Rajya Sabha passes MSME Amendment Bill, 2026 to tackle delayed payments
The Rajya Sabha passed the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, aimed at improving cash flow, strengthening legal protections, and accelerating payment settlement for MSME suppliers.
The Bill proposes that Central Public Sector Enterprises route settlement of invoices for goods and services procured from MSMEs through a Reserve Bank of India-authorised Trade Receivables Discounting System (TReDS) platform.
It prescribes fixed timelines for dispute resolution: mediation to be completed within 90 days, arbitration to commence within 30 days if mediation fails, and arbitral awards to be issued within 90 days of pleadings being completed.
The Bill also decriminalises certain violations under the existing law, replacing conviction-based fines with graded penalties and warnings for first-time non-compliance, and seeks to strengthen digital registration and compliance for MSMEs.
TReDS — Trade Receivables Discounting System
TReDS is an electronic, RBI-regulated platform that allows MSMEs to convert unpaid invoices (receivables) owed by large buyers, including Central Public Sector Enterprises, into immediate working capital by auctioning them to financiers/banks at a discount. It was conceived to address the chronic delayed-payment problem MSMEs face with larger corporate and government buyers, without the MSME having to wait out long payment cycles.
Key Details
- TReDS was launched under an RBI framework in 2018; currently five platforms are operational — RXIL, M1xchange, Invoicemart, C2treds, and DTX.
- TReDS transactions are "without recourse" — once a financier discounts the invoice, the MSME supplier is not liable if the buyer subsequently defaults.
- A June 2026 notification made TReDS registration mandatory for all Central Public Sector Enterprises for their MSME procurement, and companies with turnover above ₹250 crore are required to register on TReDS platforms.
- Invoice discounting volumes on TReDS rose sharply, from about ₹40,000 crore in FY22 to roughly ₹3.47 lakh crore in FY26, reflecting rapid scale-up of the mechanism.
The 2026 Amendment Bill statutorily embeds the TReDS-routing requirement for CPSE-MSME payments (already administratively mandated by notification) into the MSME Development Act framework, converting an executive mandate into a binding legislative provision and extending the mechanism's reach as a structural fix for delayed payments.
MSMED Act, 2006 — Statutory Payment Timeline (Sections 15, 16, 18)
The Micro, Small and Medium Enterprises Development Act, 2006, already creates a statutory payment-protection mechanism: Section 15 requires a buyer to pay a micro or small enterprise supplier within a period not exceeding 45 days from acceptance (or deemed acceptance) of goods or services. Section 16 makes a defaulting buyer liable for compound interest at three times the RBI-notified bank rate. Section 18 allows the aggrieved supplier to approach the Micro and Small Enterprises Facilitation Council (MSEFC), which is required to decide the reference within 90 days, arbitrating the dispute or referring it onward.
Key Details
- The 45-day payment ceiling and 3x bank-rate penal interest have existed since the 2006 Act; the 2026 Amendment does not alter these but adds new binding timelines at the dispute-resolution stage itself (mediation/arbitration/award).
- Only enterprises classified as "micro" or "small" (not "medium") receive the Section 15–18 payment protections under the existing Act.
- The online MSME Samadhaan portal was created to let micro and small enterprises file delayed-payment complaints, including against government buyers and CPSEs.
Even with the 45-day/interest-penalty framework in place since 2006, disputes reaching the MSEFC or arbitration often stalled for years; the 2026 Bill's fixed mediation-arbitration-award timelines and the TReDS-routing mandate are designed to close this enforcement gap by both preventing payment delay (TReDS) and speeding resolution when disputes do arise.
MSME Classification and Udyam Registration
MSMEs are classified under the MSMED Act by a composite criterion of investment in plant and machinery/equipment and annual turnover, last revised with effect from 1 July 2020. Registration is done through the Udyam Registration portal, a self-declaration-based, paperless, zero-cost online system.
Key Details
- Current classification (2020 revision): Micro — investment up to ₹1 crore, turnover up to ₹5 crore; Small — investment up to ₹10 crore, turnover up to ₹50 crore; Medium — investment up to ₹50 crore, turnover up to ₹250 crore.
- Udyam Registration was launched by the Ministry of MSME on 1 July 2020; registration requires only Aadhaar, PAN, and GSTIN for online verification — no documents need to be uploaded.
- A registered enterprise receives a unique Udyam Registration Number and an e-certificate with a dynamic QR code.
The Bill's stated goal of "strengthening digital registration and compliance" builds on the Udyam framework, since accurate registration data is what allows CPSEs, banks, and TReDS platforms to correctly identify which suppliers are entitled to the Act's payment protections and priority routing.
- Statutory payment period for micro/small enterprise suppliers: 45 days from acceptance/deemed acceptance (Section 15, MSMED Act, 2006).
- Penal interest on delayed payment: compound interest at 3 times the RBI-notified bank rate (Section 16).
- Proposed new timelines: mediation within 90 days; arbitration to commence within 30 days of mediation failure; arbitral award within 90 days of pleadings.
- TReDS launched under RBI framework in 2018; five operational platforms (RXIL, M1xchange, Invoicemart, C2treds, DTX).
- TReDS invoice-discounting volume: about ₹40,000 crore (FY22) to about ₹3.47 lakh crore (FY26).
- MSME classification (2020): Micro ≤ ₹1 cr investment / ₹5 cr turnover; Small ≤ ₹10 cr / ₹50 cr; Medium ≤ ₹50 cr / ₹250 cr.
- Companies with turnover above ₹250 crore are mandated to register on TReDS platforms.