Areas of Reform

The Micro, Small and Medium Enterprises Development Act, 2006

The Micro, Small, and Medium Enterprises Development (Amendment) Bill, 2026

MSME Classification

MSMEs are classified on the basis of prescribed investment thresholds for:

1. plant and machinery in manufacturing; and
2. equipment in services.

MSMEs are classified on the basis of:

1. investment in plant and machinery or equipment; and
2. turnover.

MSME Registration

Medium enterprises engaged in manufacturing are required to file a memorandum with specified authority. Filing of memorandum is voluntary for other MSMEs.

The Bill makes filing of the memorandum free and voluntary for all MSMEs.

The Central Government shall notify a national platform for the purpose. State governments may also notify State digital platforms.

State scheme benefits may be extended to MSMEs registered on the national and state-level platform.

Payments through Trade Receivables Discounting System (TReDS)

Addressed through introduction of a new provision in the Bill.

All Central Public Sector Enterprises (CPSEs) are required to settle invoices for goods and services procured from MSMEs 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 Enterprises Facilitation Councils (MSEFCs) Framework

State Governments may establish one or more MSE Facilitation Councils.

State Governments can establish multiple MSEFCs to enable faster resolution of payment-related disputes. They are also empowered to provide adequate infrastructure and resources, including physical infrastructure, digital systems and trained manpower, as may be necessary.

Mediation and Arbitration

The MSEFCs or referred mediation service providers are authorised to settle payment disputes by mediation.

Where a mediation is not successful, the dispute may be referred for arbitration.

Central Government may establish an online mechanism for conducting online mediation or arbitration.

Specific timelines have been introduced for mediation and arbitration:

1. The MSEFC or mediation service provider must complete mediation within 90 days from the date fixed for the first appearance.
2. If mediation is terminated, the MSEFC are required to refer the matter for arbitration within 30 days.
3. 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 Council’s order/ award may be filed in court after depositing 75% of the awarded amount.

The Bill also allows such applications. While the application is pending, the court may direct that a reasonable portion of 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 introduction of a new provision in the Bill.

Mediated settlement agreement or arbitral award can be recovered as ‘arrears of land 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 Offences

Wilfully providing false registration information attracts a fine of up to ₹1,000 for the first conviction and ₹1,000-₹10,000 for subsequent convictions.

Failure to report unpaid dues to MSME suppliers in annual accounts attracts a fine of at least ₹10,000.

Non-filing of registration or non-supply of information: Earlier, these violations attracted conviction and a fine. The penal provisions have now been decriminalised.

Furnishing incorrect information: A warning will be issued for the first instance, followed by a penalty for the second and subsequent instances.

Non-disclosure of unpaid dues by buyers: It now attracts a warning for the first instance, a penalty for the second and a fine for the third and subsequent instances.