Parliament passes MSME amendment bill; reforms aim to address delayed payments, digital registration and ease of doing business
New Delhi, August 7
The Micro, Small and Medium Enterprises Development Bill, 2026, was passed by the Lok Sabha on 7th August, 2026, subsequent to its passing by the Rajya Sabha on 3rd August, 2026.
The Micro, Small and Medium Enterprises Development Act (MSMED Act) was notified in 2006 and has completed 20 years of its enactment. Over the years, the MSME landscape has witnessed rapid changes due to technological advancements, emergence of IT-enabled systems and a changing legal landscape, which required that the MSMED Act be amended to facilitate growth of MSMEs.
The number of MSMEs registered on Udyam has increased from 1.65 crore as on 01.04.2023 to 9.16 crore now. MSME sector provides employment to over 40 crore people and is considered to be the backbone of the Indian economy.
The amendments in the MSMED Act have been made to strengthen the legal framework governing the development of the MSME sector, improving the ease of doing business, creating an enabling business environment through decriminalisation, providing institutional mechanisms for promotion of MSMEs and addressing delayed payment issues faced by the Micro and Small Enterprises.
This amendment is aimed at aligning the Act with the changing MSME landscape. The MSME classification based on twin criteria of "Investment in plant/machinery" and "Turnover" has been incorporated in the Act. The Bill provides permanence to the Udyam Registration Portal as a Digital, free, and voluntary registration platform for MSMEs. The registration for MSMEs is voluntary.
It is also to strengthen the mechanism for addressing Delayed Payments and provide for enforcement of arbitral awards for the MSEs. The amendment provides for Online Dispute Resolution to ensure that MSEs are able to resolve their disputes in a timely and cost-effective manner. It mandates the courts to order payment of at least fifty per cent of the awarded amount to the micro and small enterprise suppliers, if the application to set aside the decree, award or order is pending for more than six months.
The amendment introduces timelines to ensure faster adjudication of delayed payment disputes. Under the amended provisions, the MSEFCs or mediation service provider, as the case may be, is required to complete the mediation within a period of ninety days from the date fixed for first appearance. Thereafter, the MSEFCs are required to refer the matter for arbitration within a period of thirty days from the date of termination of mediation. Subsequently, the MSEFCs or any institution or centre providing alternative dispute resolution services, as the case may be, is required to make the award within a period of ninety days from the date of completion of pleadings.
Under the amended Act, any mediated settlement agreement or arbitral award made by the Facilitation Council, or through a mediation service provider or any alternative dispute resolution institution under Section 18, can be recovered as an 'arrear of land revenue' through the District Collector, Deputy Commissioner, or any notified authority in the jurisdiction where the buyer's assets are located.
The amendment also provides an enabling mechanism for States to nudge their PSEs to avail invoice settlement through TReDS. It is pertinent to note that TReDS has emerged as an institutional platform to provide additional liquidity and ensure timely payments to the MSMEs. The volume of invoice discounting on TReDS has increased from Rs. 40,000 crore in 2022-23 to Rs. 3.47 lakh crore in 2025-26. The compulsory routing of invoice settlements by CPSEs will further mitigate the payment issues of MSMEs.
The composition of MSEFCs has been rationalised to enable State governments to establish multiple MSEFCs for faster disposal of disputes regarding payments due to MSEs. The amendment also empowers the State Governments to make rules for MSEFCs.
This amendment also provides for decriminalisation and replaces conviction-based fines with graded civil penalties. Earlier, under the MSMED Act, non-filing of registration or non-supply of information was penalised with conviction and a fine. Now, under the amended provisions of the Act, the penal provisions have been decriminalised.
In the instances of non-compliance with respect to filing of registration or furnishing wrong information, a warning will be issued in the first instance, and a penalty will be levied in case of second and subsequent instances.
The conviction and fine for non-disclosure of unpaid amounts with interest in annual accounts by buyers has been replaced with a warning on the first instance, a penalty for the second instance, and a fine for the third and subsequent instances. It promotes Ease of Doing Business and fosters a trust-based regulatory environment.
— ANI
Reader Comments
As someone who works with Indian suppliers from abroad, this is really positive. The TReDS platform has grown exponentially (₹40,000 crore to ₹3.47 lakh crore is massive!), and making it easier for SMEs to get paid on time will only strengthen India's manufacturing ecosystem. Good move by the government.
The decriminalisation of non-filing provisions is welcome, but I have a concern: will the "warning first, penalty later" approach actually encourage compliance? Some businesses might just not file and take the warning. We need a robust monitoring mechanism, otherwise this could backfire. The intent is good, but execution will matter.
As someone from a family that runs a mid-sized textile business in Surat, I can tell you delayed payments are the biggest killer of small businesses. The provision to recover arbitration awards as "arrear of land revenue" through the District Collector is very powerful. This will finally give small suppliers some real teeth! 💪
Interesting how India is shifting from a punitive to a trust-based regulatory model. The 9.16 crore registered MSMEs employing 40 crore people is staggering - bigger than most countries' entire workforces. This amendment seems well-considered, especially with the digital-first approach. Looking forward to seeing how the states implement it.
Voluntary registration is a great thing, but many small businesses in tier-2 and tier-3 cities still don't know about these benefits. The government should run awareness campaigns in regional languages about Udyam registration and these new dispute resolution mechanisms. Digital is good, but we need last-mile connectivity for it to truly reach our MSMEs.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.