NEW DELHI: The Centre introduced the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, in the Rajya Sabha on 28 July, aimed at reducing challenges faced by small businesses due to delayed payments by their buyers.
The bill proposes setting up additional state government-run dispute resolution centres, strict adherence to timelines in dispute resolution and ways to ensure that MSMEs do not face working capital shortages amid ongoing disputes.
Quicker resolution of delayed payments complaints could strengthen the position of MSMEs, a sector that contributes 31% of India’s GDP. Mint explains what the problem is and how the bill aims to counter it.
What is the longstanding delayed payments problem?
India has about 90 million micro, small and medium enterprises (), many of which are suppliers to larger businesses. However, these procurers often delay payments to their MSME suppliers.
Under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), a payment is considered delayed when it is not made within 15 days (or the agreed period, not exceeding 45 days) from the date of acceptance or deemed acceptance of goods or services.
Complaints of are made to micro and small enterprises facilitation councils (MSEFCs). There were 161 MSEFCs in India as of March 2025, the latest figure available.
Data from the MSME Samadhaan portal for monitoring delayed payments showed that 106,720 cases have been filed since 2017 for delayed payments worth ₹31,617 crore. The FY26 Economic Survey estimated about ₹8.1 trillion of delayed payments to MSMEs.
According to the Economic Survey, MSME often don’t file a delayed payment case against a buyer, fearing it may strain or even damage the business relationship. Buyers may perceive the filing as an adversarial step and may stop placing new orders or discontinue the partnership.
“Since MSMEs rely heavily on long-term commercial ties, the fear of losing future business prevents them from pursuing legal options, even when large dues remain pending,” the Economic Survey said.
When an MSME complains to the MSEFC, the council authenticates the issue, and on approval, recommends it for conciliation or mediation. If this is not successful, arbitration follows. The aim is to keep these cases out of already burdened courts, with 31.15 million criminal cases and 6.13 million civil suits pending in the district courts.
What does the amendment bill propose?
The bill allows state governments to increase the number of MSEFCs, as per the requirements of regions.
It gives the central and state governments the power to set up a digital platform for MSME registration.
It stipulates that the mediation service provider (including MSEFCs) must complete the process within 90 days of the date fixed for the first appearance.
A new clause calls for the arbitral award—the decision in arbitration—to be pronounced in under 90 days from the conclusion of pleadings.
A major change is in Section 19 of the act, which deals with pleas to set aside arbitral awards or decrees or mediated settlements. It proposes that if a business wants a court to declare the results of arbitration or mediation as unenforceable, it has to first deposit 75% of the value of the award. If it takes more than six months to decide such a challenge, the court may pay at least 50% of the amount deposited to the MSME.
“Extending MSEFC jurisdiction to both government and private procurers, coupled with strict timelines and the mandatory 75% pre-deposit for appeals, significantly strengthens MSME recovery by ensuring quicker enforcement and reducing payment risks,” said Gauhar Mirza, a partner at Saraf and Partners, a New Delhi-based law firm.
MSMEs usually face adverse conditions, especially related to working capital shortages, if a dispute drags on in court. Working capital shortages impact daily business operations, making the pre-deposit a deterrent for court appeals by larger procurers.
What are the objectives of the MSMED Act created two decades ago?
Before the MSMED Act, 2006, small-scale industries were mainly governed by the Industries (Development and Regulation) Act, 1951, which focused on manufacturing enterprises. The MSMED Act replaced this limited framework by introducing a comprehensive law that, for the first time, recognized and provided legal support and benefits to service sector MSMEs alongside enterprises.
The MSMED Act has two key operational pillars: it provides a statutory mechanism for micro, small, and medium enterprises to recover delayed payments and it classifies them based on investments in plant and machinery or equipment and annual turnover.
Until FY25, the limits were ₹1 crore investment and ₹5 crore turnover for micro enterprises, ₹10 crore and ₹50 crore for small enterprises, and ₹50 crore and ₹250 crore for medium enterprises. They were revised to ₹2.5 crore and ₹10 crore for micro enterprises, ₹25 crore and ₹100 crore for small enterprises, and ₹125 crore and ₹500 crore for medium enterprises.