MSMED Amendment Bill 2026: Legislative Overhaul for MSME Sector
The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026 was passed by Lok Sabha on 7th August 2026, following Rajya Sabha's approval on 3rd August 2026. This amendment to the 20-year-old MSMED Act of 2006 addresses technological advancements, IT-enabled systems, and changing legal landscapes that have transformed the MSME sector. The sector now comprises 9.16 crore enterprises registered on Udyam portal (up from 1.65 crore as of 1 April 2023) and provides employment to over 40 crore people, representing the backbone of the Indian economy.
Key amendments include the formal incorporation of the dual classification system based on "Investment in plant/machinery" and "Turnover" into the Act. The Udyam Registration Portal is granted permanence as a digital, free, and voluntary registration platform for MSMEs.
The amendments introduce robust mechanisms for addressing delayed payments to micro and small enterprises (MSEs), including mandatory Online Dispute Resolution for timely and cost-effective dispute resolution. Courts are now required to order payment of at least fifty percent of the awarded amount to MSE suppliers if applications to set aside decrees, awards, or orders remain pending for more than six months.
Strict timelines are established for dispute resolution: MSE Facilitation Councils (MSEFCs) or mediation service providers must complete mediation within ninety days from the first appearance date, followed by mandatory referral to arbitration within thirty days of mediation termination. Arbitral awards must be made within ninety days from completion of pleadings.
Recovery mechanisms are strengthened by allowing mediated settlement agreements or arbitral awards to be recovered as 'arrear of land revenue' through District Collectors, Deputy Commissioners, or notified authorities where the buyer's assets are located.
A significant provision mandates all Central Public Sector Enterprises (CPSEs) to route invoice settlements through Trade Receivables Discounting System (TReDS) platforms for MSME procurement, with enabling mechanisms for State PSEs to follow. TReDS volume has grown dramatically from ₹40,000 crore in 2022-23 to ₹3.47 lakh crore in 2025-26, providing additional liquidity and ensuring timely payments to MSMEs.
State governments are empowered to establish multiple MSEFCs with flexible composition rules for faster dispute resolution. The amendments also decriminalize various provisions, replacing conviction-based fines with graded civil penalties. First instances of furnishing wrong information now receive warnings, with penalties for subsequent violations. Non-disclosure of unpaid amounts with interest in annual accounts by buyers now triggers warnings for first instances, penalties for second instances, and fines for third and subsequent instances.
These comprehensive amendments align with the government's Viksit Bharat @2047 vision, aiming to boost formalization of enterprises, provide scaling-up pathways for MSMEs, enhance ease of doing business, and promote compliance through trust-based regulations.