The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 has received the assent of the President, bringing a series of significant changes to the legal framework governing micro, small and medium enterprises (MSMEs), particularly in the areas of registration, delayed payments, invoice settlement, dispute resolution, enforcement and penalties.

The legislation, enacted as Act No. 16 of 2026, was published in the Gazette of India on August 13, 2026. The Act amends the Micro, Small and Medium Enterprises Development Act, 2006. Importantly, the amendment does not automatically come into force on the date of assent. It provides that the provisions will come into force on such date as the Central Government may appoint by notification in the Official Gazette, and different dates may be appointed for different provisions.

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Major Shift Towards Digital MSME Registration

One of the important changes is the substitution of Section 8 of the principal Act. The amended provision requires the Central Government to notify a national digital platform for the free and voluntary filing of memoranda for registration of micro, small and medium enterprises.

The objective is to enable registered MSMEs to avail themselves of benefits available from the Central Government under the MSMED Act. The amended law also permits State Governments to notify their own digital platforms for free and voluntary registration to enable MSMEs to access applicable State Government benefits.

The amendment further clarifies that State Governments may extend benefits under their schemes to MSMEs registered on the national platform.
This provision gives registration a distinctly digital architecture while retaining its voluntary character.

Government Gets Power to Classify MSMEs Based on Investment and Turnover

The amendment substantially revises the classification framework under Section 7.

Under the substituted provision, the Central Government may, by notification, classify enterprises as micro, small and medium enterprises with reference to two principal criteria:

• investment in plant and machinery or equipment; and
• turnover.

The amended provision also clarifies that certain expenditure, including the cost of pollution-control measures, research and development, industrial safety devices and other specified items, may be excluded while calculating investment in plant and machinery.

The legislation also retains the applicability of Section 29B of the Industries (Development and Regulation) Act, 1951 to enterprises covered by the classification provision.

TReDS Made Central to Settlement of MSME Invoices

One of the most significant changes introduced by the 2026 amendment is the insertion of Section 15A, dealing with settlement of receivables through the Trade Receivables Discounting System (TReDS).

The new provision states that every Central Public Sector Enterprise (CPSE), in respect of procurement of goods or services from MSMEs, shall route the settlement of invoices through a TReDS platform authorised by the Reserve Bank of India.

The Central Government may also notify other authorities, bodies or entities that will be required to follow the same mechanism. Similarly, State Governments may notify State Public Sector Enterprises and other authorities, bodies or entities for routing MSME invoice settlements through TReDS.

The Act defines TReDS as an electronic platform facilitating the financing or discounting of trade receivables of MSMEs in accordance with Reserve Bank guidelines.

The change is significant because it seeks to institutionalise a digital mechanism for handling MSME receivables, potentially providing greater visibility and facilitating financing or discounting of outstanding trade receivables.

Mandatory Reporting of TReDS Compliance

The amendment goes beyond merely requiring invoice settlement through TReDS.

A new Section 22A requires CPSEs and other entities notified by the Central Government to disclose details of MSME invoices routed and settled through TReDS.

A similar disclosure obligation will apply to State Public Sector Enterprises and other entities notified by State Governments.

The form and manner of such disclosures will be prescribed by the respective governments.
This creates an additional compliance and reporting layer for notified buyers dealing with MSME suppliers.

90-Day Deadline for Mediation Before Facilitation Council

The amendment introduces specific timelines into the MSME dispute-resolution mechanism.

Section 18 has been amended to provide that the Micro and Small Enterprises Facilitation Council or the mediation service provider must complete mediation within 90 days from the date fixed for the first appearance.

The amended provision also states that, after termination of mediation, the Council is required to act within 30 days in the manner specified under the Act.

The introduction of a defined mediation timeline is aimed at making the dispute-resolution process more time-bound.

Arbitration Award Also Subject to a 90-Day Timeline

The legislation further introduces a separate time limit for arbitration.

Under the amended Section 18, the Facilitation Council or the relevant alternative dispute resolution institution or centre is required to make the award within 90 days from the date of completion of pleadings.

