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It is Risk-Free to do Business as Sole Proprietorship and traditional Partnership

It is Risk-Free to do Business as Sole Proprietorship and traditional Partnership

A Big “NO”

Businesses in India can be done by various different methods. There is no doubt that due to increase innovation and technology, the world market has become closer and closer and in fact, it hardly takes time to close the deal across the Globe due to technology and innovation. In today’s competitive business market, the most important decision for any entrepreneur to choose the best method of doing business so that there are no issues in the future. Choosing the right type of business structure is the first step towards achieving success. At present, in India, following are the types of Business Entities under the laws of India:
a) Sole Proprietorship Firm
b) Partnership Firm (Registered or Unregistered)
c) Company (Private or Public (Listed or Unlisted)
d) One Person Company (OPC) Pvt Ltd
e) Limited Liability Partnership
f) Hindu Undivided Family (HUF)
g) Body of Individuals
h) Association of Persons
i) Trust (Private or Public)

Governing Laws:
· Sole Proprietorship Firm: No specific law governing this business entity but other laws are applicable as for other entities
· Partnership Firm: Indian Partnership Act, 1932

There is no doubt that the easiest and best method to start any business is Sole Proprietorship and thereafter Partnership Firm. The legal process in starting the Sole Proprietorship business is very easy and in fact, it can be started in a day or two without GST and with GST within three days. Sole Proprietorship suits when there is one Owner or it is a family business. The best benefit of Sole Proprietorship is that there cannot be any delay in taking decision for any kind of business commitment and in fact this has since many years worked well and there are many still operating Sole Proprietorship business which has reaped good benefits but due to change in time and new laws and in fact strict laws with a higher penalty and with daily change of technology, Sole Proprietorship may not work as good as it was earlier. Even in regard to Partnership business entity, many of the partnership business dealing in huge turnover is still unregistered as many of them are still not aware that the negatives of not getting their partnership unregistered and they face the problem only when issues come for approaching Court as an unregistered partnership firm cannot approach the court. There are many other disadvantages for unregistered partnership firm and hence it is important that all partnership business shall be registered. I shall not cover the advantages and disadvantages of unregistered and registered partnership business hereby but the main reason for this article is to share the point as to why the time has come to stop the business under as Sole Proprietor and Partnership Firm.

In today’s competitive business market and regularly changing market, it is always dangerous if there is no CAP (it means limitation/maximum limit) on liability and not having this benefit in today’s times and that too under the era of Insolvency and Bankruptcy Code laws is too dangerous. For me, the most important aspect of not doing the business as Sole Proprietorship and Partnership is not having Limited Liability concept and this is enough to shift to another mode of doing the business. Most of the jewelry business (mostly by Jains) was used to be Sole Proprietorship and Partnership but now are changing to Pvt Ltd for reasons not only attributable to this but the good thing is they are changing their business type.

The One Person Company (OPC) or Limited Liability Partnership (LLP) is nothing but a new form of Sole Proprietorship and Partnership. The monetary liability in this method is always limited. As stated the risk extends to any liabilities incurred as a result of acts committed by employees of the Sole Proprietorship and/or Partnership Firm.

There are provisions under the Laws of India to convert from one business type to another and an experienced professional will guide perfectly from legal as well as accounting perspective.


Why not a Directory of Sole Proprietorship Firm and Registrar of Firm is made online unlike and similar to ROC?

We are in the era where Technology is ruling the world and in fact who are adapting to the changes with Technology are surviving and in this Lockdown period, the importance of Technology is being understood by a majority of the population. There are many judgments even by the Courts of India to accept the Technology. Even summons can be issued via Whatsapp though not statutorily accepted as the only mode but at least importance is being given and in certain cases, the Linkedin profile is being used as part of the evidence, in a matter where it adds to evidence value. There is no reason to understand why there is no online database being created for Sole Proprietorship Firm, Partnership, Hindu Undivided Family (HUF), Body of Individuals and Association of Persons so that it makes easy for the public to do it search and found its validities and thereby creating faith in such business entities and business being done at more ease. I am of the strong view that all the details of such business shall be made online like ROC is operating (www.mca.gov.in) so that there is transparency and also works smoothly in courts for claims. All the details are available as all business having bank account has Pan Card so this can be done easily.

MSME: Poorly Paid, Poorly Heard – Where to Go?

MSME: Poorly Paid, Poorly Heard - Where to Go?

On 08.05.2020, Supreme Court has denied any relief to MSME against Payment of Wages during Lockdown

Facts of the Case:

The Petition was filed by MSMEs challenging the Advisory Issues by the Union Ministry of Labour and Employment on March 20 and the order issued by the ministry of home affairs (MHA) on March 20 wherein it has specified that the “employers, be it in the industry or in the shops and commercial establishments,” will have to pay the wages of their workers without any delay and deductions for the period the establishments are under closure during the lockdown and any failure by them in implementation, action will be taken.


Status as on date:

The Supreme Court on 08.05.2020 turned down the plea of MSMEs (11 Haryana-based MSMEs) to provide interim protection against the order which required them to pay full salaries to its employees.


