By Shishir Prashant 
PrashantNews
The Lok Sabha has passed the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, aimed at strengthening the legal framework for the MSME sector, improving ease of doing business and addressing the long-standing issue of delayed payments to micro and small enterprises.
The Bill which was passed on Friday came as the Micro, Small and Medium Enterprises Development Act, 2006 completes 20 years. The government said the MSME landscape has undergone significant changes due to technological advancements, digital systems and a changing legal environment, necessitating amendments to the existing law. The Rajya Sabha has already passed the bill.
According to the government, the number of MSMEs registered on the Udyam portal has increased sharply from 1.65 crore as of April 1, 2023, to 9.16 crore currently. The sector provides employment to more than 40 crore people and is regarded as a key pillar of the Indian economy.
One of the major changes is the incorporation of the twin criteria of investment in plant and machinery and turnover for MSME classification in the Act. The amendment also gives permanence to the Udyam Registration Portal as a free, digital and voluntary registration platform.
The Bill seeks to tackle delayed payments through Online Dispute Resolution (ODR) and introduces specific timelines for resolving disputes. Mediation will have to be completed within 90 days from the date fixed for the first appearance, followed by arbitration within 30 days if mediation fails. The award is required to be made within 90 days from completion of pleadings.
The amendments also strengthen recovery mechanisms. Mediated settlement agreements and arbitral awards under the Act can be recovered as arrears of land revenue through the District Collector, Deputy Commissioner or other notified authority in the jurisdiction where the buyer’s assets are located.
To improve liquidity for MSMEs, all Central Public Sector Enterprises (CPSEs) will be required to route invoice settlements for goods and services procured from MSMEs through the Trade Receivables Discounting System (TReDS) platform. The government said invoice discounting through TReDS has risen from around Rs 40,000 crore in 2022-23 to Rs 3.47 lakh crore in 2025-26.
The amendment also allows states greater flexibility in constituting Micro and Small Enterprises Facilitation Councils (MSEFCs), enabling multiple councils to be established for faster disposal of payment disputes.
In another major reform, several penal provisions have been decriminalised, replacing conviction-based penalties with graded civil penalties. First-time violations in specified cases will attract warnings, followed by penalties for subsequent violations.
The government said the amendments will promote formalisation, scaling-up and compliance among MSMEs and support the vision of Viksit Bharat@2047 through inclusive, sustainable and employment-intensive economic growth.