New Delhi: The MSMED (Amendment) Bill 2026 has been passed by Parliament, with the Lok Sabha approving the legislation on August 7, 2026, following its passage by the Rajya Sabha on August 3, 2026.
The amendments to the Micro, Small and Medium Enterprises Development Act, 2006, seek to strengthen the legal framework governing the MSME sector, improve ease of doing business, address delayed payments and create an enabling environment for the growth and development of MSMEs.
The MSMED (Amendment) Bill 2026 comes as the MSME sector has undergone significant changes over the past two decades, driven by technological advancements, the emergence of IT-enabled systems and changes in the legal landscape.
The Micro, Small and Medium Enterprises Development Act was notified in 2006 and has now completed 20 years.
According to the government, the number of MSMEs registered on the Udyam portal has increased from 1.65 crore as of April 1, 2023, to 9.16 crore currently.
The MSME sector provides employment to more than 40 crore people and is considered the backbone of the Indian economy.
The MSMED (Amendment) Bill 2026 seeks to strengthen the framework for the development of the MSME sector through measures covering MSME classification, Udyam Registration, delayed payment disputes, recovery of dues, TReDS-based invoice settlement, Micro and Small Enterprises Facilitation Councils (MSEFCs), decriminalisation and graded civil penalties.
MSME classification and Udyam Registration
One of the key provisions of the MSMED (Amendment) Bill 2026 is the incorporation of the existing MSME classification system based on the twin criteria of investment in plant and machinery and turnover into the Act.
The Bill also provides permanence to the Udyam Registration Portal as a digital, free and voluntary registration platform for MSMEs. Registration for MSMEs will remain voluntary.
The amendments are aimed at aligning the legal framework with the changing MSME landscape and supporting the formalisation and development of enterprises.
Online dispute resolution for delayed payments
The MSMED (Amendment) Bill 2026 introduces Online Dispute Resolution to help Micro and Small Enterprises (MSEs) resolve disputes in a timely and cost-effective manner.
The amended provisions also seek to strengthen enforcement of arbitral awards for MSEs.
Courts will be required to order payment of at least 50% of the awarded amount to micro and small enterprise suppliers where an application to set aside a decree, award or order has remained pending for more than six months.
The measure is intended to strengthen the mechanism for addressing delayed payments and provide greater enforcement support to MSEs.
Timelines for faster adjudication of delayed payment disputes
The MSMED (Amendment) Bill 2026 introduces specific timelines for the adjudication of delayed payment disputes.
Under the amended provisions, the Micro and Small Enterprises Facilitation Councils (MSEFCs) or mediation service providers will be required to complete mediation within 90 days from the date fixed for the first appearance.
After the termination of mediation, the MSEFCs will be required to refer the matter for arbitration within 30 days.
Subsequently, the MSEFCs or any institution or centre providing alternative dispute resolution services will be required to make the award within 90 days from the date of completion of pleadings.
These timelines are intended to facilitate faster resolution of disputes involving payments due to MSEs.
Strengthening recovery of MSME dues
The MSMED (Amendment) Bill 2026 also provides a mechanism to strengthen recovery of dues owed to MSEs.
Under the amended Act, any mediated settlement agreement or arbitral award made by the Facilitation Council, through a mediation service provider or through an alternative dispute resolution institution under Section 18, can be recovered as an ‘arrear of land revenue’.
The recovery can be carried out through the District Collector, Deputy Commissioner or any notified authority in the jurisdiction where the buyer’s assets are located.
Mandatory TReDS routing for CPSE invoice settlements
The MSMED (Amendment) Bill 2026 provides that all Central Public Sector Enterprises (CPSEs) will route the settlement of invoices through a Trade Receivables Discounting System (TReDS) platform for procurement of goods and services from MSMEs.
The amendment also creates an enabling mechanism for States to nudge their Public Sector Enterprises (PSEs) to use TReDS for invoice settlement.
TReDS has emerged as an institutional platform aimed at providing additional liquidity and ensuring timely payments to MSMEs. According to the government, the volume of invoice discounting through TReDS 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 is expected, under the amended framework, to further address payment-related issues faced by MSMEs.
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More Micro and Small Enterprises Facilitation Councils
The MSMED (Amendment) Bill 2026 also introduces greater flexibility in the composition of Micro and Small Enterprises Facilitation Councils.
The composition of MSEFCs has been rationalised to enable State governments to establish multiple MSEFCs, with the objective of facilitating faster disposal of disputes relating to payments due to MSEs.
The amendment also empowers State governments to make rules concerning MSEFCs.
Decriminalisation and graded civil penalties
Another significant provision of the MSMED (Amendment) Bill 2026 relates to ease of doing business and trust-based regulation in the MSME ecosystem.
The amendment provides for decriminalisation and replaces conviction-based fines with graded civil penalties.
Under the earlier provisions of the MSMED Act, non-filing of registration or non-supply of information could result in conviction and a fine. Under the amended provisions, these penal provisions have been decriminalised.
In cases involving furnishing of wrong information, a warning will be issued for the first instance, while a penalty will be imposed for the second and subsequent instances.
Similarly, the earlier provision involving conviction and fine for non-disclosure of unpaid amounts along with interest in annual accounts by buyers has been replaced with a graded system. A warning will be issued for the first instance, a penalty for the second instance and a fine for the third and subsequent instances.
The government said the changes promote ease of doing business and foster a trust-based regulatory environment.
MSMED (Amendment) Bill 2026 and Viksit Bharat @2047
The amendments introduced through the MSMED (Amendment) Bill 2026 are in line with the government’s commitment to the vision of Viksit Bharat @2047.
The government stated that a vibrant MSME sector is key to achieving inclusive, sustainable and employment-intensive economic growth.
The amendment to the MSMED Act is aimed at boosting formalisation of enterprises, providing a pathway for scaling up MSMEs and enabling them to become “Champions of growth”.
The government said the amendments will also augment ease of doing business and promote compliance.
