MSME Development (Amendment) Bill, 2026 proposes Digital registration, mandatory TReDS, faster dispute resolution and graded penalties

On 28 July 2026, the Micro, Small and Medium Enterprises (MSME) Development (Amendment) Bill, 2026, was introduced in the Rajya Sabha, seeking to amend the MSME Development Act, 2006, in line with technological advancements and the evolving business environment.

The proposed amendment aims to improve access to government benefits, address liquidity concerns of MSMEs, strengthen dispute resolution mechanisms and promote ease of doing business through greater digitalisation,replacement of certain criminal penalties with a graded civil penalty framework and of the expansion of rule-making powers of the Central and State Governments to prescribe the manner and process for implementation.

Key Highlights

1. The Bill amends Section 2 of the MSMED Act, 2006 to introduce the definition of “Development Commissioner” and update certain statutory references.

2. Section 3 is proposed to be amended to replace the existing representative on the National Board with the Development Commissioner.

3. The proposed amendment to Section 7 retains the existing twin criteria of investment in plant and machinery or equipment and turnover.

4. While calculating investment, the Bill proposes to exclude expenditure incurred on the following items to ensure that expenditure on safety, environmental compliance and innovation does not adversely affect an enterprise’s classification:

   • Pollution control equipment;

   • Research and development;

   • Industrial safety devices; and

   • Other items notified by the Central Government.

5. The Bill proposes to substitute Section 8 to provide for a free and voluntary national digital platform for registration of MSMEs. The proposed platform will enable enterprises to file their registration memorandum electronically and avail benefits and also clarifies that enterprises registered on the national platform may receive benefit of separate State digital platforms under State Government.

6. The Bill proposes to insert Section 15A, requiring every Central Public Sector Enterprise (CPSE) to route payments for procurement from MSMEs through the Trade Receivables Discounting System (TReDS), an RBI-authorised electronic platform.

7. The provision also empowers the Central and State Governments to extend the TReDS-based invoice settlement mechanism to other public sector enterprises, authorities, bodies and entities.

8. The Bill proposes amendment in Section 18 to expedite resolution of delayed payment disputes before the Micro and Small Enterprises Facilitation Council (MSEFC) and expand its jurisdiction by allowing it to entertain disputes where the supplier is registered within its territorial jurisdiction, irrespective of the buyer’s location in India.

   Stage	Proposed Timeline
   Completion of mediation	90 days from the first appearance
   Commencement of arbitration after mediation	Within 30 days of termination of mediation
   Making of arbitral award	90 days from completion of pleadings

9. The proposed Section 18(6) empowers the Central Government to establish an online dispute resolution mechanism for mediation and arbitration through audio-video and other electronic means which include:

   • video conferencing;

   • electronic filing of pleadings;

   • electronic communication;

   • recording of evidence; etc.

10. The Bill proposes to insert Section 18A, to enable recovery of mediated settlement agreements and arbitral awards as arrears of land revenue through the District Collector, Deputy Commissioner or any other authority notified by the State Government and such awards shall constitute a legally enforceable debt capable of recognition under the Insolvency and Bankruptcy Code, 2016.

11. The substituted Section 19 retains the requirement of depositing 75% of the awarded amount before challenging an award and where such challenge remains pending for more than six months, the court shall release at least 50% of the deposited amount to the supplier.

    Provision	Proposed change
    Deposit before challenge	75% of awarded amount
    Challenge pending beyond 6 months	Release of minimum 50% to supplier

12. The Bill proposes to substitute Sections 20 and 21 to improve the functioning of Facilitation Councils and provide for:

    • establishment of additional Facilitation Councils by State Governments;

    • regular meetings for timely disposal of references;

    • provision of physical infrastructure, digital systems and trained manpower;

    • a Council comprising three to five members; and

    • mandatory representation from industry associations and the field of law.

13. It also inserts Section 22A, requiring notified Central and State Public Sector Enterprises and other notified entities to disclose details of MSME invoices routed through the TReDS.

14. The Bill proposes a graded penalty mechanism for specified contraventions, replacing the existing conviction-based framework with a compliance-oriented framework and the minimum penalties may be increased by 10% every three years, as notified by the Central Government.

15. The Bill also designates the Development Commissioner as the adjudicating officer, provides a 30-day appeal period and requires appeals to be disposed of within 60 days.

    Contravention	Proposed action
    First instance of non-compliance	Warning
    Second or subsequent non-compliance relating to registration or Section 26	Penalty of ₹1,000 to ₹50,000
    Second contravention of Section 22	Penalty of ₹10,000 to ₹50,000
    Third or subsequent contravention of Section 22	Fine of ₹50,000 to ₹1,00,000