MSMED (Amendment) Act, 2026: 90-day mediation and award timelines, 75% pre-deposit to challenge awards, CPSEs to settle MSME invoices on TReDS — commencement yet to be notified
The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 (No. 16 of 2026) received the President’s assent on 13 August 2026. It sets time limits for delayed-payment disputes, lets awards be recovered as arrears of land revenue, requires Central PSEs to settle MSME invoices through TReDS and replaces penal provisions with graded penalties. It comes into force on dates the Central Government notifies.
Key facts
- Published
- 13 August 2026
- Section
- Startup & MSME
- What it is
- Action needed
- In force
- Not yet notified — in force on date(s) the Central Government appoints by notification (section 1(2))
- Who it affects
- Micro, small and medium enterprises, buyers of goods and services from MSMEs, Central and State public sector enterprises, MSE Facilitation Councils, TReDS platforms
In 30 seconds
- Passed by the Rajya Sabha on 3 August 2026 and the Lok Sabha on 7 August 2026 (MSME Ministry release); assent on 13 August 2026 (Gazette).
- Section 1(2): the Act comes into force on such date as the Central Government appoints by notification; different dates may be appointed for different provisions.
- Section 18: mediation within 90 days of the date fixed for first appearance; reference to arbitration within 30 days; award within 90 days of completion of pleadings.
- New section 19: a buyer must deposit 75% of the award before applying to set it aside; if the application is pending over six months, at least 50% of the award is to be paid to the supplier.
- New section 15A: every Central Public Sector Enterprise to route settlement of invoices for MSME procurement through an RBI-authorised TReDS platform.
- New section 27: warning at the first instance, then penalties — up to ₹1 lakh for a buyer’s third or subsequent contravention of section 22.
हिंदी में सार
MSMED (Amendment) Act, 2026 (2026 का अधिनियम सं. 16) को 13 अगस्त 2026 को राष्ट्रपति की मंज़ूरी मिली, पर यह उसी तारीख से लागू होगा जो केंद्र सरकार अधिसूचित करेगी। विलंबित भुगतान के विवाद में मध्यस्थता 90 दिन में और अवार्ड pleadings पूरी होने के 90 दिन में देना होगा; अवार्ड को चुनौती देने से पहले खरीदार को 75% रकम जमा करनी होगी। केंद्रीय सार्वजनिक उपक्रमों को MSME के बिलों का निपटान TReDS से करना होगा।
From Bill to Act
The Ministry of MSME announced on 7 August 2026 that the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026 had been passed by the Lok Sabha that day, after the Rajya Sabha passed it on 3 August 2026. The Gazette of India shows that it received the President’s assent on 13 August 2026 and was published as Act No. 16 of 2026.
It is not yet shown to be in force. Under section 1(2), the Act comes into force on such date as the Central Government may appoint by notification in the Official Gazette, and different dates may be appointed for different provisions. Neither document mentions a commencement notification.
What the Act changes
| Provision of the MSMED Act, 2006 | What the amendment provides |
|---|---|
| Section 7(1) — classification | The Central Government may classify enterprises as micro, small and medium by limits on both criteria: investment in plant and machinery or equipment, and turnover |
| Section 8 — registration | The Central Government shall notify a national digital platform for “free and voluntary filing of memorandum for registration”; a State may notify a State digital platform |
| Section 15A (new) — TReDS | Every Central Public Sector Enterprise shall route settlement of invoices for goods or services procured from MSMEs through a Trade Receivables Discounting System platform authorised by the Reserve Bank. The Centre and States may notify other bodies and State PSEs; invoices so settled are to be disclosed (section 22A) |
| Section 18 — disputes | Mediation to be completed within 90 days from the date fixed for first appearance; the Council to refer the matter to arbitration within 30 days of termination of mediation; award within 90 days from completion of pleadings. Jurisdiction follows the supplier’s registered official address, with the buyer located anywhere in India. The Centre may establish an online mediation and arbitration mechanism |
| Section 18A (new) — enforcement | A mediated settlement agreement or arbitral award may be recovered as an arrear of land revenue through the District Collector, Deputy Commissioner or other notified authority where the buyer’s assets are located. The amount is a valid and legally enforceable debt, liable to be recognised under the Insolvency and Bankruptcy Code, 2016 |
| Section 19 — challenge | No court shall entertain an application to set aside unless the applicant (not being a supplier) has deposited 75% of the amount. If the application is pending for more than six months, the court shall order payment to the supplier of at least 50% of the amount awarded. The application lies where the supplier’s official address is located |
| Sections 20 and 21 — Facilitation Councils | States shall establish an adequate number of Councils in addition to the existing one. Each Council: three to five members, chaired by an officer not below Joint Director, with industry-association representation and at least one member from the field of law |
Penalties instead of conviction
The Ministry describes the change as decriminalisation. Under the substituted section 27:
- Wilfully false information in the registration memorandum, or failure to comply with section 26(2): a warning at the first instance; a penalty of ₹1,000 to ₹50,000 for second or subsequent instances.
- A buyer contravening section 22: a warning first; a penalty of ₹10,000 to ₹50,000 for the second contravention; a fine of ₹50,000 to ₹1 lakh for the third or subsequent contravention.
The Development Commissioner adjudicates (section 27A); an appeal lies to the Secretary of the Ministry within 30 days.
What suppliers and buyers should do
Watch for the commencement notification and the rules to be prescribed. Buyers from micro and small enterprises should note the 75% deposit and the land-revenue recovery route. Suppliers should keep their registration address current, since it will decide which Council and which court has jurisdiction.
Questions and answers
Is the MSMED (Amendment) Act, 2026 in force?
The Act received assent on 13 August 2026. Section 1(2) says it shall come into force on such date as the Central Government may appoint by notification in the Official Gazette, and different dates may be appointed for different provisions. The Act and the Ministry’s release do not mention a commencement notification.
What are the new time limits for delayed-payment disputes?
Under amended section 18, mediation is to be completed within 90 days from the date fixed for first appearance, the Council is to refer the matter to arbitration within 30 days from termination of mediation, and the award is to be made within 90 days from the date of completion of pleadings.
How much must a buyer deposit to challenge an award?
Under the substituted section 19, no application for setting aside shall be entertained unless the applicant, not being a supplier, has deposited 75% of the amount in terms of the award or mediated settlement agreement. If the application has been pending for more than six months, the court shall order payment to the supplier of at least 50% of the amount awarded from that deposit.
Who has to use TReDS?
New section 15A requires every Central Public Sector Enterprise to route the settlement of invoices for procurement from micro, small and medium enterprises through a TReDS platform authorised by the Reserve Bank, in the form and manner to be prescribed. The Central and State Governments may notify other bodies and State public sector enterprises.
How can an award be recovered?
New section 18A provides that the mediated settlement agreement or arbitral award may be recovered as an arrear of land revenue by the State Government through the District Collector, Deputy Commissioner or other notified authority where the buyer’s assets are located.
Published 13 August 2026. Updated 4 October 2026. This report is for general information and is not professional advice. Read the source document before acting on it.