Introduction
Parliament has enacted the Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 (Act No. 16 of 2026), which received the assent of the President on 13th August 2026 and was published in the Gazette of India on the same date, whereas few provisions shall come into effect later. Through this notification dated 12.10.2026, provisions of sections 2 to 7 (both inclusive), section 11 and sections 13 to 17 (both inclusive) of the said Act shall come into force on 15.10.2026 and the provisions of section 12 on 15.12.2026. Specifically, these sections are discussed here.
The Amendment Act introduces substantial changes to the Micro, Small and Medium Enterprises Development Act, 2006, with the objective of strengthening the institutional and legal framework governing MSMEs. It seeks to improve the realisation of payments due to MSMEs, promote technology-enabled dispute resolution, establish stricter timelines for mediation and arbitration, strengthen the enforcement of settlement agreements and arbitral awards, and enhance accountability among buyers and public sector entities.
Among its most significant developments are the introduction of mandatory routing of invoice settlements through the Trade Receivables Discounting System (TReDS), establishment of time-bound dispute-resolution procedures, statutory recognition of mediated settlement agreements as enforceable debts, restructuring of Micro and Small Enterprises Facilitation Councils (MSEFCs), and introduction of an adjudication and penalty mechanism for specified statutory contraventions.
Changes in Definitions and Administrative Structure
Section 2(da) of the Act has been amended to introduce the definition of the term “Development Commissioner” which means the administrative head of the Office of Development Commissioner of the Government of India in the Ministry of Micro, Small and Medium Enterprises. The Amendment also modifies certain existing definitions and related provisions to align the administrative structure of the Act with the revised institutional framework.
Section 3 has been amended by substituting “one officer not below the rank of Joint Secretary” with “the Development Commissioner” in the section.
Revised Classification of Micro, Small and Medium Enterprises
Section 7 of the principal Act has been substituted to provide an amended framework for the classification of enterprises. Under the revised provision, the Central Government may, by notification, classify enterprises as micro, small or medium enterprises, having regard to the statutory provisions and subject to such limits as it considers necessary in relation to the following two criteria:
- Investment in plant and machinery or equipment; and
- Turnover.
The Amendment also clarifies the treatment of certain expenditure while calculating investment in plant and machinery. The cost of pollution control, research and development, industrial safety devices and other specified items may be excluded from the calculation of investment, as notified by the Central Government. The amended provision also retains the applicability of Section 29B of the Industries (Development and Regulation) Act, 1951 to the specified enterprises.
Mandatory Routing of Invoice Settlements Through TReDS
One of the most significant changes introduced by the Amendment is the insertion of Section 15A, which provides for mandatory settlement of receivables through the Trade Receivables Discounting System. Under Section 15A(1), every Central Public Sector Enterprise (CPSE), in respect of procurement of goods or services from MSMEs, is required to route the settlement of invoices through a TReDS platform authorised by the Reserve Bank of India. The form and manner of such settlement shall be prescribed by the Central Government.
The provision further authorises the Central Government to notify other authorities, bodies or entities, apart from CPSEs, which will also be required to follow the same mechanism. Similarly, State Governments are empowered to notify State Public Sector Enterprises and other authorities, bodies or entities that must route invoice settlements through TReDS.
For this purpose, the Amendment defines TReDS as an electronic platform facilitating the financing or discounting of trade receivables of MSMEs in accordance with guidelines issued by the Reserve Bank of India from time to time.
Time-Bound Mediation and Arbitration Proceedings
The Amendment substantially revises Section 18 of the principal Act, which deals with the reference of disputes to Micro and Small Enterprises Facilitation Councils. Section 18(3A), the Micro and Small Enterprises Facilitation Council or the mediation service provider, as the case may be, must complete mediation within ninety (90) days from the date fixed for the first appearance.
The Amendment further provides that where mediation is unsuccessful or terminated, the Council shall take the next step for ADR/Arbitration within thirty days from the date of termination of mediation. The newly inserted Section 18(4A) provides that the Council, institution or centre providing alternative dispute-resolution services must make the award within ninety days from the date of completion of pleadings.
Conclusion
The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 introduces a significant restructuring of the legal framework governing MSME payments, dispute resolution and institutional accountability in India. It seeks to strengthen the system through mandatory electronic settlement mechanisms, improved access to invoice financing, time-bound mediation and arbitration, online dispute resolution, stronger enforcement of settlements and awards, and more robust institutional arrangements.
The introduction of Section 15A is particularly important because it seeks to institutionalise TReDS-based invoice settlement for CPSEs and other notified entities. Similarly, the amendments to Section 18 and the insertion of Section 18A seek to make dispute resolution more efficient and outcomes more enforceable.
