Classification of enterprises
Section 7 of the Micro, Small and Medium Enterprises Development Act, 2006 deals with classification of enterprises. Notwithstanding anything contained in section 11B of the Industries (Development and Regulation) Act, 1951 (65 of 1951),the Central Government may, for the purposes of this Act, by notification and having regard to the provisions of sub-sections (4) and (5), classify any class or classes of enterpri The Act came into force on 02 Oct 2006.
(1) Notwithstanding anything contained in section 11B of the Industries (Development and Regulation) Act, 1951 (65 of 1951),the Central Government may, for the purposes of this Act, by notification and having regard to the provisions of sub-sections (4) and (5), classify any class or classes of enterprises, whether proprietorship, Hindu undivided family, association of persons, co-operative society, partnership firm, company or undertaking, by whatever name called,--
(a) in the case of 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 (65 of 1951),as--
(i) a micro enterprise, where the investment in plant and machinery does not exceed twentyfive lakh rupees;
(ii) a small enterprise, where the investment in plant and machinery is more than twenty-five lakh rupees but does not exceed five crore rupees; or
(iii) a medium enterprise, where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees;
(b) in the case of the enterprises engaged in providing or rendering of services, as--
(i) a micro enterprise, where the investment in equipment does not exceed ten lakh rupees;
(ii) a small enterprise, where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees; or
(iii) a medium enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees.
Explanation 1.--For the removal of doubts, it is hereby clarified that in calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices and such other items as may be specified, by notification, shall be excluded.
Explanation 2.--It is clarified that the provisions of section 29B of the Industries (Development and Regulation) Act, 1951 (65 of 1951), shall be applicable to the enterprises specified in sub-clauses (i) and (ii) of clause (a) of sub-section (1) of this section.
(2) The Central Government shall, by notification, constitute an Advisory Committee consisting of the following members, namely:--
(a) the Secretary to the Government of India in the Ministry or Department of the Central Government having administrative control of the small and medium enterprises who shall be the Chairperson, ex officio;
(b) not more than five officers of the Central Government possessing necessary expertise in matters relating to micro, small and medium enterprises, members, ex officio;
(c) not more than three representatives of the State Governments, members, ex officio; and
(d) one representative each of the associations of micro, small and medium enterprises, members, ex officio.
(3) The Member-Secretary of the Board shall also be the ex officio Member-Secretary of the Advisory Committee.
(4) The Central Government shall, prior to classifying any class or classes of enterprises under sub-section (1), obtain the recommendations of the Advisory Committee.
(5) The Advisory Committee shall examine the matters referred to it by the Board in connection with any subject referred to in section 5 and furnish its recommendations to the Board.
(6) The Central Government may seek the advice of the Advisory Committee on any of the matters specified in section 9, 10, 11, 12 or 14 of Chapter IV.
(7) The State Government may seek advice of the Advisory Committee on any of the matters specified in the rules made under section 30.
(8) The Advisory Committee shall, after considering the following matters, communicate its recommendations or advice to the Central Government or, as the case may be, State Government or the Board, namely:--
(a) the level of employment in a class or classes of enterprises;
(b) the level of investments in plant and machinery or equipment in a class or classes of enterprises;
(c) the need of higher investment in plant and machinery or equipment for technological upgradation, employment generation and enhanced competitiveness of the class or classes of enterprises;
(d) the possibility of promoting and diffusing entrepreneurship inmicro, small or medium enterprises; and
(e) the international standards for classification of small and medium enterprises.
(9) Notwithstanding anything contained in section 11B of the Industries (Development and Regulation) Act, 1951 (65 of 1951) and clause (h) of section 2 of the Khadi and Village Industries Commission Act, 1956 (61 of 1956),the Central Government may, while classifying any class or classes of enterprises under sub-section (1), vary, from time to time, the criterion of investment and also consider criteria or standards in respect of employment or turnover of the enterprises and include in such classification the micro or tiny enterprises or the village enterprises, as part of small enterprises.
Section 7, The Micro, Small and Medium Enterprises Development Act, 2006 (Act 27 of 2006).
Cross-references
Extracted from the operative text of the enactments themselves. Every destination below exists in our corpus.
This section refers to
- Khadi and Village Industries Commission Act s. 2 Definitions
- s. 5 Functions of Board
- s. 9 Measures for promotion and development
- s. 10 Credit facilities
- s. 11 Procurement preference policy
- s. 12 Funds
- s. 14 Administration and utilisation of Fund or Funds
- s. 30 Power to make rules by State Government
Referred to by 1
Related judgements & precedents
These are some judgments that construed this section, and hold precedence value. They hold authority on how to read, interpret and use this section.
