Micro, small and medium enterprises (MSMEs) form a significant part of India’s economic framework, with their activities extending across employment, exports, manufacturing, services and innovation. The Micro, Small and Medium Enterprises Development Act, 2006 was enacted to facilitate the promotion and development of these enterprises and enhance their competitiveness. However, the MSME landscape has changed with technological advancements, the growing use of information technology-enabled systems and developments in the legal framework over the years.
Against this background, the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026 (the Bill) was introduced on July 28, 2026, and subsequently passed in the Rajya Sabha on August 3, 2026 and on August 7, 2026 in the Lok Sabha, to amend the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). The Bill provides that the amended provisions will come into force on such date as the Central Government may appoint by notification in the Official Gazette. Different commencement dates may be notified for different provisions.
Changes to the National Board
The Bill proposes changes to the definitions under Section 2 of the MSMED Act. It introduces the term “Development Commissioner”, which would mean the administrative head of the Office of the Development Commissioner of the Government of India in the Ministry of Micro, Small and Medium Enterprises. It also proposes consequential changes to the existing definitions of micro, small and medium enterprises by removing references to specific sub-clauses of Section 7(1).
Further, changes are proposed to the composition of the National Board for Micro, Small and Medium Enterprises. The existing reference in Section 3(3)(o) to an officer not below the rank of Joint Secretary to the Government of India would be substituted with the Development Commissioner.
Classification of Micro, Small and Medium Enterprises
The Bill proposes to replace Section 7(1) of the MSMED Act. Under the proposed provision, the Central Government may classify enterprises as micro, small and medium enterprises after considering the investment in plant and machinery or equipment, and turnover. The limits applicable to these criteria may be specified by the Central Government.
While calculating investment in plant and machinery, the cost of pollution-control equipment, research and development, industrial-safety devices and any other items specified by notification would continue to be excluded. The proposed Section also clarifies that Section 29B of the Industries (Development and Regulation) Act, 1951 would apply to enterprises covered by the provision.
National and State Digital Platforms for MSME Registration
The Bill proposes a complete substitution of Section 8 of the MSMED Act to provide for digital registration of MSMEs. The Central Government would notify a national digital platform for the free and voluntary filing of a memorandum for registration of micro, small and medium enterprises. The registration would enable enterprises to avail benefits from the Central Government under the Act.
Further, the State Government may separately notify a State digital platform for the free and voluntary filing of a memorandum for registration within the State. MSMEs registered through this platform would be able to avail applicable State Government benefits. The proposed Section also clarifies that a State Government may extend benefits available under its schemes to MSMEs that are registered on the national digital platform notified by the Central Government.
Mandatory Settlement of Certain MSME Invoices through TReDS
The Bill proposes to insert a new Section 15A dealing with the settlement of receivables through the Trade Receivables Discounting System (TReDS). For the purposes of this provision, TReDS is defined as an electronic platform for facilitating the financing or discounting of trade receivables of MSMEs in accordance with guidelines issued by the Reserve Bank from time to time.
Under the proposed provision, every Central Public Sector Enterprise (CPSE) would be required to route the settlement of invoices for goods or services procured from MSMEs through a TReDS platform authorised by the Reserve Bank. The Central Government may also notify another authority, body or entity, other than a Central Public Sector Enterprise, which would be required to route settlement of MSME invoices through TReDS. The State Government may also notify a State Public Sector Enterprise or any other authority, body or entity. Once notified, such entity would be required to route settlement of invoices relating to procurement of goods or services from MSMEs through TReDS in the manner prescribed by the State Government.
Changes to Delayed Payment Dispute Resolution
The Bill proposes several changes to Section 18 of the MSMED Act, which deals with disputes referred to the Micro and Small Enterprises Facilitation Council (MSEFC). Mediation under Section 18 would continue to be governed by the Mediation Act, 2023. However, the time limit under that Act would not apply. Instead, the proposed Section 18(3A) would require the MSEFC or the mediation service provider to complete mediation within 90 days from the date fixed for first appearance.
Where mediation does not result in a settlement, the Bill proposes that the Council should proceed towards arbitration within 30 days from the date of termination of mediation. The Bill also proposes a specific timeline for completion of arbitration. The MSEFC or any institution or centre providing alternative dispute resolution services would be required to make the arbitral award within 90 days from the date of completion of pleadings.
Jurisdiction of the MSEFC and Other Dispute Resolution Bodies
The Bill also proposes to clarify the territorial jurisdiction of the MSEFC and other bodies involved in mediation or arbitration. The MSEFC, mediation service provider or institution or centre providing alternative dispute resolution services would have jurisdiction where the supplier’s official address recorded in the registration under Section 8 falls within its territorial jurisdiction. This would apply even where the buyer is located elsewhere in India.
Online Mediation and Arbitration
The Bill also provides for the use of online mechanisms in MSME dispute resolution. The Central Government may establish an online mechanism for conducting mediation or arbitration through audio-video and other electronic means. The procedure and manner in which the mechanism would operate would be prescribed by the Central Government.