The provision applies notwithstanding anything contained in any other law for the time being in force.

Thus, the amended framework creates two important timelines: a 90-day period for mediation from the first appearance and a 90-day period for making the arbitral award from completion of pleadings.

Online Mediation and Arbitration Framework

The amendment also provides a statutory basis for an online dispute-resolution mechanism.

The Central Government may establish an online mechanism for conducting mediation or arbitration through audio-video and other electronic means.

The legislation specifically contemplates electronic filing of pleadings, communication, recording of evidence, transmission of electronic communications and video conferencing for arbitral proceedings and related matters. The detailed procedure will be prescribed by the Central Government.

This provision potentially allows MSME payment disputes to be handled digitally without requiring every participant to physically appear before the dispute-resolution forum.

Jurisdiction Linked to Supplier’s Official Address

Another significant change concerns territorial jurisdiction.

The amended Section 18 provides that the Facilitation Council, mediation service provider or ADR institution or centre will have jurisdiction in a dispute between an MSME supplier whose official address, as per its Section 8 registration, falls within the Council’s jurisdiction and a buyer located anywhere in India.

The amendment therefore gives particular importance to the supplier’s registered official address for determining jurisdiction in MSME disputes.

Mediated Settlements and Arbitral Awards Can Be Recovered as Land Revenue

The amendment inserts a new Section 18A, significantly strengthening enforcement of outcomes under the MSME dispute-resolution mechanism.

A mediated settlement agreement or arbitral award made under Section 18 may be recovered as an arrear of land revenue by the State Government through the District Collector, Deputy Commissioner or another authority notified by the State.

Such recovery can be pursued in the State where the buyer’s assets are located.

The Act further provides that the amount determined under the mediated settlement agreement or arbitral award constitutes a valid and legally enforceable debt and is liable to be recognised under the Insolvency and Bankruptcy Code, 2016.

This represents a major enforcement provision for MSME suppliers seeking recovery of amounts determined through the statutory dispute-resolution process.

75% Pre-Deposit Requirement Retained and Clarified

The substituted Section 19 continues a stringent pre-deposit requirement for buyers challenging an MSME award or mediated settlement agreement.

No application for setting aside a decree, award, other order or mediated settlement agreement under Section 18 can be entertained by a court unless the applicant, other than the supplier, has deposited 75% of the amount payable under the award or mediated settlement agreement.

The court may direct payment of an appropriate portion of the deposited amount to the supplier while the challenge remains pending. If the application remains pending for more than six months, the court is required to order payment to the supplier of at least 50% of the awarded amount from the deposited sum.

The amendment also provides that such an application is to be filed before the court having jurisdiction where the official address of the supplier is located.

More Facilitation Councils to Be Established

The amended Section 20 requires State Governments to establish an adequate number of Micro and Small Enterprises Facilitation Councils, in addition to existing Councils, at locations and for areas specified by notification.

The Councils are required to meet regularly for timely resolution of references under Section 18.

States may also provide infrastructure, digital systems and trained manpower necessary for effective and timely disposal of references.

The provision is aimed at addressing institutional capacity and ensuring that the statutory dispute-resolution mechanism is supported by adequate administrative and technological resources.

Facilitation Council to Include Legal Member

The composition of the Facilitation Council has also been changed.

Each Council will consist of not less than three and not more than five members. The composition must include:

1. an officer not below the rank of Joint Director as Chairperson;
2. one or more office-bearers or representatives of associations of micro or small industry or enterprises; and
3. at least one member from the field of law.

The remaining details concerning composition, vacancies and procedure will be prescribed by the State Government.

The mandatory inclusion of a legal member is particularly relevant given the enhanced adjudicatory, mediation and arbitration functions of the Facilitation Councils.

Penalties for False Registration Information and Non-Compliance

The amended law also introduces a revised penalty structure.

A person who wilfully furnishes false information in the registration memorandum or fails to comply with the specified statutory requirement will receive a warning for the first instance of non-compliance.

For a second or subsequent instance, the penalty will be not less than ₹1,000 and may extend to ₹50,000.

