Parliament has passed the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, introducing a series of changes aimed at strengthening the legal framework for the MSME sector, improving ease of doing business and addressing delayed payments to micro and small enterprises.
The Lok Sabha passed the Bill on August 7, following its approval by the Rajya Sabha on August 3.
The amendments come as the Micro, Small and Medium Enterprises Development Act, 2006, completes 20 years. The government said the MSME sector has undergone significant changes due to technological advances, digital systems and developments in the legal and business environment.
The number of MSMEs registered on the Udyam portal has increased from 1.65 crore as of April 1, 2023, to 9.16 crore. The sector provides employment to more than 40 crore people and remains a key pillar of the Indian economy.
Udyam registration: The Udyam registration
portal gets statutory recognition as a permanent, digital, free and voluntary registration platform.
Delayed payments: New timelines and Online Dispute Resolution mechanisms have been introduced to speed up settlement of payment disputes.
Recovery of dues: Settlement agreements and arbitral awards can be recovered as arrears of land revenue.
TReDS: Central Public Sector Enterprises will have to route MSME invoice settlements through the Trade Receivables Discounting System.
More MSEFCs: States can establish multiple Micro and Small Enterprises Facilitation Councils to speed up dispute resolution.
Decriminalisation: Several criminal penalties have been replaced with graded civil penalties and warnings.
The amended Act incorporates the existing twin criteria of investment in plant and machinery and turnover for classification of MSMEs.
It also gives permanence to the Udyam Registration Portal as a digital, free and voluntary platform for MSME registration. Registration will continue to be voluntary.
One of the key changes is the introduction of an Online Dispute Resolution mechanism to help micro and small enterprises resolve payment disputes more quickly and at lower cost.
The amendment also provides greater protection to MSE suppliers during legal proceedings. If an application to set aside a decree, award or order remains pending for more than six months, courts will be required to order payment of at least 50 percent of the awarded amount to the micro or small enterprise supplier.
The amendments introduce specific timelines for resolving delayed payment disputes:
90 days: Mediation must be completed from the date fixed for the first appearance.
30 days: If mediation fails, the matter must be referred for arbitration within 30 days.
90 days: The arbitration award must be made within 90 days from completion of pleadings.
The changes are intended to reduce prolonged disputes and improve cash flow for smaller businesses.
The amended law also strengthens recovery of dues owed to MSMEs.
Mediated settlement agreements and arbitral awards issued by the Facilitation Council, mediation service providers or alternative dispute resolution institutions can be recovered as arrears of land revenue.
Recovery can be undertaken through the District Collector, Deputy Commissioner or another notified authority in the jurisdiction where the buyer's assets are located.
The Bill also seeks to improve cash flows for MSMEs by requiring Central Public Sector Enterprises to route settlement of invoices for goods and services procured from MSMEs through the Trade Receivables Discounting System, or TReDS.
The amendment creates an enabling mechanism for state governments to encourage their public sector enterprises to use TReDS for invoice settlement.
TReDS has emerged as an important institutional platform for invoice discounting and improving liquidity for MSMEs.
The government expects mandatory routing of CPSE invoice settlements through TReDS to further reduce delays in payments to MSMEs.
The composition of Micro and Small Enterprises Facilitation Councils (MSEFCs) has also been rationalised.
The changes will allow state governments to establish multiple MSEFCs, potentially speeding up the settlement of disputes involving payments due to micro and small enterprises.
State governments will also be empowered to frame rules governing the councils.
The amendments introduce a trust-based regulatory approach by decriminalising several provisions of the MSMED Act.
Earlier, certain violations, including failure to file registration details or provide information, could attract conviction and fines. Under the amended provisions, these offences will no longer carry criminal penalties.
For furnishing incorrect information:
First instance: Warning
Second and subsequent instances: Penalty
Similarly, the existing conviction and fine for buyers failing to disclose unpaid MSME dues, including interest, in their annual accounts will be replaced with:
First instance: Warning
Second instance: Penalty
Third and subsequent instances: Fine
The government said the changes are intended to improve ease of doing business, encourage compliance and create a more trust-based regulatory environment.