India’s Micro, Small and Medium Enterprises Development Act, 2006 — the statute that created the modern legal category of “MSME” and gave small suppliers a fast-track remedy against buyers who don’t pay on time — turns twenty this October. Parliament marked the anniversary by rewriting large parts of it. The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, passed by the Rajya Sabha on August 3 and the Lok Sabha on August 7, 2026, received Presidential assent on August 13, 2026, becoming the MSMED (Amendment) Act, 2026. Its substantive provisions will take effect only once the Central Government notifies a commencement date in the Official Gazette — as of this writing, that notification has not yet been issued, so the changes described here are law on the books but not yet operative on the ground.

The Act touches an unusually large constituency. Government figures cited around the Bill’s passage put the number of registered MSMEs in India at over nine crore, and the amendment’s central preoccupation — delayed payments by larger buyers to smaller suppliers — has been the single most litigated feature of the 2006 Act for two decades. What Parliament has done is loosen the statute’s rigid classification framework, force India’s largest institutional buyers onto a specific digital payment rail, rewrite the jurisdictional and timeline rules for dispute resolution, and swap criminal liability for civil penalties across several compliance failures. It has also left at least two significant questions exactly where they were.

From Fixed Thresholds to a Notified Framework

Since 2006, the Act itself fixed the investment and turnover thresholds that separate a “micro” enterprise from a “small” or “medium” one — any change required amending the statute. Under the amended Section 7, those thresholds move out of the Act and into delegated rule-making: the Central Government can now revise MSME classification criteria by notification, without further parliamentary amendment. Registration itself becomes voluntary rather than mandatory, and free, through a national digital platform — a reversal of the position for medium manufacturing enterprises, for which registration was previously compulsory. The trade-off is one the Bill’s own commentary acknowledges: classification by executive notification gives the government room to respond to economic conditions quickly, but it also moves a foundational definitional question — who counts as an MSME at all, and therefore who gets the Act’s protections — out of the legislature’s direct control.

Mandatory TReDS Payments for Government Buyers

The amendment’s most concrete liquidity fix is a new Section 15A, which requires every Central Public Sector Enterprise (CPSE) to route its payments for goods and services procured from MSMEs through the Trade Receivables Discounting System (TReDS), the RBI-authorised electronic platform that lets MSMEs discount their invoices for immediate cash rather than waiting out the buyer’s credit period. This is not, strictly speaking, a new idea: following a Union Budget 2026-27 announcement, the Ministry of MSME had already notified a mandatory CPSE-TReDS settlement requirement administratively on June 30, 2026, with invoice discounting volumes on the platform climbing to ₹3.47 lakh crore in FY2025-26 from a small fraction of that just a few years earlier. Section 15A now places that requirement on statutory footing rather than leaving it to an executive notification alone, and CPSEs must additionally disclose their TReDS-routed settlements and obtain a statutory auditor’s compliance certificate each year. For suppliers, this converts a receivable sitting on a government buyer’s books into financeable collateral the day an invoice is accepted, rather than after the 45-day credit period under Section 15 (or 15 days, absent a written agreement) has run its course and, often, been ignored.

Rewriting Section 18: Jurisdiction and Timelines

Section 18 is the operative heart of the 2006 Act — it lets an unpaid supplier bypass ordinary civil litigation and go straight to the Micro and Small Enterprises Facilitation Council (MSEFC), which must first attempt conciliation and, failing that, proceeds to statutory arbitration. The amendment tightens this mechanism in two ways.

Jurisdiction Tied to the Supplier’s Registration

Before the amendment, courts had read Section 18(5) as giving jurisdiction to the MSEFC where the supplier is located, regardless of where the buyer sits — but without settling whether the supplier actually had to be registered under the Act to invoke the remedy at all. The amended provision removes that ambiguity: jurisdiction now vests explicitly in the MSEFC (or the mediation/arbitration institution) whose territorial limits cover the supplier’s official address as recorded in its Section 8 registration, wherever in India the buyer happens to be.

Stage-Wise Deadlines

The amendment also imposes, for the first time, hard clocks on the process: the MSEFC must complete mediation within 90 days of the parties’ first appearance, refer an unresolved dispute to arbitration within 30 days of mediation ending, and the arbitrator must render an award within 90 days of the pleadings closing. For suppliers who have watched MSEFC references drag on for years, this is meant to convert Section 18 from a nominal fast-track into an actual one.

