The penalties for non-filing of E-Form MSME-1 are governed by the general penalty provisions of the Companies Act, 2013, specifically Section 450 (Punishment where no specific penalty or punishment is provided).
This is a critical compliance check, as the MSME-1 filing is a newer requirement intended to protect Micro and Small Enterprises (MSEs).
Here is a breakdown of the consequences
Consequences of Non-Filing of E-Form MSME-1
The MSME-1 filing is a half-yearly report mandated under an Order issued by the Ministry of Corporate Affairs (MCA), read with Section 405 of the Companies Act, 2013, which requires all specified companies to report outstanding dues to MSEs that exceed 45 days.
Since the MCA order mandating MSME-1 did not explicitly prescribe a specific penalty within the rules, the failure to file attracts the general penalty provision under the Act: Section 450.
1. The Applicable Penalty (Section 450)
| Defaulting Party | Penalty Imposed | Nature of Fine |
| Company | Fine extending up to ₹10,000. | Initial penalty for general non-compliance. |
| Continuing Default | Fine extending up to ₹1,000 for every day the default continues (for the company and every officer in default). | Daily penalty for continued failure to comply. |
The key financial risk here is the potential for the fine to escalate rapidly due to the daily continuation penalty. A delay of just a few months can result in a fine substantially exceeding the initial amount.
2. Operational and Compliance Risks
Beyond the monetary fine, non-filing of MSME-1 creates severe practical and compliance issues for the company:
Audit Qualifications: The statutory auditor is likely to qualify their report if the company has mandatory filings pending, which can signal poor governance to stakeholders and lenders.
ROC Scrutiny: Persistent non-filing can flag the company for closer scrutiny by the Registrar of Companies (ROC), leading to unnecessary queries or procedural complexity.
Reputational Damage: The primary goal of the filing is to ensure transparency regarding vendor payments. Non-filing suggests a failure to prioritize timely payments to small vendors, damaging the company’s reputation during due diligence.
The MSME-1 form should be prioritized, regardless of the absence of a large fixed penalty:
The Compliance Imperative: "Filing Form MSME-1 is a critical, half-yearly compliance that costs very little time but carries a high reputational and administrative risk if missed. Professionals must prioritize tracking payment terms to Micro and Small Enterprises. Failure to file is a clear contravention of a central government mandate to protect small businesses and will trigger a compounding penalty under Section 450, potentially leading to a rapidly escalating daily fine that significantly impacts the company's financial standing."