The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026 - 11th August 2026 - PIB Backgrounder - Gazette Notification PDF
Issued by PIB Backgrounder
Read or download the official PDF of this gazette notification issued by the PIB Backgrounder on 11th August 2026. Classified under Press Release.
Executive Summary & Key Takeaways
Executive Summary The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, passed by Parliament in August 2026, updates the MSMED Act, 2006, to align with the sector's current economic significance. The Bill introduces reforms to streamline classification, mandate electronic payment systems for public sector entities, and enforce strict timelines for dispute resolution. Its primary purpose is to enhance the ease of doing business and reduce payment-related constraints for the over 9 crore registered MSMEs.
Key Points / Main Content
MSME Classification and Registration
- Revised Criteria: MSMEs are now classified based on both investment in plant and machinery/equipment and annual turnover.
- Simplified Registration: Filing of the memorandum is now free and voluntary for all MSMEs, regardless of size or sector.
- Digital Platforms: The Central Government will notify a national platform for registration, and state-level benefits may be tied to registration on these national or state digital platforms.
Payment and Recovery Reforms
- Mandatory TReDS: All Central Public Sector Enterprises (CPSEs) are required to settle MSME invoices through the Trade Receivables Discounting System (TReDS) platform.
- Recovery of Dues: Mediated settlements or arbitral awards are now recoverable as "arrears of land revenue" through District Collectors or notified authorities.
- State Authority: State governments may mandate that their own Public Sector Enterprises and authorities use TReDS for invoice settlements.
Dispute Resolution and Timelines
- MSEFC Expansion: State governments are empowered to establish multiple Micro and Small Enterprises Facilitation Councils (MSEFCs) to handle payment disputes.
- Mediation Timelines: Mediation must be completed within 90 days of the first appearance; if unsuccessful, the matter must be referred to arbitration within 30 days.
- Arbitral Awards: Final awards must be delivered within 90 days from the completion of pleadings.
- Court Directives: In cases where an award is challenged, courts can direct that a portion of the 75% deposit be paid to the supplier. If an application remains pending for over six months, the court must direct payment of at least 50% of the awarded amount to the supplier.
Decriminalization of Offenses
- Reduced Penalties: Violations such as non-filing of registration or non-supply of information have been decriminalized, replacing potential convictions with warnings and fines.
- Graduated Fines: Incorrect information or non-disclosure of unpaid dues now follows a tiered penalty system starting with a warning for the first instance, followed by fines for subsequent occurrences.
Impact Analysis
Micro, Small and Medium Enterprises (MSMEs) Impact They benefit from faster payment cycles, a more robust and time-bound dispute resolution framework, and a reduced compliance burden through voluntary registration. Action Required Register on the Udyam or national/state platforms to access official recognition and utilize TReDS for invoice discounting.
Central Public Sector Enterprises (CPSEs) Impact They are now legally mandated to use the TReDS platform for all procurement from MSMEs to ensure liquidity in the sector. Action Required Integrate internal accounting and procurement systems with the TReDS platform to comply with mandatory settlement rules.
State Governments Impact They gain the authority to establish multiple facilitation councils and provide the necessary digital and physical infrastructure for dispute resolution. Action Required Establish additional MSEFCs as needed, notify state digital platforms, and empower District Collectors to recover dues as land revenue.
Judicial and Mediation Service Providers Impact They must operate within strictly defined 90-day windows for mediation and arbitral awards. Action Required Adopt the Central Government’s online mechanism for mediation/arbitration and ensure cases are processed within the new statutory timelines.
Key Entities Referenced
Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026: The primary legislation passed by Parliament to update MSME classification, enhance dispute resolution, and simplify compliance to promote ease of doing business.
Micro, Small and Medium Enterprises Development (MSMED) Act, 2006: The original legislative framework being amended to align with the sector's modern requirements and growing economic significance.
Trade Receivables Discounting System (TReDS): An electronic platform for financing trade receivables, which the Bill mandates Central Public Sector Enterprises (CPSEs) to use for settling MSME invoices.
