Amid Opposition protests, Rajya Sabha passes MSME Bill
Parliament passed the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, replacing the MSME Development Act, 2006
The Bill makes registration voluntary for all MSMEs, with the central government empowered to notify a digital platform for filing; state governments may notify their own platforms as well
All central public sector enterprises (CPSEs) are now required to settle invoices for goods and services procured from MSMEs through the Trade Receivables Discounting System (TReDS)
The Bill sets fixed timelines for mediation and arbitration of payment disputes and shifts penalties for false registration information from criminal fines to graded administrative penalties
MSME Classification — 2020 Composite Criteria
The Ministry of Micro, Small and Medium Enterprises revised the classification of enterprises via a gazette notification effective 1 July 2020, moving from an investment-only criterion to a composite criterion of investment in plant and machinery/equipment and annual turnover. The 2026 Amendment Bill retains a composite classification approach but shifts the actual threshold numbers from the statute to government notification, giving the executive flexibility to revise limits without a fresh Act of Parliament.
Key Details
- Micro: investment ≤ ₹1 crore and turnover ≤ ₹5 crore
- Small: investment ≤ ₹10 crore and turnover ≤ ₹50 crore
- Medium: investment ≤ ₹50 crore and turnover ≤ ₹250 crore
- An enterprise moves to the next higher category if it crosses the ceiling on either investment or turnover
The 2026 Bill continues this composite (investment + turnover) framework but removes fixed thresholds from the Act itself, allowing them to be revised by notification — a recurring UPSC theme of "delegated legislation" reducing the need for parliamentary amendment.
Delayed Payment Provisions — Sections 15 and 16, MSMED Act 2006
Chapter V of the original MSMED Act, 2006 protects micro and small enterprises against delayed payments by buyers. Section 15 caps the credit period a buyer and supplier can mutually agree upon at 45 days from the date of acceptance of goods or services; if no period is agreed in writing, payment is due within 15 days. Section 16 makes a defaulting buyer liable to pay compound interest, with monthly rests, at three times the bank rate notified by the RBI.
Key Details
- Default payment period (no written agreement): 15 days from acceptance
- Maximum agreed credit period: 45 days from acceptance
- Interest on default: compound interest at 3x the RBI bank rate, compounded monthly
- MSME Samadhaan — the government's delayed-payment monitoring portal — was launched on 30 October 2017 to let MSEs file complaints directly with the Micro and Small Enterprise Facilitation Council (MSEFC)
The 2026 Bill builds on this framework by prescribing binding timelines for the dispute-resolution process itself — mediation to conclude within 90 days of first appearance, and arbitration awards within 90 days of completed pleadings — addressing the long-standing problem of MSEFC cases taking years to resolve.
Trade Receivables Discounting System (TReDS)
TReDS is an RBI-regulated electronic platform, introduced under guidelines issued in December 2014, that allows MSMEs to auction their trade receivables (invoices) to multiple financiers — banks and NBFC-Factors — for immediate, without-recourse financing, rather than waiting out the buyer's credit period.
Key Details
- Eligible sellers must be MSMEs as defined under Section 7 of the (erstwhile) MSMED Act, 2006
- Financing is "without recourse" to the MSME seller — the financier bears the risk of buyer default
- Currently three RBI-licensed TReDS entities operate, facilitating roughly ₹60,000 crore in annual transactions
The 2026 Bill makes TReDS participation mandatory for CPSEs when paying MSME suppliers, converting what was previously a voluntary financing option into a compulsory settlement channel for a large category of government-linked buyers — directly targeting the working-capital stress caused by delayed public-sector payments.
Legislative Procedure — Ordinary Bill vs Money Bill (Articles 107–109)
Article 107 of the Constitution provides that an ordinary Bill (such as this Amendment Bill) may originate in either House and requires agreement of both Houses, with or without amendment, before it is deemed passed. This distinguishes it from a Money Bill under Article 109, on which the Rajya Sabha may only recommend changes within 14 days and cannot amend or reject the Bill outright.
Key Details
- Article 107: general provisions on introduction and passing of Bills; a Bill does not lapse merely because the House is prorogued
- Article 108: provides for a joint sitting of both Houses to resolve a deadlock on an ordinary Bill (does not apply to Money Bills)
- Article 109: special procedure for Money Bills, under which the Rajya Sabha has only recommendatory power
As an ordinary Bill amending an existing Act, the MSME Development (Amendment) Bill required passage by both Houses under Article 107, illustrating the standard bicameral legislative process rather than the restricted Money Bill route.
- MSMED Act being replaced: enacted 2006
- Maximum credit period under Section 15: 45 days from acceptance of goods/services
- Default interest rate on delayed payment: 3x RBI bank rate, compounded monthly
- MSME Samadhaan portal launched: 30 October 2017
- TReDS guidelines issued by RBI: December 2014
- Revised MSME classification effective: 1 July 2020
- MSME sector's estimated contribution: over 30% of India's GDP and roughly 45% of India's exports
- New false-registration penalty range under the 2026 Bill: ₹1,000–₹50,000 (administrative), up from ₹1,000–₹10,000 (criminal) under the earlier regime, rising 10% every three years