MSME Development (Amendment) Bill, 2026

Parliament just decided that many MSME-law violations no longer belong in a criminal court. A fine now does the job a police case once did.

IndEco0218

16 JUN 2006

MSMED Act Assented

The original Act; in force from 2 October 2006

1 JUL 2020

Composite Criteria

Investment and turnover, used together for the first time

3 AUG 2026

Rajya Sabha Passes Bill

Introduced 28 July 2026, passed 3 August

7 AUG 2026

Lok Sabha Passes Bill

The Amendment Bill clears Parliament

Every CPSE, mandatorily: the Bill requires all central public sector enterprises to settle MSME procurement invoices through TReDS.

📑 Contents

Timeline

16 June 2006: The original MSMED Act receives presidential assent, taking effect that October.
1 July 2020: A revised classification takes effect, combining investment and turnover as criteria for the first time.
3 August 2026: The Rajya Sabha passes the MSME Development (Amendment) Bill, 2026.
7 August 2026: The Lok Sabha passes the Bill, clearing Parliament.

The MSMED Act, 2006 is India’s foundational law for micro, small, and medium enterprises. It received presidential assent on 16 June 2006, and took effect on 2 October 2006.
The Act’s original classification used separate criteria for two sectors. Manufacturing enterprises were classified by investment in plant and machinery; service enterprises, by investment in equipment.
From 1 July 2020, this was replaced with a composite criteria of investment and turnover together, applied uniformly, without a manufacturing-versus-services distinction.
The MSME Development (Amendment) Bill, 2026 passed the Rajya Sabha on 3 August, and the Lok Sabha on 7 August.
The Bill empowers the central government to set classification thresholds by notification, rather than fixing them directly in the Act.
It gives statutory recognition to the Udyam Registration Portal. At the same time, MSME registration itself shifts from mandatory, for medium manufacturing firms, to fully voluntary.
A new TReDS mandate requires every central public sector enterprise to settle MSME procurement invoices through the Trade Receivables Discounting System.
The Bill sets firm dispute-resolution timelines. Mediation must conclude within 90 days, and arbitration referral within 30 days of that. An award itself is due within 90 days of pleadings being complete.

When calculating an enterprise’s investment, the Bill now excludes spending on safety, environmental compliance, and innovation. This stops such spending from pushing a firm into a higher MSME category.
The Bill decriminalises several offences, replacing criminal penalties with administrative fines instead.
For false registration information: a first offence gets a warning; later violations carry fines from ₹1,000 to ₹50,000.
For failing to report unpaid dues: a warning first, then ₹10,000-50,000, then ₹50,000-1,00,000 for further violations.
These minimum fine amounts are set to rise automatically, by 10% every three years after implementation.
Courts can now order interim payments to suppliers, while a setting-aside application is pending. If a case has run past six months, this must be at least 50% of the disputed amount.

The Udyam Registration Portal, now given statutory backing, already has its own dedicated coverage. See IndEco0180 — Udyam Registration: Formalising India’s MSMEs.
MSME classification has now evolved through three distinct stages: separate sector-wise criteria (2006), composite investment-and-turnover criteria (2020), and thresholds set flexibly by notification (2026).
Moving from criminal penalties to administrative fines fits a broader government trend. Several other business laws have seen similar decriminalisation in recent years, not MSME law alone.
Making TReDS mandatory for CPSEs addresses a long-standing complaint. Delayed payments from large buyers, including government bodies, have historically strained MSME cash flow.

The MSME Development (Amendment) Bill, 2026 was introduced in the Rajya Sabha on 28 July 2026. (Source: PRS Legislative Research)
The Rajya Sabha passed it on 3 August 2026. The Lok Sabha passed it on 7 August 2026, completing its passage through Parliament. (Source: PRS Legislative Research)
The Bill’s TReDS mandate applies to every central public sector enterprise. Central and State governments may extend the same requirement to other public entities. (Source: PRS Legislative Research)
Its penalty overhaul replaces criminal liability with graded administrative fines. This covers offences like false registration information and failing to report unpaid dues. (Source: PRS Legislative Research)