The framework therefore moves from an initial warning towards monetary consequences for repeated non-compliance.

Buyers Face Escalating Penalties for Contravention

The amended Act also introduces a graded penalty structure for buyers who contravene the relevant disclosure requirement.

For the first instance, the buyer will be warned.

For a second contravention, the buyer may face a penalty ranging from ₹10,000 to ₹50,000.

For a third or subsequent contravention, the buyer may be liable to a fine ranging from ₹50,000 to ₹1 lakh.

The minimum penalty amounts are also to increase by 10% after every three years from commencement of the 2026 amendment, as may be notified by the Central Government.

Development Commissioner Made Adjudicating Officer

The amended legislation assigns an important enforcement role to the Development Commissioner.

For adjudicating penalties under Section 27, the Central Government is required to appoint the Development Commissioner as the adjudicating officer.

However, no penalty can be imposed without providing the concerned person a reasonable opportunity of being heard.

This introduces an expressly structured adjudication process for penalties under the MSMED framework.

30-Day Appeal Against Penalty Orders

A person aggrieved by an order of the adjudicating officer may appeal to the Secretary to the Government of India in charge of the Ministry or Department having administrative control over MSMEs.

The appeal must ordinarily be filed within 30 days from receipt of the order.

A delayed appeal may be admitted where sufficient cause is demonstrated. The appellate authority is required to dispose of the appeal within 60 days from the date of filing.

If the penalty imposed by the adjudicating officer or appellate authority is not deposited, it may be recovered as an arrear of land revenue.

Rules and Regulations to Operationalise the New Framework

Several provisions of the amendment leave operational details to rules or regulations to be prescribed by the Central or State Governments.

These include the manner of MSME registration, TReDS invoice settlement, online mediation and arbitration, disclosure of invoice details, penalty adjudication and appeals.

The amendment correspondingly expands the rule-making framework under Sections 29 and 30 of the principal Act.

Consequently, the practical implementation of several provisions will depend upon the notifications, rules and procedures subsequently issued by the competent governments.

Existing Actions and Notifications Saved

The amendment contains a saving provision to protect actions already taken under the principal Act.

Anything done, any action taken or any notification issued under the existing MSMED Act will continue to remain in force, to the extent it is consistent with the amended legislation, until revoked. Such actions will be treated as having been undertaken under the corresponding provisions of the principal Act as amended by the 2026 legislation.

What the MSMED Amendment Act, 2026 Means for Businesses

The 2026 amendment represents a substantial restructuring of the MSME compliance and dispute-resolution framework.

For MSME suppliers, the major implications include greater emphasis on digital registration, a strengthened mechanism for recovery of mediated settlements and arbitral awards, defined timelines for dispute resolution, online proceedings and the possibility of recovery through the land-revenue mechanism.

For government-owned and notified buyers, the most significant changes relate to routing eligible MSME invoice settlements through TReDS and disclosure of such transactions.

For buyers challenging MSME awards, the 75% pre-deposit requirement remains a critical procedural hurdle, while the amended provisions also strengthen the supplier’s ability to receive a portion of the deposited amount during prolonged litigation.

For MSME Facilitation Councils, the amendment introduces statutory timelines, expands institutional capacity, provides for online proceedings and requires the inclusion of a legal member.

Key Takeaways

The principal changes introduced by the Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 can be summarised as follows:

Conclusion

The MSMED (Amendment) Act, 2026 places particular emphasis on faster MSME payment mechanisms, digital compliance, time-bound dispute resolution and stronger enforcement. The introduction of mandatory TReDS-based settlement for CPSEs and notified entities, 90-day timelines for mediation and arbitration, online dispute-resolution mechanisms and enhanced recovery provisions marks a significant shift in the statutory framework.

At the same time, the new penalty and adjudication mechanism creates additional compliance responsibilities for both MSMEs and buyers. Since the Act will come into force through government notification and different provisions may commence on different dates, the next stage will be the issuance of the necessary notifications, rules and procedures that will determine how the amended framework operates in practice.

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