Concern:

There is no doubt that whatever steps were taken by the Respected Chaired Prime Minister, Shri Narendra D Modi in regard to COVID 19 is commendable and no doubt he has been working as a Strong Leader always since many years now and sure many more years to come. However, their minister sometimes takes such steps which results in a not bad but horrible situation, and in fact, the decision are so bad that it really gives a bad signal to business entities. There is no doubt that MSME is the backbone of Commerce which is often poorly heard and very poorly paid and is also the backbone of Industry in contributing to country s employment and various Taxes. One has to understand that to save the Indian economy one needs to save MSME and small business houses. There is also no doubt that prior to Lockdown, the economy was not in good shape but nothing taking away from the present Government of its brilliant intention of doing for future India. Post Demonetization along with many laws being enacted such as RERA, IBC, GST being a major one, the business has been at a low level in India and was waiting to see the change very soon and no doubt that MSME adapted to the new system and it was a matter of time that economy was coming to good shape and then came this Lockdown which has totally put an almost stop signal to MSME especially. There is no doubt of the contribution made and will always be made by MSME but at the same time, MSME does not find any support from at present Government or Courts.

Running a business in India with so many compliances, day to day change in laws, inspection by an officer already a big concern at any time, corruption (at least it has been reduced to good extend due to Prime Minister brilliant efforts but there are corruption still floating in the market in other ways) and Labour Laws which is very difficult to comply with at all the time is not at all easy and more on that nowadays, MNC and dominant positioned companies are avoiding making a deal with MSME (for the reasons of speedy Recovery Forum and ROC Compliance) and if made, then payments are not on time and on that no judicial reforms have been done for recovery of money as recovering the money via Court or Arbitration in India is a very much costly and lengthy process in India and even if MSME wins the case and opposite party uses his all right of appeal, Execution of Decree is the next step which itself is a lengthy process and this lenghty process and costly legal process has literally choked the money in a huge volume and for MSME this has been hampering a lot in many ways.

There is no doubt that during this Lockdown, the employees are at risk as they don’t have any other mode of earning and have to survive, but pressuring the employers and forcing them to make the payment via such draconian circular does discourage the faith amongst MSME’s and this will give a bad impact in future. Till date there is no encouragement or relief of any kind has been given to MSME to keep their confidence at top and there are many MSME in the market who are struggling to make the payment to their employees due to their already financial mess due to non-cooperation of Bank as Banks are only darling to big companies and political references and hence this circular of MHA of directing mandatory to pay is more of a penalty on them.

Even more, the concern is that nowadays the Apex Courts are taking a decision in Business related matters in a manner that is badly affecting the Indian economy as it has done in Telecom sector and more concern is not taking into consideration the other side realty and even if the Supreme Court is aware then also such decision only affects the business community.

The intention of the present Government and especially of Respected Shri Narendra Modi cannot be doubted ever but there happen many times that certain decision does affect badly and in this case of pressuring the payment of wage it is badly affecting small business/MSME.

Saving MSME:

Saving MSME means urgent and quick incentives for “Man, Machine, Money, Material, Market, and Method”

I myself belong to a Business family where Business is taught first and being myself an Entrepreneur since many years now can understand the many pains, problems an Entrepreneur has to suffer even during good economy and now in an almost closed market, MSME/Entrepreneur is not finding any support from anywhere and this will only lead to bad morale of MSME and hence it is more relevant now and very soon to take them into confidence and do whatever it can to revive MSME soon as there is no doubt that the Year 2020 at least till December is no-business period unless there is a sudden change in the market.

Do Standard Documents Templates make doing Business easy?

Do Standard Documents Templates make doing Business easy?

Doing Business in today’s ever-changing scenario compels the business entities to ensure they are well within the coverage of being able to beat their competitors and if not then they fade from the market very soon. For e.g., Shopping Malls have been duly replaced by online shopping and in fact Refund policy offered by online shopping has just added armour to ensure that customers first choice has become online shopping and Shopping Malls though not the third choice of customers but cannot be also said as the first choice and in fact, the only place in Shopping Malls which are not empty most of the times mostly in the evening time is Food Zone and maybe sometime Gaming Zone if the monetary budget of Gaming Zone is not higher. There is no doubt that each passing day a new technology is coming in the market and this brings the competitiveness amongst players to remain in the market and to remain in the market it is more relevant to be in a position to at least take a stable stand of not losing the place of doing the business and this is where most of the business starts well but lose its stream in the stage when the business starts. Most of the time, post months of starting the business via Partnership Model, partners fight, and then that itself is the end of business which was started after long planning. There are many grey areas as to why the small business or new business in today’s age comes with force and goes with no noise and in fact, is dead even before the news comes. One of the reasons is that a businessperson shall understand that the only work is to do Marketing and Innovate its business and have a system in place for else work. Another reason which can be attributed is of not taking proper legal guidance and understanding the role the Lawyers have in their business. The main reason for avoiding and not taking the experience lawyers’ assistance is to avoid paying fees of such experienced lawyers and most of the time either they end up taking assistance from lawyers who are not well equipped or suitable for this area or they end up taking the legal opinion from Google or else search engine without understanding its relevance to its business. There is nothing as such that Lawyers who charge less are not good lawyers but the question is business entities sacrifice taking the help of Lawyers which are most suitable for their work. Having a lawyer as a legal advisor and especially Court practicing lawyer helps not only in resolving the issue but also act as guidance to give the best referrals of such experience attorneys or counsels who can be reached any time in urgency for its business issues.

