Parliament has passed the MSME Development (Amendment) Bill, 2026, significantly overhauling India’s MSME framework.

Introduced in the Rajya Sabha on 28 July 2026, the Bill amends the MSME Act, 2006 and awaits Presidential assent. It overhauls digital registration, dispute resolution timelines, and payment enforcement for MSMEs.

THE KEY AMENDMENTS AT A GLANCE

      I.     Flexible classification of MSMEs

The existing Act classifies enterprises based on fixed investment thresholds for plant and machinery or equipment. The Bill removes these and empowers the Central Government to classify enterprises by notification based on (a) investment and (b) turnover, allowing revision without legislative amendment.

    II.     National Digital Platform for Registration

The Bill introduces a national digital platform for free, voluntary MSME registration. Filing becomes voluntary for all categories, including medium manufacturing enterprises for which it was previously mandatory.

  III.     Mandatory TReDS settlement for CPSEs

A new Section 15A requires every CPSE to route MSME invoice settlements through an RBI-authorised TReDS platform.

  IV.     Strict timelines for dispute resolution

The Bill imposes stage-wise timelines: the Micro and Small Enterprises Facilitation Council (“MSEFC”) must complete mediation within 90 days of first appearance, refer to arbitration within 30 days of mediation ending, and the arbitrator must deliver the award within 90 days of completion of pleadings.

    V.     Graded penalties (decriminalisation)

The Bill decriminalises offences and introduces graded civil penalties, starting with a warning at first instance.

  VI.     Online dispute resolution

The Central Government may, by notification, establish an online mechanism for mediation or arbitration through audio-video or electronic means.

WHAT CHANGES: ACT v. BILL — COMPARISON TABLE

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Area

MSME Act, 2006 (Existing Position)

MSME Amendment Bill, 2026 (Proposed Change)

1

Classification Criteria

Fixed statutory thresholds based on investment in plant and machinery (manufacturing) or equipment (services). Micro: up to ₹25 lakh; Small: ₹25 lakh – ₹5 crore; Medium: ₹5 crore – ₹10 crore.

Central Government may classify enterprises by notification based on (a) investment in plant and machinery or equipment, and (b) turnover. No fixed statutory thresholds.

2

MSME Registration

Micro, small, and medium (services) enterprises: voluntary.

Medium manufacturing enterprises: mandatory filing with specified authority.

National digital platform for free, voluntary filing for all MSMEs including medium manufacturing. State Governments may notify a State platform.

3

TReDS / Invoice Settlement

No provision.

New Section 15A:

Every CPSE must route MSME invoice settlements through an RBI-authorised TReDS platform. Central/State Governments may extend this to other entities.

4

Mediation Timeline

Entire reference under Section 18 to be decided within 90 days from the date of reference. No stage-wise breakdown.

 

Mediation: 90 days from first appearance.

Referral to arbitration: 30 days from termination of mediation.

Arbitral award: 90 days from completion of pleadings.

5

Enforcement of Awards

No provision for recovery as arrears of land revenue or recognition under the IBC.

New Section 18A:

Awards recoverable as arrears of land revenue via District Collector. Amount constitutes a valid debt under the Insolvency and Bankruptcy Code, 2016.

6

Setting Aside Awards — Pre-deposit

75% pre-deposit to set aside an award.

Court may order payment of a reasonable portion to the supplier pending disposal.

 

75% pre-deposit remains.

If application pending over 6 months, court must release at least 50% to the supplier. Application filed where supplier’s registered address is located.

 

7

MSEFC — Composition

3–5 members:

Director of Industries (Chair), MSME association representatives, bank/financial institution representatives, and persons with special knowledge.

 

3–5 members:

officer not below Joint Director (Chair), MSME association representatives, and at least one law member.

Bank/ financial institution representatives removed.

8

Penalties — False Information / Registration

Conviction-based:

first offence fine up to ₹1,000;

subsequent fine ₹1,000–₹10,000.

 

Civil penalty:

warning at first instance;

subsequent non-compliance ₹1,000–₹50,000.

9

Penalties — Non-reporting of Unpaid MSME Dues

Fine of not less than ₹10,000.

No graded structure.

 

Graded:

warning (first);

₹10,000–₹50,000 (second);

₹50,000–₹1,00,000 (third or subsequent).

10

Penalty Escalation

No automatic escalation mechanism.

Minimum penalties escalated by 10% every three years from commencement of the Amendment Act.

11

Adjudication of Penalties

No dedicated adjudicating officer designated under the Act.

Development Commissioner as adjudicating officer.

Appeals to Secretary, MSME Ministry within 30 days with disposal within 60 days.

Unpaid penalties recoverable as arrears of land revenue.

12

Online Dispute Resolution

No provision.

Central Government may notify an online mechanism for mediation or arbitration via audio-video or electronic means. Procedure to be prescribed.

13

Compliance Reporting — TReDS

No compliance reporting obligation on CPSEs or State PSEs regarding MSME invoice settlement.

New Section 22A:

Every CPSE (and notified entities) must disclose MSME invoice details routed through TReDS.

State PSEs must similarly disclose to the respective State Government.

 

C&M COMMENT

Mandatory routing of CPSE invoices through TReDS tackles MSME liquidity challenges head-on, reducing delayed payments and unlocking working capital financing against verified receivables.

The strict mediation and arbitration timelines should accelerate dispute resolution, though their efficacy depends on MSEFC capacity. The Bill addresses this by requiring State Governments to establish adequate Councils with necessary infrastructure.

CPSEs and entities procuring from MSMEs should note the mandatory TReDS settlement and reporting obligations. MSMEs should update their registration on the national digital platform to avail benefits under the amended framework.