Decriminalisation: Warnings Before Penalties

The 2006 Act criminalised several compliance failures — for instance, a buyer’s failure to disclose unpaid MSME dues with interest in its annual accounts, or wilfully furnishing false information at registration — exposing the offender to conviction and fine. The amendment replaces this with a graded civil penalty ladder: a warning for a first violation, a monetary penalty (₹1,000 to ₹50,000, for false registration information) for a second, and escalating fines thereafter, with the penalty band itself rising by 10% every three years from the Amendment Act’s commencement. This tracks a broader decriminalisation trend across recent Indian economic legislation — moving routine, non-fraudulent regulatory lapses out of the criminal justice system and into a penalty framework that regulators can administer without prosecution.

What the Amendment Doesn’t Resolve

Two gaps stand out precisely because the amendment touches almost everything around them.

First, the amended Act says nothing about works contracts — an exclusion from MSME Act coverage that has generated repeated litigation over whether infrastructure and construction-linked MSME suppliers can invoke Section 18 at all. Second, and more consequentially, the new Section 18 timelines carry no stated consequence for the MSEFC or an arbitrator missing them — a deadline without a sanction risks becoming aspirational rather than binding, the same fate that has met timeline provisions elsewhere in Indian procedural law.

More significantly, the amendment does not touch the single largest live controversy hanging over Section 18: whether a buyer can challenge an MSEFC award by filing a writ petition under Article 226, bypassing the Act’s own appellate route under Section 19 (which itself requires a 75% pre-deposit). In M/s India Glycols Limited v. MSEFC, the Supreme Court took a stricter view disfavouring writ petitions; a conflicting line of authority, including Jharkhand Urja Vikas Nigam Ltd. v. State of Rajasthan, allowed them in exceptional circumstances. In January 2025, a three-judge bench referred the conflict to a five-judge Constitution Bench in Tamil Nadu Cements Corporation Ltd. v. MSEFC (2025 INSC 91), with the then-Chief Justice noting that access to writ jurisdiction under Article 226 touches the Constitution’s basic structure. That reference remains pending. Until it is decided, buyers with deep pockets retain a route to slow-walk enforcement of MSEFC awards that no amount of statutory redrafting in 2026 has closed off.

Practical Implications

For MSME suppliers, the amendment’s real-world value depends entirely on notification and implementation: mandatory CPSE-TReDS routing and the Section 18 timelines exist on paper today but bind no one until the government notifies a commencement date. For lawyers advising buyers — particularly CPSEs and large private purchasers — the priority is auditing procurement contracts against the incoming TReDS mandate and the tightened jurisdiction rule, since a supplier can now file where it is registered rather than where the buyer is headquartered, potentially multiplying the fora in which a national buyer faces MSEFC references. For counsel already litigating Section 18 writ petitions, the pending Constitution Bench reference — not this amendment — remains the variable that will actually decide how enforceable an MSEFC award is against a reluctant buyer.

Frequently Asked Questions

Has the MSMED Amendment Act, 2026 come into force yet?

It has received Presidential assent (August 13, 2026) and is a validly enacted law, but its substantive provisions — including the mandatory TReDS requirement and the new Section 18 timelines — take effect only from a date the Central Government notifies separately in the Official Gazette, which had not happened as of this article’s publication.

Does the amendment make MSME registration compulsory?

No — it moves in the opposite direction. Registration on the new national digital platform becomes free and voluntary for all categories, including medium manufacturing enterprises, for which it was previously mandatory.

What is TReDS, and why does it matter for MSMEs?

TReDS (Trade Receivables Discounting System) is an RBI-authorised electronic platform where MSME suppliers can auction their invoices to financiers for early payment at a discount, rather than waiting for the buyer’s credit period to run out. The amendment’s new Section 15A makes routing payments through TReDS mandatory for Central Public Sector Enterprises procuring from MSMEs.

Can a buyer still go to the High Court under Article 226 instead of following the MSEFC’s arbitration process?

That question is unresolved by this amendment and currently sits before a five-judge Constitution Bench of the Supreme Court in the pending Tamil Nadu Cements Corporation reference, following conflicting precedent including M/s India Glycols Ltd. v. MSEFC.

Are MSME Act violations still criminal offences after this amendment?

Several are not. Failures such as furnishing false registration information or a buyer’s non-disclosure of unpaid MSME dues in its annual accounts move to a graded civil-penalty framework — a warning on first violation, then escalating monetary penalties — rather than criminal conviction.

Which MSEFC now has jurisdiction over a payment dispute?

The Council with territorial jurisdiction over the supplier’s registered address under Section 8, regardless of where the buyer is located anywhere in India — a point the amendment clarifies explicitly for the first time.

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