There are many points which the Business entities have to take care to ensure having a proper system in place for the smooth functioning of its Business and certain points are as under: (a) Ensuring it has all the Licenses which are mandatory for conducting the Business; (b) Ensuring it has executed safe Lease Agreement for using the premises for its business operations if the place of business is not owned by the Owners of the Business entities; (c) Ensuring it has a financial back-up plan to ensure there is continuity in business sales and so on and on. One of the major points which are missed by the Business Entities while starting its new venture or business is not taking the help of the lawyers for reasons to avoid legal costs or nowadays using the templates which are available online without understanding as to how the templates will work for its business. I shall give my thoughts on how to use the online templates for your business in another article but I always prefer any templates used shall always be seen and verified by experienced lawyers at least once if not regular. Having a Lawyer on Retainership is always better but since it comes with a regular monthly cost, most of the business entities avoid availing services of Lawyers on a monthly Retainership basis. It is very common that any business venture to start the business will require certain documentation and the basic template which may be called is of Invoice Draft. Templates are nothing but a document that is once verified are used by respective departments and no changes are being allowed except if required and that too only by the Management of the Business entities or Owners and that too if there is approval from Lawyer. Any business shall understand that before venturing into any business shall ensure that it has got drafted all the agreements/contracts/Purchase Order/Work Order/SLA, etc and the same shall be numbered as Template No. 1 or be numbered in Standard Operating Procedure in Business and this act as the Standard Templates for the respective requirement and no change is to be allowed majorly except commercial and little here and there. Having all Templates in place only ensures that the Legal System of documentation is in place which thereby results in the smooth functioning of the business. Most of the successful business today has its own standard Non-Disclosure Agreement, Employment Engagement Letter, etc which are used by its employees as and when the need arises rather than calling for a new agreement with new points for same work and purpose at all the time and this creates confusion during any legal claims is made or one has to make.

In my view, Standard Templates is though not mandatory from a legal point of view, but from a business and management point of view, it is advisable and can be said mandatory to ensure that the documentation is being taken care of in the manner as agreed and approved by Lawyers. It not only saves time but also ensure safety and security of not getting into any monetary losses for the wrong act by employees.

An experienced and skilled lawyer will any time provide the business entities with the right kinds of documents and in fact, can be of huge assistance in taking his guidance to develop the business templates which can be used in business on regular basis. The contracts if used properly can help business entities to minimize risk and maximize profit and also help in anticipating the risk in any business deal. The aim of any good law firm is to allow the business entities to just get on with business, rather than wasting time sorting out messes?

Protective Laws @ Purchasing Immoveable Assets

Protective Laws @ Purchasing Immoveable Assets

Purchasing Home and especially in a Complex is nothing short of a nightmare and there are hardly any Developers or I can say there are no Developers who have given 100 percent correct details about the proposed home and their Brochure is just an advertising kit to advertise but it just remains in the Brochure. One of the best example of how brochure advertising just a way to promote and sell the flats is of at Palava where their brochure said Cricket Ground and School of sizes mention but by the time the building was completed all was changed and left with the proposed home buyer is to fight and fight in the Courts and Forum and Developers used this Legal fight as the way to delay the time. However, times are changing with post RERA but there also in RERA there are loopholes where the builders are just manipulating the facts and are selling their flats which have the completion years of more than 4 years. There is no doubt that due to an increase in technology, the buyers form the Whatsapp group and develop a unity in fighting the case against the Developers united and this gives a strong hand against the Developers. However, there are times where the unity is not there and this is aware most of them find it difficult to know their rights against the Developers. In this article, I am stating the remedies, in brief, to make them aware:

Remedies against the Developers are there under the following laws:

1. Real Estate Regulation Act, 2016 (popularly called as “RERA”)
2. Consumer Protection Act, 1986 (as amended)
3. Insolvency and Bankruptcy Code, 2016 (as amended)
4. Arbitration & Conciliation Act, 1996 (as amended)
5. Civil and Criminal Remedy
6. Competition Commission of India

Remedy under Consumer Protection Act, 1986:

The best legislation for any home buyer prior to RERA, IBC, and Arbitration was Consumer Protection Act and in fact, this Forum has been used extensively and also more successfully against the Builders for their negligence and unfair trade activities and also at times the Forum has come strongly against the Unilateral Terms of Builder in the agreement which are being signed at the time of selling the immovable property. Please note that under this the person filing shall fit the criteria of being called Consumer and here I will suggest before filing any Consumer Case, to ensure of being fitting under the Consumer to avoid any bad result against you. This legislation has done a lot in favor of buyers and against bad developers but somewhat has failed to provide the justice on time and also the penalty and damages are not easy to recover and in fact, the Execution of Decree under Laws of India is just not only complex but seems not good at all as this Decree Execution itself becomes a fresh case and hence the time has come to change the provisions pertaining to the Execution of Decree and I am of the firm view that posts Decree, the matter shall be taken as Criminal and no appeal shall be taken on ex-parte proceedings. One has to understand the meaning of Consumer, Deficiency of Service, Unfair Trade practice and in fact the new amendment has been made to the Consumer Protection Act whereby many great changes have been made and also the Monetary Jurisdiction have been made but sadly the Forum are not well equipped to handle such high-value matters and hence there is no doubt that all matters will go as appeal as in India under Laws of India, the appeal is nothing but delay tactics by big builders and thereby trying best to keep money pressure and thereby reduce their payment claims to a minimum which is the most negative part of any remedial laws in India. Just for information, under the Consumer Protection Act, there are three Forums, District Forum, State Commission and National Consumer Dispute Redressal Commission

The Laws and provisions for filing are simple but it is always better to have Legal assistance as even in Consumer Court, the interpretations come in drafting and argument and hence the whole purpose of stating that a complaint person can appear for himself without an advocate is of no use as if so, then no law or professional background be called for against another party for fair battle.