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Richmond Investments PVT LTD vs Union of India
Court's Decision & Legal Precedent
The Insolvency and Bankruptcy Code, 2016, in its entirety, is constitutionally valid. The Code does not violate Article 14 (equality) of the Constitution. The classification between financial and operational creditors is based on clear intelligible differentia having direct relation to the Code's objects; operational creditors' exclusion from voting rights in the committee of creditors is justified because financial creditors are better equipped to assess business viability, and operational creditors' interests are protected through guaranteed minimum liquidation value payment and priority in resolution plans. Section 29A's eligibility restrictions do not violate vested rights because resolution applicants have no pre-existing right to be considered, and the provisions are designed to prevent unscrupulous and unfit persons from regaining control of stressed corporate debtors. Economic legislation deserves judicial deference and should be judged by the generality of its provisions rather than alleged crudities; trial-and-error experimentation in economic matters is proper legislative function which courts cannot strike down unless the legislation is manifestly arbitrary or palpably unreasonable. The Code's success in reviving assets, increasing credit flow, and resolving disputes within time-bound manner demonstrates it is a valid, justified, and beneficial legislative intervention addressing prior failures of insolvency law.
On this section: Classification of enterprises as micro, small or medium based on investment thresholds
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Shivam Water Treaters Pvt. Ltd. Thr. Authorised Signatory Gaurav Hargovindbhai Dave vs Union of India Thr. Secretary to Govt. Ministry of Corporate Affairs
Court's Decision & Legal Precedent
The Insolvency and Bankruptcy Code 2016 and all its challenged provisions are constitutionally valid as they represent legitimate legislative experimentation to address the complex economic problem of insolvency resolution. The classification between financial and operational creditors has intelligible differentia directly related to the objective of maximizing asset value through time-bound resolution. Restrictions on promoter participation, operational creditor voting, and information utility evidence are not arbitrary but rationally related to preventing abuse of the resolution process and ensuring efficient management by qualified stakeholders. Economic legislation deserves greater judicial deference than legislation affecting fundamental rights, and courts should not substitute their views for legislative policy in complex economic matters absent manifest arbitrariness, defined as unfair, unreasonable, irrational, capricious, or excessively disproportionate action. The evidence demonstrates that the Code is achieving its objective of recovering significantly higher amounts than liquidation value, increasing credit flow to the commercial sector, and reducing the time for insolvency resolution in India toward international standards.
On this section: The classification of MSME enterprises was cited in the context of Section 240A exemptions from Section 29A(c) and 29A(h) restrictions, reflecting legislative responsiveness to hardship caused by the Code.
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Swiss Ribbons Pvt. Ltd. Thr. Authorised Signatory Dinesh Bhagwandas Jariwala vs Union of India Ministry of Corporate Affairs
Court's Decision & Legal Precedent
The Insolvency and Bankruptcy Code, 2016 and its major provisions including the classification between financial and operational creditors, exclusion of operational creditors from committee voting, Section 12A withdrawal threshold, Section 29A eligibility restrictions, information utility procedures, and resolution professional functions do not violate Article 14 or any fundamental constitutional right. The Code represents a legitimate legislative experiment in economic policy aimed at timely resolution of corporate insolvency through asset maximization and creditor restructuring. While procedural defects exist in tribunal administration and circuit bench establishment, these do not invalidate the substantive provisions and can be remedied through compliance directions. Courts must accord significant deference to legislative choices in complex economic matters and cannot substitute their judgment for the legislature's policy determinations merely because alternative approaches might be preferred. The challenged provisions are justified by intelligible differentiae related to legislative objectives, serve rational policy purposes, and have demonstrated empirical success in implementation.
On this section: Referenced in context of Section 240-A exemptions for MSMEs from certain Section 29A restrictions; Court upheld targeted exemption as rational policy response
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JSW Steel Ltd. v. Micro, Small Enterprise Facilitation Council, Cuttack & Ors.
Court's Decision & Legal Precedent
A claimant that is not a “small enterprise” on aggregated plant-and-machinery investment across units is outside MSMED supplier protection; splitting units to stay under thresholds defeats the Act’s object, so an MSEFC award against a buyer is liable to be quashed.
On this section: Direct holding on how s.7 investment thresholds are computed for multi-unit enterprises claiming small status.
The holding above is the ratio decidendi as extracted from the judgment by eCourts India, reproduced unaltered — it is a rendering of the court's reasoning, not a substitute for its words. Read the order itself before relying on it.
Made under this section, and citing it
7 instruments state that it was made under this provision — the power to make it comes from here, so a change to any of them changes what this section requires in practice. Newest first.
- S.O. 2347(E) Development Act, 2006 (27 of 2006), the amendments in the notification of Government of India, Ministry, of Micro, Small and Medium Enterprises number S.O. 2119 (E)Notification 2021
- 2119(E) Central Government after obtaining the recommendations of the Advisory Committee in this behalf hereby notifies certain criteria for classifying the enterprises as micro small and medium enterprisesNotification 2020
- The Central Government constitutes an Advisory Committee, for a period of two years from the date of publication.Notification 2012
- Notification for Constitution of Advisory Committee 2009Notification 2009
- Notification for amendment in the definition for classification of manufacturing enterprises /Amendment in the Notification published in the Gazette of India ,Notification 2009
- Constitution of an Advisory Committee, 2006Notification 2006
- Notification for items to be excluded for the purpose of calculation of investment in plant & machinery of MSMEsNotification 2006
Another 13 instruments name this provision in its title or its text without being made under it.
