and

Partners’ details (i.e. Form-4)

Register as Partnership Firm

1.

File Form A for Registration of Firm along with the

Form A following documents required to be

submitted:-

– Duly fil ed specimen of affidavit

– Certified true copy of the partnership deed

– Ownership proof of the principal place of

business or rental/lease agreement

Register as Sole Proprietorship

1.

Decide on a Business Name

2.

Search Availability of Name(s)

3.

Register Your Name

4.

Obtain Business Licenses and Permits from:-

– The Federal Government

– The State Government

– The Local Government

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CHECK LIST AFTER INCORPORATION

S.No.

Compliance

Action

1.

Register enterprise as Micro, Small or Medium

Enterprise depends upon the limit of investment

on Plant & Machinery or on Equipment

2.

File Udyog Aadhar Memorandum

3.

Renewal of Registration of NSIC after every two

years

4.

Obtaining Factory Licence

5.

Renewal of Factory License in every year

6.

Obtaining Pol ution Clearance Certificate in every

Two Year

7.

Filing of ASI( Annual Survey of Industries) Return

every year to the Ministry of Statistics &

Programme Implementation

CHECK LIST OF ANNUAL COMPLIANCES DEPENDING

ON THE FORMATION OF MSMES

Annual Compliances for One Person Company

S.No.

Compliance

Action

1.

Receipt of MBP-1

2.

Receipt of DIR-8

3.

Board Meeting:-OPC shall hold a minimum

number of Two Meetings of its Board of Directors

every year in such a manner that Minimum gap

between both the Meetings, should be not less

than 90 (Ninety) days

4.

Appointment of auditor

5.

File form ADT-1 of Auditor appointment

6.

Annual Fil ing

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183

Annual Compliances for Smal Company

1.

Receipt of MBP-1

2.

Receipt of DIR-8

3.

Board Meeting

4.

Holding AGM every year

5.

Adoption of Financial Account & Board Report

6.

Appointment of Auditor

7.

File form ADT-1 of Auditor appointment

8.

Annual Filing

Annual Compliances for Private Company other

than Smal Company

1.

Receipt of MBP-1

2.

Receipt of DIR-8

3.

Board Meeting:-Every Company shall hold a

minimum number of FOUR Meetings of its Board

of Directors every year in such a manner that

maximum gap between two Meetings should

not be more than 120 (One hundred Twenty) days.

Company should hold at least 1 (one) Board

Meeting every quarter of calendar year

4.

Holding AGM every year

5.

Adoption of Financial Account & Board Report

6.

Appointment of Auditor

7.

File form ADT-1 of Auditor appointment

8.

Maintenance of Statutory Registers

9.

Annual Filing

Annual Compliances for Unlisted Public Company

1.

Receipt of MBP-1

2.

Receipt of DIR-8

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HANDBOOK FOR MSME ENTREPRENEURS

3.

Board Meeting:-Every Company shall hold a

minimum number of FOUR Meetings of its Board

of Directors every year in such a manner that

maximum gap between two Meetings should

not be more than 120 (One hundred Twenty) days.

Company should hold at least 1 (one) Board

Meeting every quarter of calendar year.

4.

Holding AGM every year

5.

Adoption of Financial Account & Board Report

6.

Filing of Adoption of Financial Account & Board

Report in Form MGT-14

7.

Appointment of Auditor

8.

File form ADT-1 of Auditor appointment

9.

Maintenance of Statutory Registers

10.

Annual Filing

11.

Certification of Annual Return by PCS if paid up

share capital of 10 Crore or more or turnover of

Rs. 50 crore or more

12.

E–Form filing for Acceptance of Deposit,

Appointment of KMP, Appointment of

independent director, Appointment of Women

director, Appointment of internal auditor

13.

Following Companies are required to get

Secretarial Audit of the Company from the

Practicing Company Secretary and report of PCS

wil be part of Directors’ Report (MR-3).a) Al Listed

Companiesb) Every Public Company having;

• Paid-Up Share Capital of Rs. 50 Crore (fifty

crore rupees) or more; or

• Every Public Company having a Turnover of

Rs. 250 Crore (two hundred fifty crore rupees)

or more

14.

Constitution of Audit Committee if applicable

15.

Constitution of Nomination Committee

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185

Annual Compliances for Listed Company

1.

Receipt of MBP-1

2.

Receipt of DIR-8

3.

Board Meeting:-Every Company shall hold a

minimum number of FOUR Meetings of its Board

of Directors every year in such a manner that

maximum gap between two Meetings should

not be more than 120 (One hundred Twenty) days.

Company should hold at least 1 (one) Board

Meeting every quarter of calendar year.

4.

Providing E-Voting Facilities to shareholders

5.

Holding AGM every year

6.

Filing Report of AGM

7.

Adoption of Financial Account & Board Report

8.

Filing of Adoption of Financial Account & Board

Report in Form MGT-14

9.

Appointment of Auditor

10.

File form ADT-1 of Auditor appointment

Filing return for change in Stake of Promoters

11.

Maintenance of Statutory Registers

12.

Filing of Annual accounts in XBRL Form

13.

Certification of Annual Return by PCS if paid up

share capital of 10 Crore or more or turnover of

Rs. 50 crore or more

14.

E–Form filing for Acceptance of Deposit,

Appointment of KMP, Appointment of

independent director, Appointment of Women

director, Appointment of internal auditor,

Appointment of Cost Auditor, Appointment of

Secretarial auditor

15.

