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| 1 | Introduction |
| 2 | Why was there a need to amend the MSMED Act, 2006? |
| 3 | Key Changes under the 2026 Amendment |
| 4 | Company Secretary Perspective |
| 5 | Frequently Asked Questions (FAQs) |
| 6 | References |
| 7 | About UJA |
| 8 | Our Team |
The Company Secretary Team at UJA is pleased to present a comprehensive overview of MSME Development (Amendment) Bill 2026, passed by the Parliament in August 2026 which updates the existing MSMED Act, 2006.
This article aims to provide an understanding of the key provisions and implications of the MSME Development (Amendment) Bill, 2026. It examines the major changes introduced in areas such as MSME classification, digital registration, delayed payments, dispute resolution and compliance. The article also explores how these amendments may affect MSMEs in their day-to-day operations and growth.
We hope you find this article informative and useful in enhancing your understanding of MSME regulations and the compliance framework having broader impact of the amendments on India’s MSME ecosystem and ease of doing business.
For feedback or topic suggestions, please write to us at cs@uja.in.
The MSMED Act 2026 Amendment updates a nearly two-decade-old law to fix one persistent problem: MSMEs waiting too long to get paid. The Bill introduces twin-criterion MSME classification based on investment and turnover, mandates TReDS-based invoice settlement for CPSE procurement, sets firm timelines for mediation and arbitration, and strengthens the MSME Facilitation Council 2026 structure for resolving disputes. It also replaces conviction-based penalties with a graded, decriminalised system. In short, this blog explains what MSMEs, buyers and compliance teams need to know in plain, practical terms.
Micro, Small and Medium Enterprises (MSMEs) form an important part of India’s business ecosystem. They are not only suppliers to large companies but are also significant contributors to employment, manufacturing, exports and the overall supply chain.
However, one issue has consistently affected the financial health of MSMEs, delay in receiving payments from buyers.
For a small enterprise, an unpaid invoice is not merely an accounting entry. The money may be required to pay employees, purchase raw materials, meet bank obligations and continue day-to-day operations. A delay in payment can therefore directly affect the working capital and survival of the business.
Against this background, the Government has introduced the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, to amend the Micro, Small and Medium Enterprises Development Act, 2006. The proposed reforms seek to address delayed-payment concerns, strengthen dispute-resolution mechanisms, expand digital platforms, facilitate TReDS-based invoice settlement and simplify the applicable compliance and penalty framework.
The original Micro, Small and Medium Enterprises Development Act, 2006 was enacted nearly two decades ago. Since then, the MSME ecosystem has undergone substantial changes.
The Government has specifically highlighted the growth in digital systems, technology-enabled business processes and the changing legal and commercial environment as reasons for updating the MSMED framework.
Another major concern is delayed payment.
For a large company, a delayed customer payment may be inconvenient. For a small business, the same delay can mean difficulty in paying salaries, suppliers, rent, interest or other operating expenses.
Therefore, the 2026 amendments place considerable emphasis on:
The major changes can broadly be understood under the following heads:
1. MSME Classification Based on Investment and Turnover
One of the important changes is the move towards a twin-criterion approach for MSME classification.
The amended framework provides for classification based on:
The Government’s factsheet explains that the earlier framework prescribed investment thresholds, whereas the amended framework empowers the Central Government to prescribe the applicable thresholds through notification.
For businesses, this means that MSME classification will need to be monitored not only from the investment perspective but also from the turnover perspective.
2. Free and Voluntary Digital Registration Framework
The amendment provides that filing of the memorandum shall be free and voluntary for all MSMEs. The Central Government shall notify a national digital platform for this purpose, while State Governments may also notify State-level digital platforms.
State Governments may extend the benefits of their schemes to MSMEs registered on the national or State-level platforms. This strengthens the digital registration framework while retaining the voluntary nature of MSME registration.
3. Mandatory TReDS Route for CPSE Procurement from MSMEs
One of the most notable changes relates to the Trade Receivables Discounting System (TReDS).
What is TReDS?
TReDS is an electronic platform through which MSMEs can get their trade receivables financed or discounted.
In simple terms, instead of waiting for a buyer to pay after a long credit period, an eligible MSME can use the receivable to obtain financing through the platform.
Under the amendment, Central Public Sector Enterprises (CPSEs) are required to route settlement of invoices relating to procurement of goods and services from MSMEs through a TReDS platform.
An MSME may have a confirmed invoice but still face a cash-flow problem because the buyer pays later. TReDS can help bridge that gap.
4. Stronger Mechanism for Delayed Payment Disputes
Delayed payments have always been a major concern under the MSMED framework.
The 2026 amendment strengthens the dispute-resolution mechanism through the Micro and Small Enterprises Facilitation Councils (MSEFCs).
State Governments can establish multiple MSEFCs instead of being restricted to a single Council structure. The amendment also contemplates that State Governments provide adequate infrastructure and resources for such Councils, including physical infrastructure, digital systems and trained manpower, with the objective of strengthening the institutional capacity for resolving delayed-payment disputes.