Needless to say, this Act is a good act and in fact, is rated high for good judgment over the years and still in force and the mode and manner are simple.

Remedy under Real Estate Regulation Act, 2016 (popularly called as “RERA”)

RERA is considered as one of the specialized legislation passed by the Indian Parliament taking care of the Real Estate Sector and RERA imposes the Builders to ensure the objective of transparency and accountability and ensure safe interest for the Home Buyers. RERA is nice legislation and in fact, this as on date is the best legislation for a fair trial and this holds good for upholding the doctrine of Let the Seller beware rather than Buyer beware. The biggest achievement of RERA is having one portal for all Builders and time essence which has made many builders ensure of able to run the business but at the same time have also created a monopoly for the limited developers which are surely not good and hence here comes the CCI Act which has a good say. The negative point which I feel is that most of the Brochure does not contain the RERA number and assuming it contains, getting the details online is difficult as there is a mandate to put all the details rather than a number and hence RERA has to change the same. Coming to the RERA Act, provides for the penal provision which may extend up to 5% of the estimated cost of the building project as determined by the concerned RERA Authority. RERA ensures of completion of building projects in time else if delayed then the Builder has to bear strict penalties and damages. RERA has made the assurance to buyers of knowing by when the property will be delivered as the legal provisions are there to back-up against the Builder if failed on time. As per the intention and provisions of RERA, Builder is mandated to keep 70% of the money collected from the buyers in a separate Escrow Account to meet the construction cost of the project and this ensures a deterrent to the builder to complete the project in time.

Remedy under Insolvency and Bankruptcy Code:

Indian Laws can be said as “prior to IBC” and “post IBC” and the reasons being is that IBC Legislation has brought a whole lot of changes the way laws used to be and in fact, the IBC provisions are so stringent that the deficiency in other laws i.e., of trials, delayed justice, etc has been covered and due to its faster process and stringent, it has almost become the first choice for any aggrieved party to approach IBC, subject to certain passing of criteria to fall the case under IBC. The popular name given to IBC is NCLT (National Company Law Tribunal). There is no doubt that IBC has become a nightmare for unscrupulous builders and a boon for the Home Buyers. IBC provides recognition to Home-Buyers as Financial Creditors and has been recognized to initiate the Corporate Insolvency Resolution Process (CIRP) against the Builder under the provisions of IBC.

Remedy under Arbitration & Conciliation Act, 1996

I have always likened the Arbitration & Conciliation Act, 1996 and in fact I prefer Indian Government make all disputes to be resolved by and under the provisions of Arbitration & Conciliation Act, 1996 as this Arbitration & Conciliation Act, 1996 has such a faster provisions and time limit provisions for the closure of any dispute and in fact provisions of Arbitration & Conciliation Act, 1996 has been taken from the UNICTRAL which is international norms. Most of the buyers are not aware that nowadays the Agreement contains the clause of referring the matter to Arbitration and hence if possible choose the Arbitration tribunal to resolve your matter. Please note that the Consumer Remedy and Arbitration Remedy can go hand-in-hand. However, due to the enactment of IBC, there is little doubt of any aggrieved party going to Arbitration or Consumer as IBC has achieved a good name for a faster process and stringent orders.

The remedy under Competition Commission Of India

Under the provisions of Companies Act, 2002, if the Builder is in a Dominant Position and is misusing then this Law comes into the picture. As stated in above paras, that if any monopoly is created or group of Builders is trying to enter into any engagement which may give rise to the single market price, then one can file a complaint before CCI against the builder for the abuse of the dominant position and if found guilty of any anti-competitive practice, huge penalties may be given by CCI.

Remedy under Civil Case for Recovery of Money under the Civil Procedure Code (CPC):

CPC has always been the procedural code for recovery of money and the aggrieved party can file. However, I always suggest trying this method last as to get the result in this remedy is just not less than depression. You have to take the help of the Lawyer to get this remedy due to its lengthy procedure. I always prefer avoiding this method.

Remedy under Indian Penal Code r/w Cr. P C

Aggrieved Party can avail this remedy for Cheating, Fraud, etc if the Builder has done and this comes under Indian Penal Code, 1860. A Buyer can file a criminal case as a private complaint or can lodge FIR

Know how to see Your Court Cases filed in District and Session Courts?

Know how to see Your Court Cases filed in District and Session Courts?

The Indian Courts have been using online methods to ensure more transparency and at the same time the Litigant to know and get an update of their matters as and when they want in an independent manner as there are cases where the Litigant are not able to get their cases to update regularly and hence to bring more transparency, the Indian Court have even started sending SMS and emails. As of now in this I shall inform you how to check your Cases filed at District and Session Court on a regular basis and take further steps:

Step 1: Go to “https://services.ecourts.gov.in/ecourtindia_v6/”

Step 2: Click on “District Court District Court” on Right Hand Side, if the matter is at District Court and or High Court or Supreme Court. Here we are only talking about District Court matters

Step 3: Upon clicking as stated in Step 2 “District Courts”, the following link will come “https://districts.ecourts.gov.in/” wherein the India Map will be shown

Step 4: Click on State your matter is there. For Ex., here is the State of Maharashtra and the link will be shown as “https://districts.ecourts.gov.in/maharashtra”

Step 5: Click on the District where your matter is filed. For ex, here it is shown as clicked on Thane District and hence the link shown is as “https://districts.ecourts.gov.in/thane”

