The MSMED Amendment Act, 2026, in Brief
At a glance: Parliament has passed the Micro, Small and Medium Enterprises Development (Amendment) Act, 2026, but it is not in force yet — it takes effect only once notified in the Official Gazette. Once notified, it requires CPSEs to route MSME invoice settlements through an RBI-authorised TReDS platform, sets strict timelines for mediation and arbitration of delayed-payment disputes, ties jurisdiction to the supplier's registered address, adds stronger recovery tools including recognition under the Insolvency and Bankruptcy Code, and reclassifies MSMEs using both investment and turnover.
Date: 29-10-2026
Introduction
1) Parliament has passed the Micro, Small and Medium Enterprises Development (Amendment) Act, 2026. However, it is not in force yet, and will come into force once it is notified in the Official Gazette.
2) The amendments while not yet being in force, their direction is clear, and the changes are significant enough for every MSME and start-up to start preparing now.
3) This Primer is meant to guide you to through the practical effects of these amendments in terms of your businesses.
Supplying to PSUs? Your invoices will move to TReDS
4) The Amendment Act inserts a new section (being Section 15A). This is applicable to all Central Public Sector Enterprise(s) (CPSEs) and requires all CPSEs to route the settlement of invoices for goods or services bought from MSMEs through an RBI-authorised Trade Receivables Discounting System (TReDS) platform. The Central Government can extend this to other authorities and bodies, and State Governments can do the same for State PSEs. These entities will also have to disclose details of MSME invoices routed and settled through TReDS (in accordance with another newly inserted section (being Section 22A).
5) What it means for you: TReDS is an electronic platform for financing or discounting an MSME's trade receivable. Instead of waiting on a PSU payment cycle, you can convert a receivable into cash earlier.
6) What steps you can take: If you sell/cater to CPSEs, you should get onboard on an RBI-authorised TReDS platform at the earliest. This will enable you to factor the discounting and other charges in your current and future transactions.
Delayed-payment disputes get hard deadlines
7) The core payment rules remain the same. However, the amendment introduces strict timelines for enforcement in case of violation of the payment rules, the timelines being as follows:
a) Mediation must be completed within 90 days of the date fixed for first appearance. This specific timeline applies in place of the general one under the Mediation Act, 2023.
b) If mediation fails, the Council must take up arbitration itself, or refer it to an ADR institution, within 30 days of the mediation ending.
c) The arbitral award must be made within 90 days of completion of pleadings.
d) The Central Government may notify an online mechanism for mediation and arbitration, covering video hearings, e-filing of pleadings and recording of evidence.
8) What it means for you: The fixed timelines further reduce the uncertainty of time in enforcement actions, and can result in better capital planning and allocation in case of disputes.
Your registered address becomes your home ground
9) Under the revised Section 18(5), the MSEFC (or mediation service provider or ADR institution)'s jurisdiction shall be determined by the supplier's (i.e. your) official address as per its Section 8 registration. It is pertinent to note that the location of the buyer can be pan-India. Further, any court challenge to the outcome must also be filed before the Court having jurisdiction over the location of the supplier's official address.
10) What it means for you: You have the home advantage i.e. reduced time and expense towards enforcement of your debts. You can expand your area of operations knowing fully well that any enforcement and related actions will be filed in accordance with your official address.
11) What steps can you take: Keep your registered address accurate and current, at all times.
Stronger tools to actually recover the money
12) The Amendment makes various changes to incorporate stronger and more efficient avenues for recovery of dues owed to MSMES. The first one is to insert a new section (being Section 18A), which provides as follows,
a) Recovery as arrears of land revenue: Section 18A empowers the State Government to recover as arrears of land revenue, the debt held payable under a mediated settlement or arbitral award. The State Government can do so either through the District Collector, Deputy Commissioner or notified authority where the buyer's assets are located.
b) Recognised under the IBC: Section 18A further provides that amount so held due under a mediated settlement/arbitral award becomes a valid, legally enforceable debt liable to be recognised under the Insolvency and Bankruptcy Code, 2016.
