The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, seeks to enforce strict timelines and digital support to resolve delayed payments, potentially replicating the success of the Insolvency and Bankruptcy Code in transforming credit discipline in India’s MSME sector.
India’s government is betting that a new law can do for delayed payments to micro, small and medium enterprises what the Insolvency and Bankruptcy Code once did for credit discipline: force slower payers to move faster. Crisil Intelligence said the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026 could become a turning point if it is implemented with enough rigour, staffing and digital support.
The bill, introduced in the Rajya Sabha and passed by Parliament earlier this month, is designed to give disputes a strict timetable. According to Business Standard and Mint, mediation before Micro and Small Enterprises Facilitation Councils would have to finish within 90 days of the first appearance, after which failed cases would move to arbitration within 30 days. Arbitral awards would then need to be issued within 90 days after pleadings conclude.
Crisil’s intelligence arm said the need for reform is clear from the scale of unpaid dues. MSME Samadhaan data cited in the report showed that by August 14 micro and small enterprises had filed 256,892 applications over delayed payments worth Rs 55,244 crore, with claims worth Rs 20,979 crore still pending. About 40,580 applications had been unresolved for more than a year, indicating that a sizeable amount of working capital remains locked up in overdue receivables.
Pushan Sharma, director at Crisil Intelligence, said stronger timelines, better enforceability and a larger role for facilitation councils could improve payment discipline and free up capital across the sector. He compared the potential effect with the IBC, which helped change behaviour in India’s credit markets, while noting that the new framework will work only if institutions can actually deliver on the deadlines.
The bill also seeks to widen access to redress by giving states more flexibility over the composition of facilitation councils, potentially allowing more councils to be set up. Crisil said that will only matter if it is matched by investment in trained mediators and arbitrators, stronger infrastructure and more robust digital systems to track cases and deadlines.
According to the legislative summaries, the proposal would also strengthen MSME protection when buyers challenge council awards. Buyers would have to deposit 75% of the award before challenging it, and at least half of that deposit could be released to the MSME if the case drags on for more than six months. Mediated settlements and arbitral awards could also be recovered as arrears of land revenue and treated as legally enforceable debt under the insolvency framework.
Crisil’s broader research has long pointed to delayed payments as a major drag on the sector. In a February report, it said India’s MSME universe comprises more than 7.6 crore businesses and contributes roughly 30% of GDP, while unpaid dues were estimated at Rs 8.1 lakh crore. Data from Business Standard also suggests the problem remains stubborn: although complaints have fallen from earlier years, the disposal rate on the Samadhaan portal has slipped to just 4.07% in FY26, underscoring the scale of the enforcement challenge ahead.
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