Step 6: Go to Right Hand Side and Click “Case Status” and chose the method of viewing the case, better you always Click “Party Name” and if this does not work (chances are very less) then “Advocate Name”. Always click on “Party Name” for easy use. The following link will come once “Party Name” is clicked “https://services.ecourts.gov.in/ecourtindia_v4_bilingual/cases/ki_petres.php?state=D&state_cd=1&dist_cd=21”

Step 7: Select “Court Complex” and do the following:
Court Complex: Click, where you matter, is posted, either at Vashi, etc. Here is an example, taken as Ulhasnagar
Petitioner/Respondent: Put the name of Yours or against whom you have filed a case
Year: Which Year you filed the case
Pending / Disposed / Both: Click on the same what the status of your case. If you are not aware, then Click on “Both”

Once Clicked, the list of all cases with similar names or nearby will come. You go to your case and select “View”. Once Selected your case will appear with all details and if you click on dates which are Blue in Colour, it will show the status of each date and you will get to know what has happened in Court. This way you can be updated at all times.

Online Business = Start taking an active role to stay relevant in the market

Online Business = Start taking an Active Role to stay Relevant in the market

Traditional Business/Retailers have long enjoyed their running of the business in the same manner as there was no competition to them and in fact, one of the negative sides of this is the way Traditional Business/Retailers long back avoided giving any importance to its customer or its grievances and in fact by making Union / Association, it was almost like no chance for the customer even though the laws were and are there to protect them but all know the time takes in India for completion of one simple case. Coming to the present scenario about the market and way of doing the business, today the goods are being sold by malls and online and it is online which has affected the traditional business a lot. The positive aspect of the online way of working is the way of their delivery and refund and this has been creating a lot of discomfort to traditional business and in fact, the online sale of medicine at the initial stage created a lot of concern and many associations started taking action against such sale but today as on 09.05.2020 the medicines are being delivered to doorsteps and via online and hence it is easy to say that future is online and there is no way that online can be stopped in any manner as there is nothing wrong doing business online as from one end it is the right of the customer to get the best deals and services. There is no doubt that India is one of the rising economies in the global market and this has been accepted by all the associations all over the world and rating agencies and also countries all over. Here to appreciate the brilliant way as to how our current Respected Prime Minister, Shri. Narendra D Modi has taken India to the next level and it feels great when we see that our Respected Prime Minister, Shri. Narendra D Modi has been promoting the business and India all over the global stage and there is no doubt if not today but very soon India will get a lot of opportunities to expand its market to all companies and the results are being shown at various levels. India also is getting its technology usage at a good speed and in fact, the Lockdown period has somewhat given the MSME business to know the importance of getting into the knowledge of the use of technology in business and in fact this is also a truth that most of the business have started giving importance to marketing and innovation. I firmly believe that Businessperson has only two works to do “Marketing and Innovations”. Today India has got all the technology it wants and there are retailers who have been selling their products online and online means via the usage of various social mediums. It is worth noting that with the growth of usage of the Internet there is a huge possibility that more than 78% of businesses will be using the Internet by 2022 to enhance the customer experience.

With Technology coming into the role, even the Traditional Business can grab the opportunities, which in brief is as under:

· Costs Reduction
· Operating costs reduction
· Importance given to long customer service hours
· Better in terms of Finance Management
· Aware of Target Buyers

However, with Opportunities, Threats will be there and most relevant Threat in my view will be as under:

· IT Security
· Ready for Huge Budget for IT
· Proper IT Set-up to ensure no Blackout Day
· 24 x 7 open business for an increase in competition

Time has come for the Traders to seriously consider the advantages and disadvantages of the online marketplace and how they might apply to their current business goals and where they would want to see their retail business in the future. Please note that it is all about what they intend to do and if Traders want to have their say in the future, there is a requirement of them changing the way of doing the business else someone will take-over the same business with new change and no innovative in business. I shall discuss in a separate article as to why some business grows, while others remain small throughout their life. Certain reasons, which I think is as under:

· Just put yourself out there
· Unaware or Unsure where to go
· Using valuable time on Trivial Tasks
· Not able to give the best price/ fear pricing
· Work, work to death
· Taking an irrelevant risk

Statutory Arbitration OVERRIDES Contractual Arbitration

Statutory Arbitration OVERRIDES Contractual Arbitration

What is Statutory Arbitration?
 
There are various statutes providing for dispute resolution by way of arbitration, even though parties did not have an express arbitration clause between them i.e., Section 7-B of Telegraph Act,1885, Section 52 of Electricity Act, Section 76(2) of Electricity (Supply) Act, etc. In the same manner even Section 18 of The Micro Small Medium Enterprises Development Act, 2006 provides for dispute resolution by way of arbitration.
 
MSME: MSME stands for Micro, Small, and Medium Enterprises.
 
Prior to COVID 19 reforms announced in the month of May 2019, the enterprises under Micro, Small, and Medium Enterprises Development (MSMED) Act in 2006 were classified into two divisions. Manufacturing enterprises (engaged in the manufacturing or production of goods in any industry) and Service Sector. However, now this has been removed. Below you will find the earlier and revised definition of MSME:
 
Contractual Arbitration:
 
The term “Contractual” means, a contract between two parties doing business or entering into any legal transaction under the laws of India. Any business transaction which is of legal in nature is a contract, either in writing or oral. However, it is always advisable to have contract in writing or at least if not, then action shall be written such as supplying the goods on written work order or purchase order, having delivery challan as proof of supply, email correspondence, etc. further, it is also meant the terms the business parties have agreed too. The term “Arbitration” means a private process set up by the parties as a substitute for court litigation to obtain a decision on their dispute. The Arbitration in India is regulated by Arbitration and Conciliation Act, 1996 (as amended).
 