13) The Amendment has also made two noticeable changes to Section 19, which already a mandated a deposit by the buyer of 75% of the award/decree/order/mediated settlement amount prior to challenging of the same before a Court. It also empowered the court to release a reasonable portion to the supplier while the challenge is pending. The amendments to the section provide further protections are as follows,
a) No free delays: The Amendment provides that if the challenge has been pending for more than six months, the court must pay the supplier at least 50% of the awarded amount from that deposit.
b) Seller's address to determine challenge's jurisdiction: Section 19 now clarifies that the challenges envisaged under section 19 shall be filed at Court where the seller's official (registered) address is situated.
14) What it means for you: A buyer who challenges merely to buy time now has to part with money, and a successful award has more routes to enforcement.
Registration: free, voluntary and digital, but still essential
15) The new Section 8 requires the Centre to notify a national digital platform for free and voluntary registration. States may set up their own platforms for State benefits, and may also extend their scheme benefits to enterprises registered on the national platform.
16) Do not read “voluntary” as optional in practice. The delayed-payment protections (interest, MSEFC reference) are available to a “supplier”, which the Act defines as a micro or small enterprise that has filed its memorandum under Section 8, and the amendment does not change that definition. Jurisdiction is now also linked to your registered address. And wilfully furnishing false information in the registration attracts a penalty.
Classification: investment and turnover, both in the statute
17) The Amendment has re-casted Section 7(1) and now enterprises are to be classified as MSMEs based on both (i) investment in plant and machinery or equipment; and (ii) turnover. The threshold for such classification is to be set by Central Government.
a) This replaces the fixed, investment-only ceilings written into the 2006 Act.
18) What it means for you: You will have to keep a look at both the investment into business as well as growth in turnover, for continued classification as MSME. It is pertinent to check your classification every year, and before you claim any MSME-specific benefit or protection.
More, and better-equipped, Facilitation Councils
19) The Amendment has made changes to sections 20 and 21 of the Act which deal with Facilitation Councils. The relevant changes are as follows,
a) States are enjoined to establish an adequate number of MSEFCs in addition to existing ones and also set the intervals and the procedures for MSEFC proceedings.
b) MSEFC's are required to hold regular sittings, for timely resolution of section 18 references.
c) Each Council will have 3 to 5 members, chaired by an officer not below the rank of Joint Director, with at least one MSE industry association representative and at least one member from the field of law.
20) What it means for you: With more Facilitation Councils, mandatory regular sittings, and unified procedure, the resolution process shall be streamlined, faster and more efficient. Thus registration as MSME's is of utmost importance to seek the benefits of payment resolution via MSEFC's.
Your practical checklist
21) Below is a practical checklist for best practices under the amended MSME Act,
a) Register (or verify your existing registration) and make sure your official address is correct.
b) Check your classification against both investment and turnover.
c) Selling to CPSEs? Get onboarded on a TReDS platform.
d) Keep written payment terms within 45 days, and maintain a clear record of deliveries, acceptances and any written objections.
e) Organise invoices and supporting documents so a reference to the MSEFC can be made quickly if needed.
f) If you are also a buyer of goods/services from MSMEs, make sure your MSME-dues disclosure under Section 22 is in order, in case of audit of accounts.
g) Watch for the commencement notification and the Central and State rules.
Getting ready
22) The amendment gives MSMEs real leverage: faster timelines, local jurisdiction, mandatory deposits and stronger recovery. But that leverage only works for businesses whose registration, contracts and paperwork are in order before a dispute arises.
23) At NoLegalPaisa, we have curated a set of services specifically for MSMEs and start-ups, built around exactly these needs. If you would like to get your business ready for the new regime, explore the MSME offerings in our catalogue.
This article is for general information only and is not legal advice. It is based on the text of the amendment as passed by Parliament, which will take effect only from the date(s) notified by the Central Government and will be supplemented by Central and State rules.
#MSME #Startups #MSMEDAct #DelayedPayments #TReDS #EaseOfDoingBusiness #NoLegalPaisa
Author: Advocate Dimple Rajpurohit (Bombay High Court)
Contact (Admin): info@nolegalpaisa.com
Date: 29-10-2026