Summary: The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 seeks to modernise the Micro, Small and Medium Enterprises Development Act, 2006 through digitisation, revised institutional mechanisms and faster payment and dispute-resolution processes. Key changes concern the statutory Development Commissioner, National Board, MSME classification based on investment and turnover, permanent recognition of the Udyam Registration Portal, free voluntary digital registration and TReDS-based settlement of invoices by Central Public Sector Enterprises. New Section 15A strengthens use of the Trade Receivables Discounting System, while amendments to Section 18 prescribe timelines for mediation, arbitration and arbitral awards and support online dispute resolution and recovery mechanisms through Micro and Small Enterprises Facilitation Councils. The article also highlights continuing concerns regarding delayed payments by government departments and local bodies, broad governmental power to revise classification thresholds, reliability of voluntary registration data and the absence of a dedicated fast-track judicial mechanism. It concludes that the reforms strengthen the MSME framework but could have placed greater emphasis on preventing payment defaults rather than relying primarily on dispute resolution after default.
Introduction
This sector makes a significant contribution to employment generation, exports, and the Gross National Product. There was a need to amend the ‘Micro, Small and Medium Enterprises Development Act, 2006’—enacted in 2006—to align with technological advancements, digitization, and the evolving legal framework. To this end, the ‘Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026’ was introduced in the Rajya Sabha on July 28, 2026. The Bill proposed key changes regarding enterprise registration, classification, timely payment of dues, dispute resolution, and penal provisions. After being passed by the Rajya Sabha on August 3, 2026, the Bill was subsequently passed by the Lok Sabha on August 7, 2026.
The ‘Micro, Small and Medium Enterprises Development Act’ was notified in 2006, and twenty years have now elapsed since its implementation. Over the past few years, the MSME sector has undergone rapid transformation driven by technological progress, the emergence of IT-based systems, and changing legal conditions; consequently, amending the Act became essential to boost the development of these enterprises. The number of MSMEs registered on the ‘Udyam’ portal stood at 1.65 crore on April 1, 2023, and has since risen to 9.16 crore. The MSME sector provides employment to over 40 crore people and is considered the backbone of the Indian economy. These amendments to the Micro, Small and Medium Enterprises Development Act have been introduced with the objectives of strengthening the regulatory framework for the sector, facilitating ease of doing business, creating a business-friendly environment by decriminalizing certain offenses, establishing institutional mechanisms to promote MSMEs, and addressing the issue of delayed payments faced by micro and small enterprises.
Amendments Concerning MSME Administration and Classification
1. Definition of the new post of ‘Development Commissioner’ (Section 2)
The existing Act did not contain a specific definition for the post of ‘Development Commissioner.’ While the National Board mentioned an officer of the rank of Joint Secretary, that officer did not hold an independent status. Following the amendment, a new sub-clause (da) has been inserted into Section 2, clearly defining the ‘Development Commissioner’ as the administrative head of the Office of the Development Commissioner within the Ministry of Micro, Small and Medium Enterprises. This enables the assignment of clear statutory powers and responsibilities to the Development Commissioner (e.g., acting as the Member-Secretary of the National Board or as the authority for imposing penalties). This provision was essential to ensure administrative clarity and the centralization of responsibility. For instance, powers to take action against an enterprise for providing false information can now be explicitly vested directly in the Development Commissioner under Section 27A.
2. Change regarding the Member-Secretary of the National Board (Section 3)
Under the existing Act, the Member-Secretary of the National Board was appointed from among officers holding a rank not lower than that of a Joint Secretary to the Government of India. Following the amendment, the ‘Development Commissioner’ will now be directly appointed as the Member-Secretary. This eliminates ambiguity regarding the designation and establishes a permanent, defined administrative responsibility. This change was necessary to make the administration more consistent and accountable. For example, while different officers could previously be appointed as Member-Secretary at different times, the position will now permanently remain with the Development Commissioner.
3. Authority to Classify MSME Enterprises (Section 7)
Under the current Act, the classification of micro, small, and medium enterprises (MSMEs) is based on specific limits regarding turnover and investment. The primary criterion was investment in machinery for the manufacturing sector and investment in equipment for the service sector; for instance, the investment limit in machinery for a micro-enterprise is ₹25 lakh. Under the new provisions, instead of fixing these limits within the Act itself, the Central Government has been empowered to determine both investment and turnover criteria for MSME classification via notification. Consequently, if these limits need to be altered in the future, there will be no need to amend the Act in Parliament each time; the government can modify the limits by issuing a notification based on prevailing circumstances. This change aims to facilitate swift and flexible policy decisions in response to evolving economic conditions, inflation, and technological advancements. It will help make the MSME policy more flexible and aligned with the changing economic landscape. The government will be able to periodically revise classification limits to account for factors such as inflation, rising machinery costs, technological shifts, or the expanding scale of enterprises. For example, if machinery costs rise significantly in the future, the government could decide to raise the investment limit for micro-enterprises from ₹25 lakh via notification, without requiring a separate legislative amendment process.
