KERALA VALUER WINS LANDMARK RULING IN MSME PAYMENT DISPUTE WITH SBI: A WIN FOR SMALL ENTERPRISES
In a landmark ruling, the Kerala Micro and Small Enterprises Facilitation Council (MSEFC) has ruled in favor of a small enterprise from Kannur, Kerala, in a dispute over delayed payments from the State Bank of India (SBI). The case highlights the persistent challenges faced by small and micro enterprises in securing timely payments, particularly when dealing with large institutions like banks.
The applicant in this case, Build-Tech, a micro enterprise based in Kannur, specializes in property valuation services. Registered under the Udyam scheme (KL-04-0000249M/00001), the firm had provided valuation services to several SBI branches, including the Regional Asset & Security Management E-Corporate Credit Cell (RASMECCC) and the Regional Business Office (RBO) in Kannur. Despite rendering these services in 2021, the company faced considerable delays in receiving payment for its work.
The Payment Dispute
The dispute arose over four unpaid invoices issued by Build-Tech in 2021, for services rendered between January and May of that year. The total outstanding amount of Rs. 14,160 had accrued substantial interest, amounting to Rs. 1,66,668 by August 2023. When compounded, this brought the total claim to Rs. 1,80,828.
The applicant, Rathnakaran Kumbakkudi, representing Build-Tech, highlighted that according to SBI’s internal “Policy on Valuation and Empanelment of Valuers, 2019,” payments should be made within 45 days of receiving the final valuation report or bill, whichever is later. However, despite repeated reminders, payments from SBI’s RASMECCC office were consistently delayed, causing significant financial strain for the small business.
Additionally, the policy stipulates that if SBI does not raise any objections to a valuation report within 15 days of submission, the report is deemed accepted, and payment should be processed. In this case, SBI had not raised any objections within the stipulated period, yet payment was not made.
SBI’s Defense
In its defense, SBI raised an objection based on the timing of Build-Tech’s Udyam registration, which was obtained only in August 2020, after the invoices were issued. The bank also claimed that four of the disputed invoices had already been paid. However, the applicant countered this by asserting that two of the invoices were still outstanding and provided supporting documentation to clarify discrepancies, including a minor clerical error involving one invoice.
Despite multiple follow-ups and reminders, SBI failed to settle the payments, prompting Build-Tech to file a grievance with the Kerala MSEFC under the provisions of the Micro, Small, and Medium Enterprises Development Act, 2006 (MSMED Act).
The Ruling: A Major Victory for Small Businesses
After reviewing the case, the MSEFC in Kozhikode ruled in favor of Build-Tech, ordering SBI to pay the outstanding principal amount of Rs. 7,080, along with compounded interest of Rs. 42,777. This brought the total claim to Rs. 49,857, to be settled by August 2024. The Council pointed out that there were no objections raised by SBI regarding the quality of the services rendered and emphasized that the bank had failed to adhere to the 15-day period for disputing the valuation reports.
Under Section 16 of the MSMED Act, the MSEFC granted Build-Tech the right to claim interest at a rate three times the Bank Rate as prescribed by the Reserve Bank of India (RBI), which would continue to accrue until the full payment was made. The ruling also stipulated that the bank would be liable for further interest in case of continued delays beyond the settlement date.
Implications for Small Enterprises and Banks
This ruling is a significant win for micro and small enterprises, underscoring the importance of timely payments and the legal protections available to businesses under the MSMED Act. It sends a strong message that delays in payments, particularly by large organizations like banks, can result in financial penalties, including compounded interest. The case also highlights the importance for small businesses to keep accurate records of transactions and to use formal channels, such as the MSME Samadhan portal, to resolve payment disputes.
For banks and other large organizations, the decision serves as a reminder of the importance of adhering to payment timelines set out in internal policies. Failure to do so not only harms small businesses but also results in additional financial costs. Timely payments are essential to maintaining healthy relationships with service providers and supporting the sustainability of small enterprises.
Looking Ahead
The ruling offers a stronger legal foundation for small businesses, like Build-Tech, to demand timely payments and seek redress for delays. For banks and financial institutions, it highlights the need for more efficient payment systems to avoid legal disputes and financial penalties. The case also serves as a broader reminder to stakeholders in the business ecosystem—whether banks, enterprises, or regulatory bodies—about the importance of ensuring fair, transparent, and prompt payment practices.
With this victory, Build-Tech’s case has set a valuable precedent for small businesses across India, ensuring that their contributions to larger organizations are respected and compensated in a timely manner. This ruling also paves the way for a more robust enforcement of the MSMED Act, providing small businesses with a stronger voice in their dealings with large corporations.
Final Decision
The decision by the Kerala Micro and Small Enterprises Facilitation Council represents a significant achievement for Build-Tech and a broader victory for small enterprises striving to protect their rights. It not only addresses the immediate issue of delayed payments but also establishes a crucial precedent for the fair and timely treatment of small businesses in the future. As small enterprises continue to play a vital role in India’s economy, this case serves as a reminder that legal safeguards are in place to protect their interests against delayed or unfair payments.
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