Lok Sabha approves MSME Bill to speed up payments, improve ease of business
The Lok Sabha passed the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026 without debate, completing its passage through Parliament after the Rajya Sabha had approved it on August 3, 2026
The amendment strengthens the administrative and dispute-resolution framework for delayed payments owed to MSMEs by buyers, including large corporates and public sector enterprises
It makes it mandatory for Central Public Sector Enterprises to route all procurement invoices through the Trade Receivables Discounting System (TReDS) to improve MSME cash flow
Payment-dispute mediation must now be completed within 90 days, and courts are required to release at least 50% of a disputed, already-awarded amount to the MSME if an appeal remains pending beyond six months
The Bill also shifts several minor registration and reporting defaults from criminal conviction to graded administrative warnings and monetary penalties
Passage occurred amid continued protests by Opposition members in the House over unrelated issues
The MSMED Act, 2006 — Existing Delayed-Payment Framework
The Micro, Small and Medium Enterprises Development Act, 2006 already contains a statutory mechanism to protect micro and small enterprises (MSEs) against delayed payments from buyers. Section 15 requires a buyer to pay an MSE supplier by the date agreed in writing, or within 45 days of acceptance of goods/services if no date is specified. Section 16 makes a defaulting buyer liable for compound interest, with monthly rests, at three times the bank rate notified by the Reserve Bank of India.
Key Details
- Disputes are adjudicated through Micro and Small Enterprise Facilitation Councils (MSEFCs), with cases filed via the MSME Samadhaan online portal
- The MSMED Act, 2006 already envisages a 90-day timeline for Facilitation Councils to decide delayed-payment cases
- Only manufacturing and service-rendering enterprises registered under Udyam Registration are eligible to file Samadhaan cases — pure trading entities are excluded
The 2026 Amendment Bill builds directly on this existing Section 15/16 framework, adding a hard mediation deadline and a mandatory partial-release requirement during appeals to close enforcement gaps that allowed buyers to delay payment through prolonged litigation.
Revised MSME Classification Criteria (Effective April 2025)
MSMEs are classified on a composite basis of investment in plant and machinery/equipment and annual turnover, a dual-criteria system introduced in 2020. The classification thresholds were most recently revised through a Ministry of MSME notification effective April 1, 2025, raising investment limits by 2.5 times and turnover limits by 2 times across all three categories.
Key Details
- Micro: investment up to ₹2.5 crore, turnover up to ₹10 crore
- Small: investment up to ₹25 crore, turnover up to ₹100 crore
- Medium: investment up to ₹125 crore, turnover up to ₹500 crore
- The revision was intended to let a larger pool of enterprises retain or gain MSME status and access associated government benefits
The broadened 2025 classification thresholds mean more enterprises qualify as MSMEs today, expanding the pool eligible for the delayed-payment protections this Bill strengthens.
TReDS — Trade Receivables Discounting System
TReDS is an RBI-regulated electronic platform, operational since 2017, that lets MSMEs auction trade receivables owed by buyers (including large corporates and public sector enterprises) to a network of financiers/banks, allowing MSMEs to receive payment upfront rather than waiting out the buyer's payment cycle.
Key Details
- TReDS operates on a "reverse factoring" model — financiers bid to discount invoices, and the MSME receives funds without recourse if the buyer subsequently defaults
- Participation by large corporate buyers has historically been voluntary/encouraged rather than compulsory for many categories of buyers
- The RBI licenses and regulates the TReDS platform operators
By making TReDS participation mandatory for Central Public Sector Enterprises specifically, the Bill converts a previously voluntary liquidity channel into a compulsory one for a significant category of MSME buyers.
- Rajya Sabha passage: August 3, 2026; Lok Sabha passage: August 7, 2026
- Interest on delayed MSME payment under Section 16, MSMED Act 2006: compound interest at 3x the RBI-notified bank rate, with monthly rests
- Mandatory mediation timeline introduced by the amendment: 90 days
- Minimum share of disputed award to be released to MSME pending appeal beyond 6 months: 50%
- Revised MSME classification (effective April 1, 2025): Micro ≤ ₹2.5 cr investment / ₹10 cr turnover; Small ≤ ₹25 cr / ₹100 cr; Medium ≤ ₹125 cr / ₹500 cr
- Penalty range for minor registration/reporting defaults (decriminalized): ₹1,000 to ₹1,00,000