Bhubaneswar: The Lok Sabha on August 7, 2026, passed the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, after the legislation was approved by the Rajya Sabha on August 3.
The amendment comes as the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, completes two decades. The government said rapid technological changes, the emergence of IT-enabled systems and developments in the legal and business environment have made it necessary to update the legislative framework governing the MSME sector.
According to the government, the number of enterprises registered on the Udyam Registration Portal has risen 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 widely regarded as a key pillar of India’s economy.
The amendments seek to improve the legal and institutional framework for MSMEs, strengthen mechanisms for resolving delayed-payment disputes, promote ease of doing business and create a more enabling regulatory environment.
Key changes in the amended MSMED Act
1. MSME classification and permanent Udyam registration framework
The amendment incorporates the existing twin criteria of investment in plant and machinery and turnover for MSME classification into the Act.
It also provides permanence to the Udyam Registration Portal, which will continue as a digital, free and voluntary registration platform for MSMEs.
2. Faster resolution of delayed-payment disputes
A major focus of the amendment is strengthening the mechanism for resolving payment disputes involving Micro and Small Enterprises (MSEs).
The legislation provides for Online Dispute Resolution (ODR) to enable MSEs to settle disputes in a faster and cost-effective manner.
It also provides that courts, where an application to set aside a decree, award or order has remained pending for more than six months, must order payment of at least 50% of the awarded amount to the concerned micro or small enterprise supplier.
3. Time-bound mediation and arbitration
The amended provisions introduce specific timelines for delayed-payment disputes.
Mediation is required to be completed within 90 days from the date fixed for the first appearance. If mediation fails, the Micro and Small Enterprises Facilitation Council (MSEFC) must refer the matter for arbitration within 30 days.
An award is subsequently required to be made within 90 days from completion of pleadings by the MSEFC or the relevant alternative dispute resolution institution.
4. Stronger recovery mechanism
The amendment strengthens recovery of dues by allowing mediated settlement agreements and arbitral awards under Section 18 to 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.
5. Mandatory TReDS routing for CPSE purchases
All Central Public Sector Enterprises (CPSEs) will be required to route settlement of invoices relating to procurement of goods and services from MSMEs through the Trade Receivables Discounting System (TReDS) platform.
The amendment also creates an enabling mechanism for states to encourage their Public Sector Enterprises to use TReDS.
The government said invoice discounting through TReDS has expanded significantly, rising from around ₹40,000 crore in 2022-23 to ₹3.47 lakh crore in 2025-26. Mandatory routing of CPSE invoices through the platform is expected to improve liquidity and help address delayed-payment concerns faced by MSMEs.
6. More flexibility for MSE Facilitation Councils
The amended Act rationalises the composition of MSE Facilitation Councils, enabling state governments to establish multiple councils to speed up the disposal of payment-related disputes.
State governments will also have greater authority to frame rules governing the functioning of MSEFCs.
7. Decriminalisation and trust-based regulation
The amendment introduces measures aimed at improving the ease of doing business by replacing certain conviction-based offences with graded civil penalties.
For furnishing incorrect information, businesses will receive a warning for a first offence, followed by a penalty for subsequent instances.
Similarly, provisions relating to non-disclosure by buyers of unpaid MSME dues and applicable interest in annual accounts will move from a conviction-and-fine framework to a graded system of warning, penalty and fine for repeated violations.
Government targets MSMEs as engines of growth
The government said the amendments are aligned with the vision of Viksit Bharat @2047, with a focus on strengthening India’s MSME ecosystem as a source of employment, investment and inclusive economic growth.
With more enterprises entering the formal system, the government expects the amended framework to encourage formalisation, easier compliance and scaling-up of MSMEs.
The reforms are also intended to create stronger institutional mechanisms, improve access to timely payments and provide MSMEs with greater legal protection while fostering a more predictable and trust-based business environment.
With the MSME sector employing more than 40 crore people, the government has positioned the legislative changes as an important step towards making small businesses more competitive, resilient and capable of becoming engines of India’s next phase of economic growth.
-OdishaAge
