The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026 was passed by the Lok Sabha on 7 August 2026, after being passed by the Rajya Sabha on 3 August 2026. The Bill seeks to update the MSMED Act, 2006 to meet the changing needs of the MSME sector and, in particular, to address the long-standing problem of delayed payments.

Here are the key changes in simple terms.

1. MSME classification will consider both investment and turnover

The amended framework will classify Micro, Small and Medium enterprises based on investment in plant, machinery or equipment as well as turnover. The Central Government will notify the applicable limits through a notification.

The change brings the classification system in line with the present-day business environment, where turnover is also an important indicator of the size of an enterprise.

2. MSME registration will be voluntary and digital

The Udyam Registration Portal will have statutory recognition as a digital registration platform. Registration will remain free and voluntary.

Earlier, a person intending to establish a medium manufacturing enterprise was required to file a memorandum, while filing was optional for other MSMEs. The amendment makes filing voluntary for all MSMEs, and all allows Central Governments to provide digital platforms for this purpose as well.

3. Faster resolution of delayed-payment disputes

One of the most significant changes relates to money owed to Micro and Small Enterprises.

The amendment introduces the Online Dispute Resolution (ODR) to make it easier and less expensive for MSMEs to resolve payment disputes without depending entirely on physical proceedings.

It also introduces specific timelines:

  • Mediation:To be completed within 90 days from the date fixed for first appearance.
  • Arbitration:If mediation fails, the matter must be referred for arbitration within 30 days.
  • Arbitral award:To be made within 90 days from completion of pleadings.

These timelines are intended to prevent delayed-payment cases from continuing indefinitely.

4. Greater protection when an award is challenged

The amendment strengthens the position of an MSME even when the buyer challenges an award.

Where a challenge to a decree, award or order remains pending for more than six months, the court must order payment of at least 50% of the awarded amount to the Micro or Small Enterprise supplier.

For example, if an MSME is awarded ₹10 lakh and the challenge remains pending for more than six months, at least ₹5 lakh must be ordered to be paid to the MSME, subject to the statutory requirements.

5. Easier recovery of amounts awarded to MSMEs

A mediated settlement agreement or arbitral award under Section 18 can be recovered as an “arrear of land revenue.”

This means that the MSM can approach the District Collector, Deputy Commissioner or other notified authority having jurisdiction where the buyer’s assets are located for recovery.

The amendment therefore seeks to ensure that an MSME does not merely obtain an award on paper, but has an effective mechanism to recover the money due.

6. TReDS to help MSMEs receive payments faster

The amendment requires Central Public Sector Enterprises (CPSEs) to settle invoices for goods and services purchased from MSMEs through TReDS (Trade Receivables Discounting System).

TReDS allows an MSME to obtain funds against invoices due from a buyer instead of waiting for the payment period to end. This can provide much-needed working capital to small businesses.

The Central and State Governments may also require other public sector entities to use TReDS.

7. More MSE Facilitation Councils

States will have greater flexibility to establish multiple Micro and Small Enterprises Facilitation Councils (MSEFCs).

The purpose is to distribute the workload and enable faster disposal of delayed-payment disputes. State Governments will also have the power to make rules relating to the functioning of MSEFCs.

8. Decriminalisation of certain offences

The amendment moves away from conviction-based punishment for certain compliance violations and introduces graded civil penalties.

For example, furnishing false information will generally result in:

First instance → Warning
Subsequent instances → Financial penalty

Similarly, failure by buyers to disclose unpaid MSME dues in their annual accounts will attract:

First instance → Warning
Second instance → Penalty
Subsequent instances → Higher penalty

The intention is to make compliance more proportionate and business-friendly while continuing to penalise repeated violations.

What does this mean for MSMEs?

The overall approach of the amendment is clear- less regulatory burden, faster dispute resolution and stronger mechanisms for recovering delayed payments.

For MSMEs, the most important practical changes are the introduction of online dispute resolution, time-bound mediation and arbitration, stronger recovery mechanism, TReDS-based payment settlement and decriminalisation of certain compliance offences.

As the MSME sector continues to expand, understanding these changes will be important for business not only from a compliance perspective,  but also for protecting receivabls and taking timely action when payments are delayed.

RJ Legal Associates provides legal and business advisory services to MSMEs, including MSME compliance, delayed- payment matters, contracts and other commercial legal requirements.