The term “Contractual Arbitration” means, wherein the business parties have agreed in writing either in form of Purchase Order or separate agreement dealing with terms of business or separate arbitration agreement and contains the clause of referring the disputes to arbitration means contractual arbitration. The term “contractual arbitration” itself speaks of its binding force under the Laws of India. The business contracts are regulated by Indian Contract Act, 1872.
 
Business entity registered under MSME are entitled to claim their money through MSME Council Arbitration and this is termed as Statutory Arbitration and has the same effect as Contractual Arbitration. In the event, there are two arbitrations co-existing, Aggrieved Party if MSME member has the choice of selecting arbitration method, whether Statutory or Contractual
 
Whether it is mandatory for the Business Entity to be a registered entity under MSME to avail Dispute Resolution remedy:
 
In India, most of the Micro, Small & Medium Enterprises/Industries become unviable mainly because of the delayed payments from the Parties. Due to huge pendency of cases normal commercial litigation takes very long time to get finality.
 
It is sad but a fact that even in this technology and consulting era most of the MSMEs do not understand the importance of arbitration clauses while entering contracts as they don’t prefer taking the advice of Legal Professionals with the only aim of avoiding Legal costs and hence when disputes arise they are left with litigations only. The Government has taken various efforts to support and protect the interests of MSME as they are the backbone of Indian GDP.
 
However, there was and is confusion whether a unregistered MSME Business entity can avail the benefits of MSME in regard to claiming of money via Arbitration Proceedings. This particular situation was dealt in case GET & D India Limited Vs Reliable Engineering 2017 SCC Online 6978, which came up before Hon’ble Justice Muralidhar of Delhi High Court. In the said case, the Parties had Two Supply Contracts and one of which had an arbitration clause also. On the complaint of the Respondent Small Industry, after hearing both the parties, the MSMED council passed an arbitration award and the appellant chose to challenge the said award before the Delhi High Court under Section 34 of the Arbitration & Conciliation Act,1996. The respondent challenged the said award on various grounds but the author has chosen three important questions which are relevant for this Article. Hence among the questions raised by the appellants, the following are relevant here:
 
1. Whether the dispute resolution prescribed U.S.19 of the MSME Act, 2006 over rides the arbitration clause in the contract?
 
2. Whether the requirement of deposit of 75% of the value of the MSME award to challenge the same under S.34 of the Arbitration and Conciliation Act,1996 can be waived by the High Court, on its discretion?
 
3. Whether an Industry Which could not register itself under the MSME Act, within the 180 days’ time given in the Act, can claim the benefits under the said Act, by registering later?
 
The Court held that since MSMED Act is a special act, providing a special dispute resolution mechanism providing beneficial provisions to MSMEs and Arbitration and Conciliation Act,1996 is a general legislation governing the arbitration space, MSMED Act the beneficial legislation should be given preference over the general act. Moreover, a contractual clause cannot override the statutory provision. Hence relying of the above proposition, it further held that the dispute resolution mechanism provided in the MSME Act overrides the arbitration clause incorporated in the Contract. The Court held that the benefits of the said Act would be available only after the registration of the industry under the said Act but registration of the old industries can be done later also. This is a beneficial clarification in favour of the MSMEs of India.

Debt Recovery under MSME = Best in Business after IBC Law

Debt Recovery under MSME = Best in Business after IBC Law

There is no doubt that Delayed Payment has been and is the biggest problem majority of the business entities are facing and there are very fewer companies that pay to its vendors in time. This delay in payment to MSME creates a huge financial problem as due to this the money is stuck and the MSME business entities are not able to use the money for business growth and are stuck due to less finance and in fact, sometimes this money becomes claimable money and for this such business entities have to approach Court or Forum for recovery and this is where they have to approach Lawyers for recovery of money and in India to recover the money as such is a big headache from a legal point of view due to lengthy and more lengthy procedure and also a Litigation is a costly affair. It is very interesting to note that more than 38.95 lakh UAMs have been filed since September 2015 up to December 2017.

There are many benefits under the MSME Act and in fact, getting the business registered under MSME only plays an important part in availing the benefit of all the schemes under the MSME Act. One of the most important and best advantages given to all MSME holders is the simplest process and procedure to recovery their pending dues from MSME Forum which is nothing but popularly called Statutory Arbitration.

Just a quick look on Relevant Provisions for Recovery of Money

Chapter V of the MSMED Act contained the provisions with regard to the Recovery of the Outstanding from the Buyer in case of any service(s) availed or good brought by him

  • Section 15: It provides that buyer to make payment in case of any service(s) being availed or goods brought by him on or before the date as agreed in writing otherwise before the appointed date [The maximum period to be paid to the seller is 45 days from the day of acceptance or deemed acceptance]
  • Appointed date means the day following immediately after the expiry of the period of 15 days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.
  • Day of Acceptance means: (a) the day of the actual delivery of goods or the rendering of services; or (b) where any objection is made in writing by the buyer regarding the acceptance of goods or services within 15 days from the day of the delivery of goods or the rendering of services, the day on which· such objection is removed by the supplier;
  • Day of Deemed Acceptance means, where no objection is made in writing by the buyer regarding the acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services.
  • Section 16: Buyer shall be liable to pay compound interest with monthly rests in case of failure to comply with the aforesaid provision. Interest Rate will be 3 times of the bank rate notified by the RBI.
  • Section 17: Buyer to make payment along with interest.
  • Section 18: MSME may make a reference to the Micro and Small Enterprises Facilitation Council (“MSEFC”) and MSEFC may initiative on its own, action as it may deed necessary.


