Corporate compliance under Indian MSME laws, comparing MSME-1 and Section 22 disclosures, aligning them with Schedule III, managing debt-acknowledgement legal risks, and detailing the graded penalty regime under the 2026 Amendment Act.

1. Two duties side by side

2. What section 22 asks for

Section 22 requires the buyer’s annual statement of accounts to show, for each accounting year: (i) the principal amount, and the interest due on it, remaining unpaid to any supplier at year-end, shown separately; (ii) interest paid under section 16 and the payments made to the supplier beyond the appointed day; (iii) interest due and payable for the period of delay on amounts paid late, without adding section 16 interest; (iv) interest accrued and remaining unpaid at year-end; and (v) further interest remaining due in later years until it is actually paid, for the purposes of the section 23 disallowance.

The year-end balance in item (i) is not limited to dues that have crossed 45 days. It covers principal remaining unpaid to suppliers at the balance sheet date, which can include amounts still inside the credit period.

3. How this meets Schedule III

Schedule III to the Companies Act separates trade payables owed to micro and small enterprises from those owed to others and calls for an ageing analysis. The line items in the balance sheet and the narrative note on section 22 should be built from one supplier-wise dataset, so that the totals agree. Confirm the exact line-item wording and ageing format against the current Schedule and the applicable accounting framework.

4. Disclosure can work as an acknowledgement of debt

In Sonali Power Equipments v. MSEB (17 July 2025) the Supreme Court recalled that a balance-sheet entry can amount to an acknowledgement of liability under section 18 of the Limitation Act, and that notes or the auditor’s report can show that it does not. Whether a section 22 disclosure extends limitation has to be examined case by case. The drafting of the note therefore matters. A statement that amounts are shown only to comply with section 22, or that a balance is disputed, should be used only where it is accurate and supportable, and should not be added routinely to shield the company.

5. Reconciling the three numbers

In a clean year the MSME-1 schedule, the section 22 note and the ledger agree on supplier identity, principal and dates. Differences are expected only for stated reasons, for example MSME-1 listing only dues beyond 45 days while the note covers all unpaid principal. A short reconciliation memo, kept with the working papers and reviewed by the company secretary and the auditor, is the most efficient control.

6. Consequences, and the 2026 Amendment Act

Contravention of section 22 is currently punishable under section 27. When commenced, the MSMED (Amendment) Act, 2026 replaces this with a graded regime: a warning on the first contravention, a penalty of ₹10,000 to ₹50,000 on the second, and ₹50,000 to ₹1 lakh on the third or later, imposed by an adjudicating officer, with the minimum amounts rising by 10% every three years. Those provisions operate only from the date notified.