MSME Development (Amendment) Bill,
2026: Faster Payments, Easier Compliance and Stronger Dispute Resolution
·
Parliamentary approval: The MSME
Development (Amendment) Bill, 2026 was passed by Parliament in August 2026
to update the MSMED Act, 2006 in line with the sector’s changing needs.
·
Economic significance: MSMEs
account for 31.1% of GDP, 35.4% of manufacturing output and 48.58% of
exports. As of August 2026, 9.16 crore MSMEs were registered on the
Udyam platform, employing over 40 crore people.
·
Key objectives: The amendments seek to:
o
Reduce payment-related constraints faced by MSMEs.
o
Make dispute resolution more time-bound.
o
Simplify compliance.
o
Promote MSME growth, competitiveness and Ease of
Doing Business.
·
MSME classification:
Classification will now consider both investment in plant and
machinery/equipment and turnover, replacing the earlier investment-based
approach.
·
Simplified registration: Filing
of the MSME memorandum becomes free and voluntary for all MSMEs. The
Central Government will notify a national platform, while States may establish
their own digital platforms.
·
Mandatory TReDS
settlement for CPSEs: All Central Public Sector Enterprises (CPSEs)
will be required to settle invoices for goods and services procured from MSMEs
through the Trade Receivables Discounting System (TReDS).
States may similarly mandate TReDS for their PSEs and
other entities.
·
More MSE Facilitation Councils: State
Governments can establish multiple MSE Facilitation Councils (MSEFCs) to
speed up payment-dispute resolution and provide necessary infrastructure,
digital systems and trained manpower.
·
Time-bound mediation and arbitration:
o
Mediation must be completed within 90 days
from the first scheduled appearance.
o
If mediation fails, the matter must be referred for
arbitration within 30 days.
o
The arbitral award must be made within 90 days
from completion of pleadings.
·
Protection during appeals:
Applications to set aside a Council order/award continue to involve a 75%
deposit of the awarded amount. Courts may direct a reasonable portion of
this deposit to be paid to the MSME supplier.
·
Six-month payment safeguard: If
proceedings to set aside a decree, award or order remain pending for more than six
months, courts must direct payment of at least 50% of the awarded amount
to the MSE supplier.
·
Stronger recovery mechanism: Mediated
settlements and arbitral awards can be recovered as arrears of land revenue,
through the District Collector, Deputy Commissioner or another notified
authority having jurisdiction over the buyer’s assets.
·
Decriminalisation: Several
MSME-related violations have been decriminalised. Incorrect information will
generally attract a warning for the first instance, followed by
penalties for subsequent violations; non-disclosure of unpaid MSME dues follows
a similar graded approach.
·
Digital ecosystem: Udyam
provides free, paperless, self-declaration-based registration, while Udyam
Assist brings informal micro enterprises—including those without GST or
Income Tax coverage—into the formal system.
·
Rapid growth of TReDS: Invoice
financing/discounting through TReDS increased from ₹40,000
crore in 2022-23 to ₹3.47 lakh crore in 2025-26.
·
Online dispute resolution: The ODR
Portal, launched in June 2025, provides MSEs with a low-cost digital
mechanism for resolving delayed-payment disputes, including small-value claims.
·
MSEFC network: 161 MSEFCs have been
established across States and Union Territories to adjudicate payment-delay
disputes involving Micro and Small Enterprises.
Key takeaway: The 2026
amendments focus strongly on improving MSME cash flow, enforcing faster
payment, speeding up dispute resolution, simplifying registration and
compliance, and strengthening digital mechanisms such as TReDS
and ODR.