The Centre has proposed sweeping changes to the Micro, Small and Medium Enterprises (MSME) Development Act, 2006, with a focus on improving cash flows, reducing payment delays and simplifying regulatory compliance for small businesses.
The MSME Development (Amendment) Bill, 2026, introduced in Parliament, proposes mandatory digital invoicing for payments by Central Public Sector Undertakings (PSUs), a new national registration platform, faster dispute resolution and the decriminalisation of certain offences under the existing law.
One of the key provisions in the Bill mandates that all invoices raised by MSMEs on Central PSUs be routed through the Trade Receivables Discounting System (TReDS) platform, according to the proposed legislation.
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State governments may notify similar requirements for their own public sector undertakings. The move is aimed at improving liquidity for MSMEs by ensuring quicker access to working capital and reducing payment delays. The Bill also proposes a free, national digital registration platform for MSMEs to streamline registration and make access to government schemes easier.
To strengthen grievance redressal, the proposed law requires states to establish additional MSME Facilitation Councils to ensure faster resolution of payment-related disputes.
In another significant change, buyers challenging an award passed in favour of an MSME may be required to release at least 50% of the awarded amount if the legal challenge remains pending for more than six months, according to the Bill. Courts will also be empowered to direct payments from the amount deposited during the appeal process, a provision intended to ease cash flow pressures on small businesses.
The proposed legislation further seeks to decriminalise certain offences by replacing criminal fines with graded monetary penalties and warnings. It also introduces an appellate mechanism for businesses to challenge penalties.
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The composition of MSME Facilitation Councils has also been rationalised. Under the Bill, councils will comprise three to five members, with the inclusion of a legal expert becoming mandatory.
The proposed amendments are aimed at making the MSME ecosystem more efficient by improving access to finance, strengthening dispute resolution and reducing the compliance burden, while retaining safeguards for businesses, according to the provisions of the Bill.
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