Micro and Small Enterprises Facilitation Councils (MSEFCs): State-level institutional bodies empowered by the Bill to resolve payment-related disputes through time-bound mediation and arbitration.
Udyam Registration Portal: The national digital platform for official recognition of MSMEs, which the Bill transitions to a free and voluntary registration system.
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PIB Backgrounder
The Micro, Small and Medium Enterprises
Development (Amendment) Bill, 2026
प्रव तथ: 11 AUG 2026 6:05PM by PIB Delhi
Reforms for a Growing MSME Sector
The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, was passed by the
Parliament in August 2026. It updates the existing MSMED Act, 2006 to align its provisions with the
requirements of the MSME sector. The amendments seek to reduce payment-related constraints, make
dispute resolution more time-bound and simplify compliance. Their broader objective is to facilitate the
growth, development and competitiveness of MSMEs while promoting Ease of Doing Business.
Introduction
The MSME Development (Amendment) Bill, 2026 was passed by the Parliament in August 2026. The
importance of this amendment stems from the sector’s growing role in India’s economy. The Micro, Small
and Medium Enterprises Development Act (MSMED Act) was notified in 2006. Since then, the MSME
ecosystem has expanded in scale, diversity and digital reach.
According to the Economic Survey 2025-26, MSMEs account for 31.1% of GDP, 35.4% of
manufacturing output and 48.58% of exports. As on August 2026, 9.16 crore MSMEs are
registered on the Udyam platform, employing more than 40 crore people. Technological advances
and IT-enabled systems have further transformed the MSME landscape. These enterprises now operate
across rural, semi-urban and urban areas and participate more actively in formal supply chains.The MSME Development (Amendment) Bill, 2026 builds on this foundation. It aims to align the legal
framework with the sector’s changing needs and its growing economic significance.
Changes introduced in the Bill
The 2026 Bill revises certain specific provisions under the MSMED Act, 2006. Details of key areas of
reform are highlighted below:
Areas of Reform The Micro, Small and The Micro, Small, and Medium
Medium Enterprises Enterprises Development (Amendment)
Development Act, 2006 Bill, 2026
MSME MSMEs are classified on the MSMEs are classified on the basis of:
Classification basis of prescribed investment
a. investment in plant and machinery or
thresholds for:
equipment; and
a. plant and machinery in b. turnover.
manufacturing; and
b. equipment in services.MSME Registration Medium enterprises engaged The Bill makes filing of the memorandum
in manufacturing are free and voluntary for all MSMEs.
required to file a
The Central Government shall notify a
memorandum with specified
national platform for the purpose. State
authority. Filing of
governments may also notify State digital
memorandum is voluntary for
platforms.
other MSMEs.
State scheme benefits may be extended to
MSMEs registered on the national and state-
level platform.
Payments through Addressed through All Central Public Sector Enterprises
Trade Receivables introduction of a new provision (CPSEs) are required to settle invoices for
Discounting System in the Bill. goods and services procured from MSMEs
(TReDS) through the TReDS platform. This aims to
address payment-related issues faced by
MSMEs.
States may mandate their Public Sector
Enterprises (PSEs), authorities, or entities to
use TReDS for invoice settlement.
Micro and Small State Governments may State Governments can establish multiple
Enterprises establish one or more MSE MSEFCs to enable faster resolution of
Facilitation Facilitation Councils. payment-related disputes. They are also
Councils (MSEFCs) empowered to provide adequate
Framework infrastructure and resources, including
physical infrastructure, digital systems and
trained manpower, as may be necessary.Mediation and The MSEFCs or referred Central Government may establish an
Arbitration mediation service providers are online mechanism for conducting online
authorised to settle payment mediation or arbitration.
disputes by mediation.
Specific timelines have been introduced for
Where a mediation is not mediation and arbitration:
successful, the dispute may be
a. The MSEFC or mediation service
referred for arbitration.
provider must complete mediation
within 90 days from the date fixed for
the first appearance.
b. If mediation is terminated, the
MSEFC are required to refer the
matter for arbitration within 30
days.
c. The MSEFC or an institution or centre
providing alternative dispute
resolution services must make the
arbitral award within 90 days from
the completion of pleadings.