Furthermore, the ‘Udyam Registration Portal’ is being accorded permanent recognition as a digital, free, and voluntary platform for MSME registration. Registration as an MSME will remain voluntary. Overall, under the new system, MSME classification will not be restricted solely to investment but will be based on the dual criteria of investment and turnover. This allows for a more realistic assessment of the actual size of enterprises and enables rapid adjustment of classification limits in response to changing conditions.
4. National and State Digital Platforms for Registration (Section 8)
Under the existing law, the old Section 8 contained a provision for enterprises to file a ‘Memorandum,’ but there was no mandate for a centralized digital platform for this purpose. According to the new provisions in Section 8 of the MSMED Act, 2006, the Central Government will provide a national digital platform for Micro, Small, and Medium Enterprises (MSMEs). In fact, it has been made mandatory for the Central Government to notify a national digital platform for free and voluntary registration; on this platform, entrepreneurs can voluntarily file an application or memorandum to register their enterprises at no cost. Upon registration, the respective enterprises can avail themselves of various schemes and benefits offered by the Central Government under this Act. The Central Government will determine the registration method and the necessary procedures. Similarly, State Governments may also launch independent state-level digital platforms for MSMEs within their respective states. Through these platforms, entrepreneurs can register voluntarily and free of charge, subsequently availing themselves of applicable state government schemes and concessions. Notably, state governments can also extend the benefits of their various schemes to MSMEs registered on the Central Government’s national digital platform. In other words, registration on the central platform will not hinder access to state government schemes. In essence, the objective of this provision is to make the MSME registration process free, voluntary, and digital, while ensuring easy access to various central and state government schemes and concessions for registered enterprises. This enables enterprises to access benefits from both central and state levels through a single registration, making the process streamlined and transparent. This initiative aims to enhance the ‘Ease of Doing Business’ and facilitate easy digital registration and access to benefits for enterprises. E.g. A small entrepreneur in Maharashtra can avail the benefits of the state’s special schemes by registering on the state’s digital platform at the same time as registering on the Udyam Registration (national platform).
Payment and Dispute Resolution Reforms
5. Mandatory payment through Trades for Public Sector Undertakings (New Section 15A)
The original Act contained provisions to prevent late repayment of payments, but Central Public Sector Undertakings were not required to transact through the Trade Receivable Discounting System (‘Trades’). Therefore, as a solution to the long-pending complaints of delayed payments by MSMEs and to improve their liquidity, as per the newly introduced Section 15A, it will now be mandatory for Central Government Public Sector Undertakings, if they procure goods or services from Micro, Small and Medium Enterprises, to settle the invoice amount through the Reserve Bank-authorized Trade Receivable Discounting System platform. The central government will decide the necessary procedure and rules for this through a notification. ‘Trades’ is an electronic platform regulated by the Reserve Bank, which enables micro, small and medium enterprises to raise funds from financiers based on the amounts due from buyers. Sabab ‘Tradus’ has emerged as an institutional platform for micro, small and medium enterprises providing additional liquidity and ensuring timely payments. It is an electronic platform facilitating financing or discounting of trade income of micro, small and medium enterprises as per Reserve Bank guidelines. This has led to an increase in invoice discounting on Trades from Rs 40,000 crore in 2022-23 to Rs 3.47 lakh crore in 2025-26. The Central Government can also apply this ‘tradeus’ regime to other government authorities, institutions or institutional units by notification. Similarly, the State Government may direct the State Public Sector Undertakings as well as other concerned authorities or institutions to settle payments through ‘Trades’. The state government can also apply a similar provision for its public undertakings. Now that the settlement of invoices by the Central Public Sector Undertaking is mandatory, the payment problems of the micro, small and medium enterprises will be greatly reduced. In short, the main objective of this provision is to enable quick settlement of overdue payments of micro, small and medium enterprises to provide them with timely funds against their sales proceeds. This will ensure timely payments to micro and small enterprises; Cash problem will be reduced; There will be transparency in transactions eg. If a government company (eg an enterprise like Bharat Petroleum) buys spare parts from a small scale industry, the payment will now have to be made through the Trades Forum, thus facilitating the industry to get immediate cash (through discounting) from the bank.
