Parliament has enacted the Micro, Small and Medium Enterprises Development (Amendment) Act, 2026, amending the MSMED Act, 2006 — the statute that underpins the delayed-payment remedy MSE suppliers use against defaulting buyers. The Bill was passed by the Rajya Sabha on 3 August 2026 and by the Lok Sabha on 7 August 2026, and was published in the Gazette in mid-August 2026; its provisions take effect on the date or dates notified by the Central Government. The amendments introduce fixed timelines for the facilitation-council process, a materially stronger recovery mechanism for awards, a mandate to settle public-sector invoices through TReDS, and decriminalisation of minor compliance lapses. Suppliers and buyers alike should understand the new architecture before the notified provisions begin to apply to live disputes.
Why the amendment was needed
The delayed-payment chapter of the MSMED Act, 2006 — Sections 15 to 25 — gave micro and small enterprises a powerful remedy on paper: statutory interest on payments delayed beyond the agreed period or forty-five days, and a facilitation-council process of conciliation followed by arbitration. In practice, references before facilitation councils frequently outlived the statutory expectation of decision within ninety days, and even a successful supplier faced the long road of enforcement and a buyer\'s challenge. The 2026 amendment addresses precisely these pressure points: the pace of the process, the teeth of the award, and the cash-flow of the supplier while a challenge is pending.
The headline changes
Old process and new, side by side
Reference to the facilitation council; conciliation, then arbitration by or through the council; a 90-day expectation for decision honoured mostly in the breach; enforcement through execution as a decree; 75% pre-deposit on challenge, with release to the supplier discretionary.
Mediation within 90 days; arbitration referral within 30 days; award generally within 90 days of pleadings; recovery additionally as arrears of land revenue through the Collector; mandatory release of at least 50% to the supplier where the challenge is pending past six months.
What suppliers should do now
Verify registration. Ensure Udyam registration is current and reflects the correct classification, since access to the machinery is anchored to it.
Track commencement notifications. The applicable regime for a reference will depend on which provisions stand notified when it is filed; disputes straddling the transition should be assessed on both frameworks.
Paper the invoice trail. The compressed timelines reward suppliers whose references arrive complete — purchase orders, invoices, delivery proof, acceptance or deemed-acceptance dates, and the interest computation.
What buyers should do now
Buyers — particularly companies subject to the disclosure and tax-disallowance regimes for MSME dues — should treat the amendment as the end of delay-by-litigation as a working-capital strategy. A challenge to an award will now cost 75% up front and at least half the award in six months regardless of outcome, while an unchallenged award can be recovered through the Collector. Contract terms, acceptance procedures and payment cycles for MSE vendors deserve review before the notified provisions begin to bite, and disputes worth fighting should be fought early, in the mediation window, where commercial solutions remain available.
This note summarises the amendment as officially reported at passage. The section-by-section text and the commencement notifications should be consulted for the operative detail as they are brought into force.
Frequently Asked Questions
Is the MSMED (Amendment) Act, 2026 already in force?
The Act has been passed by both Houses and published in the Gazette, but its provisions come into force on the date or dates separately notified by the Central Government. Until a provision is notified, references and challenges continue under the existing MSMED Act framework, so the applicable regime must be checked for each dispute.
What are the new timelines in the facilitation-council process?
As reported in the official summary of the amendment, mediation of a delayed-payment reference is to be completed within 90 days, with referral to arbitration within 30 days if it fails, and the arbitral award is generally to be rendered within 90 days from completion of pleadings — a marked compression of a process that has often run for years.
How will awards be recovered under the amended Act?
Settlements and arbitral awards under the delayed-payment mechanism become recoverable as arrears of land revenue, through the District Collector or other notified authority having jurisdiction over the buyer's assets — an administrative recovery channel considerably swifter than execution proceedings before civil courts.
Does the 75% pre-deposit for challenging an award continue?
Yes, the pre-deposit discipline for a buyer challenging an award continues, and the amendment strengthens the supplier's position during the challenge: where the buyer's application remains pending beyond six months, the court is required to order release of at least 50% of the awarded amount to the supplier.