Dispute Resolution Application to set aside a The Bill also allows such applications.
Council’s order/ award may be While the application is pending, the court
filed in court after depositing may direct that a reasonable portion of
75% of the awarded amount. the deposited amount be paid to the
MSME supplier.
Courts shall direct payment to MSE
suppliers when an application to set aside a
decree, award or order remains pending for
more than six months. The payment must be
at least 50% of the awarded amount.
Recovery of Dues Addressed through Mediated settlement agreement or arbitral
introduction of a new provision award can be recovered as ‘arrears of land
in the Bill. revenue’. This applies to agreements or
awards made under Section 18 by the
Facilitation Council, a mediation service
provider or an alternative dispute resolution
institution.
Recovery may be undertaken through the
District Collector, Deputy Commissioner
or another notified authority. The notified
authority must have jurisdiction over the
location of the buyer’s assets.Decriminalisation of Wilfully providing false Non-filing of registration or non-supply of
Offences registration information attracts information: Earlier, these violations
a fine of up to ₹1,000 for the attracted conviction and a fine. The penal
first conviction and ₹1,000- provisions have now been decriminalised.
₹10,000 for subsequent
Furnishing incorrect information: A
convictions.
warning will be issued for the first instance,
Failure to report unpaid dues to followed by a penalty for the second and
MSME suppliers in annual subsequent instances.
accounts attracts a fine of at
Non-disclosure of unpaid dues by buyers:
least ₹10,000.
It now attracts a warning for the first
instance, a penalty for the second and a fine
for the third and subsequent instances.
Digital and Institutional Support
The reforms introduced by the Bill are supported by digital platforms and institutional mechanisms
established across the MSME ecosystem.
Expanding Formal Recognition: The Udyam Registration Portal gives MSMEs official recognition
through a free, paperless and self-declaration-based online process. The Udyam Assist Platform
complements this initiative by formally recognising informal micro enterprises. This includes
enterprises without GST registration or coverage under the Income Tax system, based on data verified by
authorised partners.
Improving Access to Financing: TReDS is an electronic platform that enables MSMEs to finance or
discount trade receivables. It operates in accordance with guidelines issued by the Reserve Bank of India.
The value of invoices discounted through the platform rose from ₹40,000 crore in 2022-23 to ₹3.47 lakh
crore in 2025-26.
Enabling Online Dispute Resolution (ODR): The ODR Portal was launched in June 2025. It offers
MSEs a low-cost, end-to-end digital mechanism for resolving delayed payment disputes, including small-
value claims.
Strengthening the MSEFC Network: 161 MSEFCs have been established across States and Union
Territories. MSEFCs are set up to adjudicate disputes arising from payment delays faced by Micro and
Small Enterprises.
Conclusion
The MSME Development (Amendment) Bill, 2026 seeks to strengthen the foundations of an MSME’s
journey from a small enterprise to a growing business. It provides for a stronger regulatory framework
to help MSMEs operate and expand in an evolving business environment.
References:
Rajya Sabha:
https://sansad.in/rs/legislation/bills
Ministry of Micro, Small & Medium Enterprises:
https://www.pib.gov.in/PressReleasePage.aspx?PRID=2296358®=48&lang=1
https://www.pib.gov.in/PressReleasePage.aspx?PRID=2209712&lang=1®=3https://www.pib.gov.in/PressReleasePage.aspx?PRID=2284414®=3&lang=1
Ministry of Finance:
https://www.pib.gov.in/PressReleasePage.aspx?PRID=2219984®=48&lang=2
PIB Archives:
https://www.pib.gov.in/PressReleasePage.aspx?PRID=2278107®=48&lang=2
https://www.pib.gov.in/PressReleasePage.aspx?PRID=2260904&lang=1®=3
Others:
https://prsindia.org/billtrack/the-micro-small-and-medium-enterprises-development-amendment-bill-2026
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