Objectives of MSMED Act 2006 in regard to Recovery of Money:

  • Statutorily binds the buyer to pay the MSME supplier within the statutory due date (within 45 days of the acceptance of the goods/service rendered)
  • Provide for penal interest statutorily in case of buyer defaults in making payment (The buyer is liable to pay compound interest with the monthly rests to the supplier on the amount at the three times of the bank rate notified by RBI)
  • Provide for an efficient statutory mechanism for expeditious resolution of supply and payment related disputes
  • Statutorily ensure to recover at least 75% of the due amount along with interest for disbursal of finance to the MSME supplier to keep it viable in case of buyer appeals in court [Please note that if the Appellant (not being the supplier) wants to file an appeal, no application for setting aside any decree or award by the MSEFC shall be entertained by any court unless the appellant (not being supplier) has deposited with it, the 75% of the award amount] – The objective of the remedy at Section 19 incorporating mandatory deposit of 75% amount in terms of the Award to entertain the appeal/ contest by the Buyer under Section 34 of Arbitration Act by the Buyer in the Court is in order to ensure timely flow of finance to MSME supplier so as to remain viable in the event of delay, default or dispute regarding payment by the buyer. The object of effective and expeditions remedy incorporated in Section 18(5) and section 19 of the MSMED Act 2006 is to be appreciated by reading together with Section 34(3) and Sec. 36 of Arbitration Act. The remedy and relief can be fairly deducted to securing at least 75% amount and disbursing that amount through Court to MSME supplier within six (6) months with the intent to retain its viability and financial health and to reduce incipience of sickness


How does MSME Registration help in the Recovery of Dues?

There is a defined period for raising any dispute regarding goods or services under MSME rules from delivery and if there is no such raised dispute/s, then raising dispute at later stages is of no use and these reasons have been used by many in court matters in any monetary claim as defense and hence this benefit take away one of the major Defense of the proposed defaulter and secondly, the invoice payment has to be made within 45 days from the date of invoice except for any credit period mutually agreed between parties to the business. In case there is a default in making the payment, the following steps are followed:
(The person who files the case is called Aggrieved Party/Claimant/s and against whom it is filed is called as Opposite Party/Respondent/s)

  • Issue MSME Civil Notice stating the provisions of MSME
  • In case of no payment, issue another Demand Notice
  • In case of no payment, then start drafting MSME Petition in the format as per MSME Act with the help of a legal advisor and not else as a legal advisor is the best to understand the importance of drafting and its relevance at the time of argument. The process is that one has to submit the reference letter as per Form1 of said Act and rules and thereafter Petition and then Petition once accepted then will be forwarded to MSME Department for Conciliation/Arbitration and in the event, there is no response from the defaulter, the Arbitration Proceedings will start to be held at MSME Office. As per MSME Act, all MSME proceedings shall be closed within 180 days and one of the prayers in MSME Petition shall always be claiming interest at the compound rate and other damages.


The biggest advantage of the MSME Act is that MSME overrides the Contractual Arbitration clause between the Parties (Refer, GET & D India Limited Vs Reliable Engineering 2017 SCC Online 6978)
One can also file the MSME Petition (prefer getting this drafted by Legal Advisor) on MSME portal in the following manner:

  • https://samadhaan.msme.gov.in/MyMsme/MSEFC/MSEFC_Welcome.aspx
  • Click on Case Filing for Entrepreneur/MSME.
  • Enter Udyog Aadhaar Number (UAM) which will be received by Business Entities when MSME Certificate is issued
  • Enter Aadhaar Number or Mobile Number as in Udyog Aadhaar(Only For Assisted filing cases)
  • Enter verification code as displayed
  • Click on the Validate Udyog Aadhaar button to receive OTP on email registered during Udyog Aadhaar registration.
  • Cases can be updated from the said website by all aggrieved party
  • Now, you will see an option Application entry which will help you to file an application and/or compliant with the appropriate authority, before filling it please keep the details of work orders and/or details of invoices ready or any other document which can prove your claim. You can provide the details over the portal, if it is less than 5 however, in case it is more than 5 then you can combined all invoices in single PDF and upload it over the web-portal and submit it, thereafter one more page will be pop-up for the review and final submission
  • All done now MSEFC will send this application to the concerned respondent and status of your complaint can be seen Entrepreneur Application list, the application will be proceed faster than that of the court, furthermore the concerned officer may ask you to come and advise you in case of any other document and/or information being required by him


What is MSME Samadhaan portal?

To address Delayed Payment to MSME Section 15-24 of The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 deal with the issues relating to the Delayed Payments to Micro and Small Enterprises (MSEs) by the buyers to the MSE supplier. In the case of delay in payment beyond 45 days, MSME suppliers may approach the Micro and Small Enterprises Facilitation Council (MSEFC) constituted under the Act in all States/UTs. Under Section 16 of the MSMED Act, delayed payment to supplier units, attracts compound interest with monthly rests at three times of the bank rate notified by the Reserve Bank. To further the objectives of the MSMED Act, 2006 the Ministry of MSME launched a portal (http:// samadhaan.msme.gov.in/) on 30th October 2017.

