The Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 comes twenty years after the original MSMED Act, 2006. In these twenty years, the way small businesses function has changed considerably. Digital payments, GST, online procurement, formal lending and technology-based business systems are now common even among smaller enterprises. So, a change in the law was expected. The amendment tries to address some old concerns, particularly delayed payments, registration, classification and dispute resolution. The direction is positive, though a few provisions leave room for discussion.

One such area is classification under Section 7. The new provision gives the Central Government greater freedom to prescribe investment and turnover limits through notification. This makes the law more flexible. There is no need to amend the Act every time the limits require revision. At the same time, classification has practical consequences. It affects eligibility for schemes, procurement benefits, credit support and other protections. A business close to the prescribed limit may suddenly move from one category to another after a notification. Small businesses need flexibility in regulation, but they also need some certainty while planning for the future.

Registration under Section 8 has also changed. The earlier system was based on filing an entrepreneurs' memorandum. The amended law provides for free and voluntary registration through a national digital platform. This is certainly simpler and more suited to the present business environment. Yet, there is a small contradiction. Registration is called voluntary, but in practice it is increasingly necessary for claiming benefits and making use of protections available under the law. For many small entrepreneurs, therefore, voluntary registration may not really remain voluntary in the practical sense.

The insertion of Section 15A is important because it deals with the problem of delayed payments through the Trade Receivables Discounting System, or TReDS. The earlier Act did not contain such a compulsory mechanism for specified transactions. Under the amended framework, Central Public Sector Enterprises are brought within the system, and its scope can be extended further through notification. To truly resolve the liquidity crisis, this mandate must eventually include the private sector, which absorbs the bulk of MSME supplies. Implementing a phased rollout that targets private corporate buyers based on their turnover thresholds would be a pragmatic next step. Such a move would bridge the current regulatory gap and offer comprehensive cashflow security to vulnerable MSME suppliers.

This could help MSMEs improve their cash flow. Delayed payment is a serious issue for small firms. A business may be profitable on paper but still struggle to pay salaries, suppliers or loan instalments because money is locked up in unpaid invoices. But TReDS alone may not solve the entire problem. An invoice still has to be properly raised, verified and accepted by the buyer. If a large buyer delays approval, the small supplier continues to wait. Technology can speed up a process, but it cannot always correct the unequal bargaining position between a small supplier and a large customer.

Section 18 seeks to improve the dispute-resolution system. The older law already provided for Micro and Small Enterprises Facilitation Councils. The amendment now places greater emphasis on mediation, arbitration, electronic proceedings and fixed timelines. This is useful because a small enterprise cannot afford to spend several years recovering money that is already due.

The problem is slightly different. Some of the statutory timelines begin only after stages such as first appearance or completion of pleadings. What happens to the time taken before these stages? For an MSME owner, the legal starting point is less important than the total number of months taken to receive relief. A clearer timeline from the date of filing the complaint until final disposal would perhaps make the process more meaningful.

Section 19 also carries forward an important protection from the old law. A buyer challenging an award is required to deposit 75 per cent of the amount. The amended provision goes further by allowing part of the deposited amount to be released if the challenge remains pending beyond the prescribed period. This can certainly help a small supplier. But here again, implementation will matter. If court proceedings and recovery continue to take a long time, the benefit may not be felt immediately.

The changes relating to Facilitation Councils are also worth noting. The amended law seeks to have an adequate number of Councils and greater legal expertise in their composition. The idea is good. Still, creating more Councils alone will not solve the problem. These institutions also require trained staff, proper digital systems and enough administrative support. A ninety-day deadline looks effective in legislation, but it becomes meaningful only when the institution handling the case has the capacity to meet it.

The revised penalty provisions also raise a small question. The move towards decriminalisation and warnings for some first-time defaults is in line with ease of doing business. That is understandable. However, the law also refers to wilfully furnishing false information. A genuine mistake in a form and a deliberate false statement are not quite the same thing. A simpler compliance regime should not necessarily mean that intentional wrongdoing is treated like an ordinary error.

Overall, the 2026 amendment is a needed revision of an old law. It improves several provisions and tries to make the MSME framework more suitable for the present economy. At the same time, some of the real issues will be settled only through rules, notifications and implementation by the Centre and the States.

For the MSME owner, the test will finally be quite simple. Has registration become easier? Are payments coming faster? Can a dispute be settled before it begins to affect the survival of the business? The success of the new law will depend more on the answers to these questions than on the number of sections that have been amended.

Author Ranjith Krishnan is an Associate Professor at CHRIST University, Delhi NCR & George P.Mathew is the Director of Hanhold Consulting Pvt.Ltd., Kochi. Views are personal.