Following Companies are required to get

Secretarial Audit of the Company from the

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HANDBOOK FOR MSME ENTREPRENEURS

Practicing Company Secretary and report of PCS

wil be part of Directors’ Report (MR-3).

a) All Listed Companiesb) Every Public

Company having;

• Paid-Up Share Capital of Rs. 50 Crore (fifty

crore rupees) or more; or

• Every Public Company having a Turnover

of Rs. 250 Crore (two hundred fifty crore

rupees) or more

16.

Constitution of Audit Committee if applicable

17.

Constitution of Nomination Committee

18.

Compliances prescribed in SEBI (LODR)

Regulation, 2015 are also required to be comply

by the listed companies

Annual Compliances for LLP

1.

Maintenance of Minute Book

2.

File E-Form 4 for any change of Partner and

designated Partner

3.

Supplementary LLP agreement require to file in

E-form 3

4.

Holding General Meeting every year

5.

Statement of Account and solvency is required to

be filed annually in E-form 8

6.

Annual return should be filed with ROC in

E-form 11

7.

File Income tax Return:-

– LLP whose accounts are not required to be

audited under any Law:- 31st July of every year

– LLP whose accounts are subject to Audit under

any Law: - 30th September of every year or such

other date as may be notified by the Income Tax

authorities.

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187

Annual Compliances for Sole Proprietorship

1.

Proprietorship wil have to file their annual tax

return with the Income Tax Department. Other

tax filings like service tax filing or VAT/CST filing

may be necessary from time to time, based on

the business activity performed. However, annual

report or accounts need not be filed with the

Ministry or Corporate Affairs, which is required

for Limited Liability Partnerships and Companies.

Annual Compliances for Partnership

1.

Intimation of Change in Principal Place/ nature

of business / firm name in Form B

2.

Intimation of Change in the name (person/limited

company and address of the partner) in Form D

3.

Intimation of Change in Constitution-Admission/

Retirement/Dissolution/ Death of Partner/minor

partner in Form E

ENVIRONMENTAL LAW COMPLIANCES CHECK LIST

S.No.

Compliance

Action

WASTE MANAGEMENT

1.

Are appropriate Waste Management practises

being fol owed?

2.

Is the ful Duty of Care being Completed?

3.

Has the legal compliance of waste carriers been

checked?

4.

Are waste transfer notes being retained?

5.

Is hazardous waste being disposed of according

to legislative rule?

6.

Are all waste streams being segregated

effectively?

7.

Does the organization need to register as a

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HANDBOOK FOR MSME ENTREPRENEURS

producer of hazardous waste?

8.

Are good housekeeping and recycling measures

being fol owed to preventwaste being needlessly

sent to landfil ?

WATER

1.

Are only authorised discharges to surface water

or control ed waters being made?

2.

Are good housekeeping procedures being

fol owed to avoid unnecessary consumption of

water?

AIR EMISSIONS

1.

Is there any waste being burnt on site?

2.

Has all equipment been checked to ensure there

are no unnecessary emissions to air?

CONTAMINATION

1.

Are al chemical substances and fuel being

stored appropriately?

2.

Is all pollution control equipment working

effectively?

3.

Are spil kits present and accessible?

4.

Are all hazardous or contaminated materials

being disposed of correctly?

5.

Is there any evidence ofpast unreported spil s?

6.

Are all necessary employees aware and

knowledgeable of spil procedures?

7.

Are all chemicals being stored and handled in

accordance with theproduct data sheets and/or

guidance information?

NOISE

1.

Have noise mitigation measures been fol owed?

2.

Are there ear plugs available in workshops?

HANDBOOK FOR MSME ENTREPRENEURS

189

REGISTER MAINTAIN UNDER LABOUR LAWS

The Employees State Insurance Act, 1949



Accident Register



Register of Employees



Register of Employees engaged by immediate

employer

THE CONTRACT LABOUR (REGULATION & ABOLITION) ACT, 1970

AND CENTRAL RULES 1971



Register of Contractors



Register of Workman employed by Contractor



Muster Rol



Register of Wages



Register of Deductions for damage or loss



Register of Fines



Register of Advances



Register of Overtime

THE EQUAL REMUNERATION ACT, 1976

Registers under Rule 6

THE MATERNITY BENEFIT ACT, 1961

Muster- Rol

THE MINIMUM WAGES ACT, 1948 AND CENTRAL RULES 1950

 Register of wages

 Muster-rol

 Register of Overtime

 Register of Deductions

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HANDBOOK FOR MSME ENTREPRENEURS

 Register of fines

 Wage Slip

THE PAYMENT OF BONUS ACT, 1965 AND CENTRAL RULES 1975

 Register Showing the Computation of the Al ocable surplus referred to in

clause (4) of Section 2 [R-4(b)]

 Register Showing the set-on-and set-off of the allocable surplus under

section 15 [R-4(b)]

 Register Showing the details of the amount of bonus due to each of the

employees the deductions under section 17 and 18 and the amount actual y

disbursed [R-4(c)]

THE FACTORIES ACT, 1948

1. Register of Adult Workers (S-6)

2. Register of Child Workers (S-73)

Document Outline

Initial Pages.pdf

1-20 Handbook for MSME Entrepreneurs Part 1.pdf

21-190 Handbook for MSME Entrepreneurs Part 2.pdf