It is relevant to note that from the date of the launch of MSME SAMADHAAN Portal, i.e. 30th October 2017, MSME has filed 2927 applications related to delayed payments. These cases involve an amount of Rs. 744.65 Crore. This portal has also helped in getting the delayed payments getting settled mutually between seller and buyer. 105 mutual settlements have been done amounting to Rs. 8.87 Crore. Applications are getting converted to cases by MSE-Facilitation Councils in States. 264 applications have been converted to cases by 31.1.2018. This has empowered the MSEs to file their delayed payments cases directly. This is being monitored by respective Ministries/ CPSEs and State governments (this para has been taken from the Annual Statement for the Year 2017-2018 by MSME)

MSME + ROC Compliance = Removes Law of Limitation on Recovery of Dues:

In order to protect the interest of MSME the Central Government on 22.01.2019 has issued a notification under the MSMED Act, 2006 to ensure timely and smooth flow of credit to MSMEs and minimize sickness among them. As Per the Notification Number S.O. 5622(E), every specified company shall file an Initial Return in MSME Form I stating details of all outstanding dues to Micro or small enterprise suppliers existing on the date of notification of this order within thirty days from the date of publication of this notification. Please note that the Registrar of Companies (ROC) is asking the detail of the default and delay in payments to MSME (means Micro, Small and Medium Business entities whether they are individual, firm, LLP or companies) along with the complete list of the name, the amount outstanding, a period of delay with reason and total outstanding to MSME exceeding 45 days through filing the ‘MSME FORM I’ with ROC. The companies are also required to file the half-yearly report on the delay of payment to MSME as well as a one-time report. A half-yearly return MSME-1 specifying the payments outstanding to micro and small enterprises suppliers which are outstanding for more than 45 days from the date of acceptance or the date of deemed acceptance of goods or services stating the following: a)The amount of payment due, and b) the reasons of delay. The Penal provisions are serious for non-compliance. If the said details are not submitted to Registrar of Companies on MCA on or before 22.02.2019 or the information submitted is incorrect or incomplete, then the fine on the company is up to Rs. 25,000 and the Directors, CFO & CS shall be punishable for imprisonment up to 6 months OR fine not less than Rs. 25,000 up to Rs. 3,00,000 per person each.

Always Together??

Always Together??

Recently a non-regular client approached me after almost 1.5 years for seeking legal opinion on the almost broke relations with another partner in his partnership business and the reason to approach me is due to the fact that the relations were not in any possibility of gaining any good momentum for further business and it was just getting in personal and affecting per se. There were two partners at the time of initiating the fresh and new partnership business wherein my client was an experienced IT skilled and another partner was in marketing. It needs a mention that the business model of the said partnership was of my client solely and there was no contribution of another partner in any manner either as monetary investment or idea selling or else but was the partner in equal ratio and it seems that my client never expected the dispute will arise with another partner as another partner was someone own to my client since good years and he didn’t see it that way!
 
As it happens many times of business being done on trust basis which I am totally against (you can refer my article named “Is it risk-free to do business on Trust and no written contracts” and in this case too there was no proper documented term sheet written agreement but only the trust. No proper partnership agreement was drawn as the partnership agreement was just a copy and paste from online and filling the blanks with their names and business and just had a simple notary which was done to open the bank account and this was and is certainly very bad news for my client. There was no specific clause on ownership of Intellectual Property Rights, way of dealing of Intellectual Property Rights and without any terms agreed, it was and is no doubt very hard to work out what the real understanding between partners was at the time they got together and that makes even worse to bring the legal separation which is fair to both parties.
 
As I have stated in my earlier articles of no business to be done on trust and without written contracts, I will suggest of having proper documentation in any business relations and this may include any business relations as this document is nothing but can be said as “Documenting Your Relationship!” It is very easy to use a standard template from online nowadays but you need to have legal guidance to have properly documented all the intentions and business purposes as that ultimately will define at the time of any dispute arising.
 
It’s never too late to try to put an agreement in place, especially if the relationship is still good. And it’s time and money well spent.

Best way to avoid Small Business Litigation

Best way to avoid Small Business Litigation

What is Litigation?
Litigation means “a dispute between two parties”. The disputes are generally in two categories; Criminal and Civil. In this brief article, I am referring to “Civil Disputes” arises because of transactions between the parties, commercial or non-commercial. The litigation comes when the parties are not able to resolve the disputes amicably.
 
Best way to avoid small business litigation is to:
· Written Agreements/Contracts.
· Being communicating regularly.
· Better to discuss relevant and prospective issues.
· Hold Meetings and keep Minutes of Meeting and get the same signed by all the Parties attending including the Owner/s to avoid any issues later.
 
Pre-Litigation Measures one can take:
· More care at the initial stages leads to latter stages being smooth and painless. Professional assistance committed to avoiding litigation can add value at each stage.
· Be very careful in choosing the parties with whom the business will be done.
· Spend time to find more about potential associate/partner.
· Start with some activities that build mutual understanding and confidence.
· Move into long-term or deeper involvement with caution.
· At each stage of the relationship, prepare clear documents that leave no room for misunderstanding.
· While in the relationship, take all possible care to avoid derailment.
· If things go wrong, try for the amicable resolution of problems.
· If amicable resolution not possible, try for exit by mutual consent.