The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, could bring a significant change in payment discipline across the MSME sector by introducing time-bound dispute resolution and stronger enforcement mechanisms, potentially creating an impact similar to the Insolvency and Bankruptcy Code (IBC), according to a research report by Crisil Intelligence.
The Bill seeks to address the longstanding problem of delayed payments to micro and small enterprises by prescribing clear timelines for resolving disputes through Micro and Small Enterprises Facilitation Councils (MSEFCs). The proposed framework is aimed at ensuring that delayed-payment disputes do not remain unresolved for prolonged periods, thereby helping MSMEs recover dues and improve their working-capital position.
Under the proposed mechanism, mediation would have to be completed within 90 days from the date fixed for the first appearance. If mediation fails, the dispute would be referred to arbitration within 30 days, while an arbitral award would be required within 90 days of completion of pleadings.
The scale of delayed payments highlights the importance of the proposed changes. As of August 14, 2026, data from the MSME Samadhaan portal showed that micro and small enterprises had filed 2,56,892 applications involving delayed payments worth Rs 55,244 crore. Claims amounting to Rs 20,979 crore were still pending.
Around 40,580 applications, or nearly 16 per cent of the total, had remained unresolved for more than a year. This indicates the extent of working capital that remains locked up because of delayed or disputed receivables.
“By introducing time-bound dispute resolution for individual stages, strengthening the enforceability of awards and enhancing the role of facilitation councils, the Bill can improve payment discipline and unlock working capital across the MSME sector,” Pushan Sharma, Director, Crisil Intelligence, said.
Sharma said the proposed framework could have an effect similar to the IBC, which helped strengthen credit discipline by creating greater consequences for prolonged defaults. However, he noted that the success of the MSME legislation would ultimately depend on effective implementation and the capacity of institutions responsible for resolving disputes.
The Bill also seeks to give states greater flexibility in determining the composition of facilitation councils. This could allow additional councils to be established in areas facing heavy workloads, potentially improving access to dispute-resolution mechanisms and reducing backlogs.
Crisil Intelligence, however, highlighted the need for significant investment in institutional capacity. Adequate infrastructure, trained mediators and arbitrators, and robust digital systems would be essential for councils to comply with the prescribed timelines.
The proposed legislation also seeks to strengthen the position of MSMEs when buyers challenge MSEFC awards. Buyers would be required to deposit 75 per cent of the award amount before filing a challenge. Further, at least 50 per cent of the deposited amount could be released to the MSME if proceedings remain pending for more than six months.
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The Bill also proposes that mediated settlements and arbitral awards could be recovered as arrears of land revenue. Such awards would additionally be recognised as legally enforceable debt under the insolvency framework, strengthening the ability of MSMEs to recover outstanding dues.
Crisil Intelligence noted that council workloads vary considerably across states, making institutional strengthening particularly important. Without adequate staffing and digital monitoring, even clearly defined statutory timelines could prove difficult to enforce.
The Bill was passed by Parliament earlier this month. If supported by adequate staffing, strict adherence to timelines, effective enforcement and stronger digital systems, the legislation could become a landmark reform for India's MSME ecosystem.
By reducing delays in dispute resolution and improving the enforceability of awards, the proposed framework could release substantial working capital currently locked in receivables and encourage a stronger culture of timely payments across the business ecosystem.
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