New Delhi: Parliament has passed the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, aimed at strengthening the legal framework for MSMEs, improving ease of doing business and addressing delayed payment issues faced by micro and small enterprises.
The Bill was passed by the Lok Sabha on August 7, after receiving approval from the Rajya Sabha on August 3. The MSMED Act, enacted in 2006, has completed 20 years amid significant changes in the MSME sector driven by technology, digital systems and evolving business practices.
According to the government, MSMEs registered on the Udyam portal have increased from 1.65 crore in April 2023 to 9.16 crore, while the sector provides employment to more than 40 crore people.
Faster resolution of payment disputes
A major focus of the amendments is strengthening the mechanism for resolving delayed-payment disputes involving micro and small enterprises.
The amended law provides for Online Dispute Resolution (ODR) and introduces specific timelines for dispute settlement. Mediation is to be completed within 90 days from the date fixed for the first appearance, while the matter is to be referred for arbitration within 30 days after mediation ends.
The arbitral award is required to be made within 90 days from completion of pleadings.
The amendment also provides that courts, where an application to set aside a decree, award or order has remained pending for more than six months, should order payment of at least 50% of the awarded amount to the micro or small enterprise supplier.
Recovery of dues strengthened
Mediated settlement agreements and arbitral awards under Section 18 can now be recovered as arrears of land revenue through the District Collector, Deputy Commissioner or other notified authority in the jurisdiction where the buyer’s assets are located.
CPSEs to route invoices through TReDS
The legislation also seeks to improve liquidity for MSMEs by requiring Central Public Sector Enterprises (CPSEs) to route invoice settlements for goods and services procured from MSMEs through the Trade Receivables Discounting System (TReDS).
The government said invoice discounting through TReDS increased from ₹40,000 crore in 2022-23 to ₹3.47 lakh crore in 2025-26.
States will also have an enabling mechanism to encourage their public sector enterprises to use TReDS for invoice settlement.
More flexibility for MSE Facilitation Councils
The composition of Micro and Small Enterprises Facilitation Councils (MSEFCs) has been rationalised, enabling State governments to establish multiple councils for faster disposal of payment-related disputes.
States will also have greater powers to frame rules governing the functioning of MSEFCs.
Criminal penalties replaced with civil penalties
The amendment also introduces decriminalisation of certain offences under the MSMED Act and replaces conviction-based penalties with graded civil penalties.
For furnishing incorrect information, a warning will be issued for the first violation, followed by a penalty for subsequent violations. Similarly, non-disclosure by buyers of unpaid MSME dues with interest in annual accounts will attract a warning initially, followed by penalties for repeated violations.
The government said the amendments are intended to promote formalisation, faster scaling of enterprises, timely payments, compliance and ease of doing business, in line with the vision of Viksit Bharat @2047.