6. Time Limit for Mediation and Arbitration Proceedings (Section 18)
Article 18 has been significantly amended to facilitate speedy settlement of disputes related to overdue payments. As per the existing provisions, the Micro and Small Enterprises Facilitation Council or the mediation service provider directed by it has to resolve the payment dispute first through mediation as the Mediation and Arbitration process is governed by the Mediation Act, 2023. However, the Micro, Small and Medium Enterprises Development Act previously did not have a clear time limit on how many days a decision should be taken to complete the mediation. So many cases were pending for a long time. As per the provision in new sub-section (3A), it shall be mandatory to complete the mediation process within 90 days from the date fixed for the first hearing. If no settlement is reached through mediation, the matter may be referred to arbitration. The matter must be referred to arbitration within 30 days from the date of conclusion of the mediation process. Thereafter, the arbitral award is expected to be delivered within 90 days under sub-section 4A after full evidence from the completion of the claims and counterclaims. This will give a fixed time frame to the entire dispute resolution process, reducing the chances of small businesses having to wait for years for overdue payments. Especially since arrears have a direct impact on the working capital of small enterprises, getting a speedy decision is going to be important for their financial stability.
For example, if a buyer fails to pay for goods or services supplied by a micro or small scale enterprise in time and a dispute arises, the first mediation process will take place after the case is referred to the Facilitation Council. It has to be completed within 90 days. In the absence of a settlement in mediation, the matter shall be referred to arbitration within 30 days and the arbitral award is expected to be rendered within 90 days of completion of the claims and counterclaims. This will make the dispute resolution process more timely and efficient. Industries will get speedy justice.
Unresolved Issues and Critical Concerns
7. Absence of a dedicated appellate or fast-track judicial mechanism for MSMEs
While the Bill improves dispute resolution, the judicial process does not necessarily conclude after the decision of the Micro and Small Enterprises Facilitation Council. Consequently, MSMEs remain exposed to the risk of protracted legal proceedings. Consideration should have been given to establishing a dedicated fast-track commercial mechanism or a specific tribunal/bench for resolving disputes regarding delayed payments to MSMEs.
8. Issues concerning government departments and local self-government bodies remain unresolved
Provisions regarding TReDS exist for Central Public Sector Undertakings and other notified entities. However, in reality, major clients for MSMEs often include government departments, municipalities, local self-government bodies, and various public institutions. The Bill does not explicitly mandate a uniform, direct, and automated payment implementation system for these entities.
9. The Bill grants the government sweeping powers to alter MSME definitions and thresholds
Section 7 provides for classification based on both investment and turnover criteria, with the government empowered to determine these limits via notification. It also clarifies that expenses related to pollution control, research and development, industrial safety, etc., are to be excluded from investment calculations. While this flexibility is welcome, the Bill lacks a clear statutory framework defining what these limits should be. The legislation should have incorporated a clear basis for periodic, automated reviews of MSME classifications, factoring in inflation indices, sector-specific thresholds, and currency fluctuation indices.
10. Registration remains voluntary—raising concerns about the reliability of the database
New Section 8 makes MSME registration on the national digital platform both free and voluntary. This is a positive step towards ease of doing business; however, if many Micro, Small, and Medium Enterprises (MSMEs) remain unregistered, the database required for government schemes, credit support, protection against delayed payments, and policy formulation could remain incomplete. Instead of merely keeping registration simple and free, a robust system for consent-based, automated onboarding—integrating databases like GST, Income Tax, MCA, Udyam, and EPFO—should have been established.
The most significant shortcoming is the lack of a direct guarantee regarding “timely receipt of payment.”
In my view, the bill’s major limitation is its focus on the speedy resolution of disputes after they arise, while offering relatively weak preventive mechanisms to ensure disputes do not occur in the first place and that MSMEs receive payment by the due date. While the bill strengthens mechanisms for TReDS, mediation, arbitration, recovery, and the Micro and Small Enterprises Facilitation Council, the ideal reform would have been a streamlined process: Invoice → digital acceptance → automatic due-date tracking → TReDS financing/payment → automatic interest → default reporting → penalty → recovery. This would prevent a situation where MSMEs are forced to engage in disputes, followed by mediation, arbitration, and recovery proceedings, simply to get paid.
