Sections 12 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
These three short sections give the Act its money trail. Section 12 lets the Central Government constitute one or more Funds by notification. Section 13 lets it credit grants to them after Parliament has appropriated the money. Section 14 says how the Funds are administered and confines their use to the promotional measures in section 9(1). The Act does not name the Fund, fix an amount or list its beneficiaries.
Section 12: one or more Funds are to be constituted by notification, under the name the notification specifies, and grants under section 13 are credited to them. Section 13: the Central Government may, after due appropriation made by Parliament by law, credit such sums by way of grants as it considers necessary. Section 14: the Centre administers the Funds as prescribed; they are to be utilised exclusively for the measures in section 9(1); the Centre coordinates timely utilisation and release per prescribed criteria.
Section 12: constituting the Funds
The text says there "shall be constituted, by notification, one or more Funds to be called by such name as may be specified in the notification and there shall be credited thereto any grants made by the Central Government under section 13". Three points:
- The word "shall" is used, though the actual name and number of Funds depend on the notification.
- The Act does not itself create a named Fund. A notification does.
- The only receipt mentioned in section 12 is grants under section 13. Whether a notification allows other credits is not something this text answers.
Section 13: grants
Section 13 says the Central Government "may, after due appropriation made by Parliament by law in this behalf, credit to the Fund or Funds by way of grants for the purposes of this Act, such sums of money as that Central Government may consider necessary to provide". The key phrases are:
| Phrase | Effect |
|---|---|
| "may" | No obligation to credit any amount |
| "after due appropriation made by Parliament by law" | The money must first be appropriated; the executive cannot credit the Fund without it |
| "for the purposes of this Act" | The general purpose, narrowed by section 14(2) |
| "such sums ... as that Central Government may consider necessary" | The amount is left to the Government |
Section 14: administration and utilisation
Section 14 has three sub-sections.
| Sub-section | Content |
|---|---|
| 14(1) | The Central Government has power to administer the Fund or Funds "in such manner as may be prescribed" |
| 14(2) | The Fund or Funds "shall be utilised exclusively for the measures specified in sub-section (1) of section 9" |
| 14(3) | The Central Government is responsible for coordination and ensuring timely utilisation and release of sums "in accordance with such criteria as may be prescribed" |
"Prescribed" means prescribed by rules made under the Act (section 2(k)). Section 29(2)(c) lets rules provide for "the manner in which the Fund may be administered under sub-section (1) of section 14", and section 29(2)(d) for "the criteria based on which sums may be released under sub-section (3) of section 14". See sections 29 to 31 for the rule-making clause. Whether and in what terms those rules were made is something to verify from the rules themselves; the Act's text does not say.
The purposes: what "section 9(1) measures" means
Section 14(2) ties the Fund to the measures specified in section 9(1): programmes, guidelines or instructions for skill development, technological upgradation, marketing assistance, infrastructure facilities and cluster development. Read the detailed list in our article on section 9. The effect is that the Fund cannot be used for, say, credit guarantees or procurement preferences unless a notified programme falls within the section 9(1) list. Credit comes under section 10 and Reserve Bank guidelines, and procurement under section 11.
Why an MSME owner should care
Most MSME owners never deal with the Fund directly. They come across it when a notified scheme pays for training, a cluster facility or technology support. The enterprise's practical task is the same in each case: hold a valid registration, be correctly classified and meet the scheme's conditions. If you need help getting registration in order before applying, see our legal consultation service.
What these sections do not say
- They do not name the Fund or state its corpus.
- They do not give any enterprise a right to draw from it.
- They do not set the criteria for release; those are left to rules under section 14(3).
- They do not say who audits the Fund. Nothing in the text we have deals with accounts or audit, so look to the rules and notification.
- They do not cover loans or credit. That is Chapter IV, section 10.
Practical examples
Example 1: a cluster facility. A scheme funds a common testing facility for a group of small manufacturers. To fall within section 14(2), the purpose must match a section 9(1) measure: here, "cluster development" or "infrastructure facilities". The scheme's notification is the place to check.
Example 2: a proposed use outside section 9. A proposal suggests using the Fund to underwrite interest subsidies on bank loans. Nothing in section 9(1)'s list mentions interest subsidy, so a lawyer would look at whether the programme can be framed within the listed measures. The Act's own words allow use only for those measures.
Example 3: a grant without appropriation. The Government wishes to credit money to the Fund but Parliament has not appropriated it. Section 13 permits credit "after due appropriation made by Parliament by law", so the credit waits for that step.
Common mistakes
- Treating section 12 as creating a particular named Fund. The name comes from the notification.
- Forgetting the word "exclusively" in section 14(2).
- Assuming the rules exist in a particular form without checking them.
Need help reading a scheme's conditions?
Scheme papers can be hard to read, and a claim can fail on a technical condition. If you want a review of the terms before you apply, our legal consultation team can go through them with you.
Key takeaways
- Funds are constituted by notification (s.12); grants come in under s.13 after parliamentary appropriation.
- The Centre administers the Funds as prescribed (s.14(1)).
- The Funds are to be used exclusively for s.9(1) measures (s.14(2)).
- The Centre coordinates timely utilisation and release under prescribed criteria (s.14(3)).
- The Act names no Fund, amount or beneficiary.
Read next
- Section 9 of the MSMED Act, 2006: Measures for promotion and development
- Section 11 of the MSMED Act, 2006: Procurement preference policy
- Sections 29, 30 and 31 of the MSMED Act, 2006: Rules and removal of difficulties
- MSME Schemes by Central Government: Complete List 2025
Disclaimer: Based on the Micro, Small and Medium Enterprises Development Act, 2006 (official text, not amended by the Jan Vishwas Acts of 2023 or 2026) and the Udyam notifications S.O. 2119(E) of 26 June 2020 and S.O. 1364(E) of 21 March 2025, read with later developments noted in the article, as on 30 September 2026. Notifications, rules and the Udyam portal change; verify the current position before acting.