The expression “audio-video and other electronic means” is proposed to include the use of communication devices for video conferencing, filing of pleadings, communication between the parties, recording of evidence, transmission of electronic communications and other matters incidental to arbitral proceedings.
Enforcement of Mediated Settlements and Arbitral Awards
The Bill proposes to insert a new Section 18A dealing specifically with enforcement of mediated settlement agreements and arbitral awards. A mediated settlement agreement or arbitral award made by the MSEFC, mediation service provider, an institution or centre to which the matter has been referred may be recovered as arrears of land revenue by the State Government. The recovery may be carried out through the District Collector, Deputy Commissioner or another authority notified by the State where the buyer’s assets are located. The Bill further provides that the amount decided under a mediated settlement agreement or arbitral award would constitute a valid and legally enforceable debt and would be liable to be recognised under the Insolvency and Bankruptcy Code, 2016.
Application for Setting Aside Awards and Mediated Settlements
The Bill proposes to substitute Section 19 of the MSMED Act, under which no application for setting aside a decree, award, other order or mediated settlement agreement made under Section 18 would be entertained by a court unless the applicant, other than a supplier, deposits 75% of the amount in terms of the award or mediated settlement agreement.
Pending disposal of the application, the court would be required to order payment of such percentage of the deposited amount to the supplier as it considers reasonable in the circumstances. However, where the application has remained pending for more than 6 months, the court would be required to release at least 50% of the awarded amount to the supplier from the amount deposited by the applicant.
The Bill also proposes that an application to set aside a decree, award, other order or mediated settlement agreement must be filed before the court having jurisdiction over the location of the supplier’s official address recorded under Section 8.
Establishment and Functioning of Facilitation Councils
The Bill proposes to replace Section 20 and require State Governments to establish an adequate number of MSEFCs in addition to the existing Councils. These may be established and exercise jurisdiction over areas as notified. The Councils would be required to meet regularly for timely resolution of references made under Section 18. The intervals and procedure for these meetings would be prescribed by the State Government. The Bill also provides that the State Government may avail adequate infrastructure and resources for disposal of references, including physical infrastructure, digital systems and trained manpower.
Composition of Facilitation Councils
Section 21 is also proposed to be substituted, where an MSEFC would continue to consist of at least 3 and up to 5 members. The State Government would prescribe the remaining details regarding the composition of the Council, the manner of filling vacancies and the procedure to be followed by members while discharging their functions.
Reporting of TReDS Compliance
The Bill proposes a new Section 22A requiring disclosure of information relating to invoices routed and settled through TReDS. Every CPSE and any other authority, body or entity notified by the Central Government would be required to disclose details of MSME invoices routed and settled through TReDS. A parallel obligation has been proposed for State Public Sector Enterprises and any other authorities, bodies or entities notified by a State Government.
Revised Penalty Framework
The Bill proposes to replace the existing Section 27 with a changed framework for certain specific violations. When a person deliberately submits false information in the memorandum of registration under Section 8 or fails to comply with Section 26(2), the first case of non-compliance would result in a warning. A second or subsequent instance would attract a penalty of at least INR 1000 and up to INR 50,000.
Further, for contravention of Section 22 by a buyer, a warning would be issued for the first contravention. The second violation would attract a penalty of not less than INR 10,000 and up to INR 50,000. A third or subsequent contravention would be punishable with a fine of not less than INR 50,000 and up to INR 1 lakh.
The Bill also provides for periodic revision of the minimum amounts of penalties. The penalties would increase by 10% of the minimum amount prescribed after every 3 years from the commencement of the Amendment Act.
Adjudication of Penalties and Appeals
A new Section 27A is proposed to establish a separate mechanism for adjudicating penalties. The Central Government would appoint the Development Commissioner as the adjudicating officer for conducting inquiries and imposing penalties under Section 27. No penalty may be imposed without giving the person a reasonable opportunity of being heard.
A person aggrieved by an order of the adjudicating officer may appeal to the Secretary to the Government of India in charge of the Ministry or Department having administrative control over MSMEs. The appeal must be filed within 30 days from receipt of the order, and an appeal may be admitted after the expiry of 30 days where the appellant satisfies the appellate authority that there was sufficient cause for the delay.
The appellate authority would be required to give the party an opportunity of being heard before passing its order. The appeal must be disposed of within 60 days from the date of filing. Where a penalty imposed by the adjudicating officer or the appellate authority is not deposited, the amount may be recovered as arrears of land revenue.
Conclusion
The MSMED (Amendment) Bill, 2026 seeks to update the MSME framework in line with contemporary changes and support better compliance and more effective implementation of the MSMED Act. The Bill focuses on simplifying registration, improving the mechanism for settlement of receivables, strengthening the process for resolving delayed-payment disputes and providing clearer procedures for enforcement and compliance. These amendments would make the framework more structured, time-bound and digitally enabled, while addressing issues relating to delayed payments and dispute resolution that affect micro, small and medium enterprises.
Authors: Manisha Singh and Shivi Gupta