5. Time Limits for Mediation and Arbitration
The amendment introduces specific timelines for resolving delayed-payment disputes.
The Government has provided the following timelines:
By prescribing timelines, the amendment attempts to make the dispute-resolution mechanism more predictable and time-bound.
6. Financial Protection for MSME Suppliers During Dispute Proceedings
The amendment also strengthens the financial protection available to MSME suppliers in proceedings challenging an order or award.
An application to set aside a decree, award or order may be filed subject to the requirement of depositing 75% of the awarded amount. While such application is pending, the court may direct that a reasonable portion of the deposited amount be paid to the MSME supplier.
Further, where the application remains pending for more than six months, the court shall direct payment to the Micro or Small Enterprise supplier of at least 50% of the awarded amount. This mechanism is intended to ensure that prolonged litigation does not completely deprive MSME suppliers of the financial benefit of an award.
7. Recovery of Dues as Arrears of Land Revenue
The amendment introduces a further recovery mechanism for amounts arising from delayed-payment disputes. A mediated settlement agreement or arbitral award made under Section 18 may be recovered as arrears of land revenue in accordance with the prescribed mechanism.
Recovery may be undertaken through the District Collector, Deputy Commissioner or another notified authority having jurisdiction over the location of the buyer’s assets. This provides an additional institutional mechanism for MSME suppliers seeking recovery of amounts due under a settlement or arbitral award.
8. Decriminalisation and Graded Penalties
Another major theme of the amendment is Ease of Doing Business.
Certain offences under the earlier framework carried conviction-based penalties.
The amended provisions decriminalise specified contraventions and replace the earlier approach with a graded system.
For example:
Furnishing incorrect information may result in a warning for the first instance and penalties for subsequent instances.
The amendment also provides specific monetary consequences for certain defaults. Wilfully providing false registration information may attract a fine of up to ₹1,000 for the first conviction and a fine ranging from ₹1,000 to ₹10,000 for subsequent convictions. Further, failure to report unpaid dues to MSME suppliers in annual accounts attracts a fine of at least ₹10,000.
From a compliance perspective, this makes it important for companies to ensure that MSME-related information and unpaid dues are accurately captured and appropriately reflected in the relevant records and disclosures.
From a Company Secretary’s perspective, the 2026 amendment is important because it increases the need for companies to have a structured governance and compliance mechanism around their dealings with MSME suppliers.
A Company Secretary should look beyond merely checking whether an entity has an MSME registration. The focus should be on whether the company has adequate systems to identify MSME vendors, capture and periodically update their status, monitor outstanding dues, ensure appropriate disclosures and coordinate with the finance and procurement teams for timely compliance.
In short, the role of a Company Secretary is likely to move from “checking compliance” to “building a system that prevents non-compliance”.
The MSMED Act 2026 Amendment updates the Micro, Small and Medium Enterprises Development Act, 2006, passed by Parliament in August 2026. It revises MSME classification, introduces a free and voluntary digital registration framework, mandates TReDS-based settlement for CPSE procurement, and strengthens the mechanisms for resolving delayed-payment disputes.
The MSME delayed payment rules now prescribe fixed timelines: mediation must be completed within 90 days of first appearance, unresolved matters must be referred to arbitration within 30 days, and an arbitral award must be made within 90 days of completion of pleadings, making the process far more time-bound than before.
MSME classification investment turnover now follows a twin-criterion approach, enterprises are classified based on both investment in plant, machinery or equipment and turnover, with thresholds to be prescribed by the Central Government through notification, rather than fixed permanently in the Act.
The MSME Facilitation Council 2026 (MSEFC) structure allows State Governments to set up multiple Councils instead of a single one, backed by better infrastructure, digital systems and trained manpower, forming the core MSME delayed payment dispute resolution mechanism under the amended Act.
Exa: Suppose an auto-components manufacturer, a Micro Enterprise, wins an arbitral award of ₹40 lakh against a large buyer who delayed payment for eight months. If the buyer challenges the award, it must first deposit 75% of the awarded amount, and if the challenge remains pending beyond six months, the court must direct payment of at least 50% of the award to the manufacturer. If the buyer still doesn’t pay, the amount can be recovered as arrears of land revenue through the District Collector, giving the manufacturer a real, enforceable MSME payment recovery mechanism instead of an indefinite wait.
The MSME Development (Amendment) Bill, 2026 represents an important update to a legal framework that was originally enacted in 2006.
The reform is not limited to changing the definition or registration process of MSMEs. Its more practical significance lies in strengthening the ecosystem around payments, dispute resolution, recovery, digital systems and compliance.
For MSMEs, the biggest expected benefit is a stronger mechanism to address delayed payments and improve liquidity.
For buyers and larger companies, the amendment is a reminder that MSME-related obligations cannot be treated as a routine finance or procurement issue. They require proper coordination between finance, procurement, legal, compliance and secretarial functions.
Need help navigating MSME compliance under MSMED Act, 2026 or reviewing your MSME delayed payment dispute resolution and MSME decriminalisation and penalties exposure? Get in touch with UJA’s Company Secretarial team today.
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