The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026 passed by Parliament
The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026 was passed by the Lok Sabha on 7 August 2026, after having been passed by the Rajya Sabha on 3 August 2026
The Bill amends the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), which was notified in 2006 and has completed 20 years since enactment
Key changes include making memorandum/registration filing voluntary for MSMEs (previously mandatory for medium manufacturing enterprises), a mandate for central public sector enterprises (CPSEs) to settle MSME invoices through the Trade Receivables Discounting System (TReDS), fixed mediation and arbitration timelines for delayed-payment disputes, and decriminalisation of certain penal provisions in favour of a graded warning-and-penalty structure
The Development Commissioner has been designated as the adjudicating officer for penalty matters, with appeals lying to the MSME Secretary
MSMED Act, 2006 — Classification Framework and the 2020 Revision
The MSMED Act, 2006 created the first statutory definition of micro, small, and medium enterprises in India, initially classifying them separately for manufacturing and services on the basis of investment in plant and machinery/equipment alone. In 2020, under the Atmanirbhar Bharat package, the government revised the definition to a composite criterion combining both investment and annual turnover, and removed the manufacturing–services distinction, effective 1 July 2020.
Key Details
- Original 2006 Act: separate investment-only thresholds for manufacturing and service enterprises
- 2020 revision (effective 1 July 2020): composite investment + turnover criteria — Micro: investment up to ₹1 crore and turnover up to ₹5 crore; Small: investment up to ₹10 crore and turnover up to ₹50 crore; Medium: investment up to ₹50 crore and turnover up to ₹250 crore
- The 2026 Amendment further empowers the central government to notify these classification thresholds administratively rather than fixing them rigidly in the statute, allowing periodic revision without a fresh parliamentary amendment
- Udyam Registration Portal (effective 1 July 2020) is the unified online registration system linked to these definitions
The 2026 Amendment builds on the 2020 definitional reform by giving government flexibility to adjust MSME thresholds through notification, and by making the registration process itself voluntary — a further step in easing compliance for small enterprises two decades after the original Act.
Delayed Payments to MSMEs — Sections 15–24 of the MSMED Act
Sections 15 to 24 of the MSMED Act, 2006 form a distinct chapter mandating timely payment to micro and small enterprises by buyers, with statutory interest for delays and a mechanism of Micro and Small Enterprises Facilitation Councils (MSEFCs) for conciliation and arbitration of payment disputes — one of the Act's most litigated provisions.
Key Details
- Section 15: buyer must make payment within the agreed period, not exceeding 45 days from acceptance of goods/services, in the absence of a written agreement
- Section 16: delayed payment attracts compound interest at three times the RBI's notified bank rate
- Section 18: MSEFC-led conciliation, followed by arbitration if conciliation fails, functioning under the Arbitration and Conciliation Act, 1996
- The 2026 Amendment prescribes fixed timelines within this dispute-resolution chain — mediation to conclude within 90 days of first appearance, arbitration awards within 90 days of completion of pleadings — and allows courts to order interim payment (minimum 50 percent) to the supplier where an award challenge exceeds six months
By fixing timelines for mediation and arbitration and mandating CPSE settlement of MSME invoices through TReDS, the 2026 Amendment directly strengthens enforcement of the delayed-payment framework under Sections 15–18, which MSMEs have long flagged as slow and buyer-favouring in practice.
Decriminalisation of Minor Economic Offences — the Jan Vishwas Approach
The Bill's shift from criminal/monetary penalties to a graded warning-then-penalty system for non-compliance (such as false information or non-filing) reflects the broader "ease of doing business" and decriminalisation trend embodied in the Jan Vishwas (Amendment of Provisions) Act, 2023, which decriminalised over 180 provisions across 42 central laws to reduce the compliance burden on businesses and citizens.
Key Details
- Jan Vishwas Act, 2023: converted many minor criminal offences (imprisonment/fines with prosecution) into civil penalties adjudicated administratively, without requiring a court process
- Under the 2026 MSME Amendment: first-time non-compliance in registration or information-filing draws only a warning; a monetary penalty (₹1,000–₹50,000, escalating for subsequent violations) applies from the second instance onward, with a built-in 10 percent escalation in minimum penalty every three years
- Decriminalisation generally aims to reduce judicial pendency and litigation costs for small businesses while retaining deterrence through monetary penalties
The MSME Amendment Bill extends the Jan Vishwas-style decriminalisation philosophy specifically to the MSMED Act's penal provisions, replacing criminal prosecution risk for minor filing lapses with an administrative warning-and-penalty ladder.
- MSMED Act notified: 2006; the 2026 Amendment marks 20 years since enactment
- Passed by Rajya Sabha: 3 August 2026; passed by Lok Sabha: 7 August 2026
- 2020 MSME definition thresholds: Micro (≤₹1 crore investment / ≤₹5 crore turnover), Small (≤₹10 crore / ≤₹50 crore), Medium (≤₹50 crore / ≤₹250 crore)
- False-information penalty under the 2026 Amendment: warning first instance; ₹1,000–₹50,000 from second instance onward
- Non-filing penalty: warning first instance; ₹10,000–₹50,000 second instance; ₹50,000–₹1,00,000 subsequent instances
- Minimum interim payment to suppliers pending award-challenge (if delayed over six months): 50 percent of the awarded amount