Parliament has passed the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, paving the way for changes to the legal framework governing India’s MSME sector. The Bill was passed by the Lok Sabha on 7 August after receiving approval from the Rajya Sabha on 3 August.
The amendments come as the Micro, Small and Medium Enterprises Development Act, 2006 completes 20 years. The government said changes to the legislation were necessary to reflect the rapid transformation of the MSME sector driven by technology, digital systems and evolving business and legal requirements.
The number of enterprises registered on the Udyam platform has increased from around 1.65 crore in April 2023 to 9.16 crore, according to the government. The MSME sector currently supports employment for more than 40 crore people and remains a major contributor to India’s economic activity.
The MSMED Amendment Bill 2026 seeks to strengthen the regulatory framework for MSMEs, improve ease of doing business, address delayed payments and create a more supportive environment for businesses to scale.
MSME classification and Udyam registration
The amended Act formally incorporates the twin criteria of investment in plant and machinery and turnover for MSME classification. It also provides permanence to the Udyam Registration Portal as a free, digital and voluntary registration platform for enterprises.
Faster resolution of payment disputes
A major focus of the amendments is addressing delayed payments faced by micro and small enterprises. The legislation introduces Online Dispute Resolution to help businesses resolve disputes more quickly and at lower cost.
The amendments also provide greater protection to MSE suppliers during legal proceedings. Where an application challenging a decree, award or order remains pending for more than six months, courts will be required to order payment of at least 50 per cent of the awarded amount to the concerned micro or small enterprise supplier.
The legislation also introduces specific timelines for resolving delayed payment disputes. Mediation is required to be completed within 90 days from the date fixed for the first appearance. If mediation fails, the matter must be referred for arbitration within 30 days. The award is then required to be made within 90 days of completion of pleadings.
Stronger recovery mechanism for MSME dues
The amended framework also strengthens recovery of amounts due to micro and small enterprises. Mediated settlement agreements and arbitral awards issued through the Facilitation Council or recognised alternative dispute resolution mechanisms can be recovered as arrears of land revenue through the District Collector, Deputy Commissioner or other notified authority.
CPSEs to route MSME invoices through TReDS
The Bill introduces measures aimed at improving liquidity and ensuring faster payments to MSMEs. Central Public Sector Enterprises will be required to route invoice settlements for goods and services purchased from MSMEs through the Trade Receivables Discounting System (TReDS).
The amendment also creates an enabling framework for states to encourage their public sector enterprises to use TReDS for invoice settlements.
TReDS has emerged as an important financing mechanism for MSMEs by allowing their trade receivables to be discounted. The value of invoice discounting through the platform increased from around Rs 40,000 crore in 2022-23 to Rs 3.47 lakh crore in 2025-26, according to the government.
More flexibility for MSME Facilitation Councils
The amendments also give state governments greater flexibility in determining the composition of Micro and Small Enterprises Facilitation Councils (MSEFCs). States will be able to establish multiple councils, which is expected to help speed up the resolution of payment related disputes.
State governments will also have the power to frame rules governing the functioning of these councils.
Decriminalisation of certain provisions
The legislation introduces changes aimed at creating a more trust based regulatory environment for MSMEs. Certain offences under the existing framework will be decriminalised, with conviction based penalties replaced by graded civil penalties.
For instances involving incorrect information, businesses will receive a warning for the first violation, followed by a penalty for subsequent violations. Similarly, provisions relating to non disclosure of unpaid amounts and interest in annual accounts will move towards a graded system of warnings, penalties and fines.
The government said these changes are intended to improve compliance while reducing the regulatory burden on businesses and strengthening the Ease of Doing Business environment.
The amendments form part of the government’s broader Viksit Bharat @2047 agenda, with the MSME sector positioned as a key driver of employment, formalization and inclusive economic growth. The government expects the revised framework to support the scaling up of MSMEs, improve access to finance, strengthen payment mechanisms and help smaller enterprises become larger contributors to India’s economic growth.