- S.O. 2134(E).—In exercise of the powers conferred by sub-sections (1) and (9) of section 7 read with sub-sections (2) and (3) of section 8 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006),Notification 2022
- S.O. 278(E)—In exercise of the powers conferred by sub-sections (1) and (9) of section 7 read with subsections (2) and (3) of section 8 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006)Notification 2022
- S.O. 1055(E) —In exercise of the powers conferred by sub-sections (1) and (9) of section 7 read with sub-sections (2) and (3) of section 8 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006), the Central Government hereby makes the following amendments in the notification of Government of India, Ministry of Micro, Small and Medium Enterprises number S.O. 2119 (E), dated the 26th June, 2020, published in the Gazette of India, Extraordinary, Part II, Section 3, sub-section (ii)Notification 2021
- 1702(E) In exercise of the powers conferred by sub section 1 read with sub section 9 of section 7 of the Micro Small and Medium Enterprises Development ActNotification 2020
- 2788(E) In exercise of the powers conferred by sub section 2 of section 7 of the Micro, Small and MediumNotification 2019
- Notification for constitution of Advisory Committee/ In exercise of the powers conferred by sub section 2 of section 7 of the Micro Small and Medium Enterprises Development Act ,2006Notification 2017
- Notification no 4926 E dated 18 Oct 2022 related to Non tax benefitsNotification 2022
- In exercise of the powers conferred by subsection 2 of the section 8 of the Micro, Small and Medium Enterprises DevelopmentNotification 2017
- Notification for filing of Udyog Aadhaar Memorandum / In exercise of the powers conferred by sub section 2 of the section 8 of the Micro Small and Medium Enterprises Development Act, 2006Notification 2017
- Rules of furnishing information on Plant & Machinery/EquipmentsRule 2009
- No. 27 of 2006Notification 2006
- Notification in respect of the Micro, Small and Medium Enterprises Development Act, 2006.Notification 2006
- Rules of National Board for MSME, The National Board for Micro, Small and Medium Enterprises Rules, 2006.Rule 2006
Questions about Section 7
What have the courts held on Section 7 of the Micro, Small and Medium Enterprises Development Act?
Richmond Investments PVT LTD vs Union of India (25 Jan 2019) is the leading judgment on this section among those set out below: Classification of enterprises as micro, small or medium based on investment thresholds. Another 3 judgments on this section are set out below, 3 of them from the Supreme Court. They run from 2019 to 2023.
How do I find court cases under Section 7 of the Micro, Small and Medium Enterprises Development Act?
In judgments and charge sheets this section is written several ways, and each form finds a different set of orders. These search the full text of every order eCourtsIndia holds, best matches first: Micro, Small and Medium Enterprises Development Act 7, section 7 Micro, Small and Medium Enterprises Development Act, section 7 of the Micro, Small and Medium Enterprises Development Act. People searching for it also type section 7 of micro small and medium enterprises. Each opens the full list of orders on eCourtsIndia, where it can be narrowed by court, year and outcome. 4 reported judgments on this section are set out on this page, beginning with Richmond Investments PVT LTD vs Union of India (25 Jan 2019).
What should I read with Section 7 of the Micro, Small and Medium Enterprises Development Act, and has it changed?
Its own text turns on Khadi and Village Industries Commission Act 2 (Definitions), section 5 (Functions of Board), section 9 (Measures for promotion and development), section 10 (Credit facilities), and on 4 further provisions, so none of them can safely be read on its own. 1 other provision in this corpus refers back to it. The rules and notifications made under it are where it actually bites, and there are 7: most recently S.O. 2347(E) Development Act, 2006 (27 of 2006), the amendments in the notification of Government of India, Ministry, of Micro, Small and Medium Enterprises number S.O. 2119 (E) (2021), then 2119(E) Central Government after obtaining the recommendations of the Advisory Committee in this behalf hereby notifies certain criteria for classifying the enterprises as micro small and medium enterprises (2020), and 5 more.
When did Section 7 of the Micro, Small and Medium Enterprises Development Act come into force?
Section 7 of the Micro, Small and Medium Enterprises Development Act, cited as Micro, Small and Medium Enterprises Development Act 7, came into force on 02 Oct 2006, having been enacted on 16 Jun 2006. It is in force as at the date shown on this page.
Other sections of this Act
- 3. Establishment of Board885 words
- 2. Definitions619 words
- 8. Memorandum of micro, small and medium enterprises349 words
- 29. Power to make rules313 words
- 18. Reference to Micro and small Enterprises Facilitation Council290 words
- 21. Composition of Micro and Small Enterprises Facilitation Council198 words
Source and method. Compiled from the enactments of Parliament and of the State legislatures as published on India Code, and republished together with commentary and other original matter under section 52(1)(q)(ii) of the Copyright Act, 1957. Structured, cross-referenced and maintained by eCourtsIndia. Text as in force on 16 Oct 2026. This page is not a substitute for legal advice.