India’s new MSME amendment law could revolutionise the handling of delayed payments, potentially unlocking billions in trapped working capital and reshaping dispute resolution for small firms, according to a Crisil report.
India’s new MSME amendment law could mark a turning point in the long-running fight over delayed payments to small firms, according to a Crisil Intelligence report cited by Business Standard. The legislation, which has been passed by Parliament, is designed to speed up dispute resolution, strengthen the enforceability of awards and improve discipline among buyers, with the broader aim of freeing up working capital for micro and small enterprises.
The scale of the problem remains large. Crisil said that as of August 14, micro and small businesses had filed 256,892 claims for delayed payments worth Rs 55,244 crore on the MSME Samadhaan portal, with Rs 20,979 crore still pending. Around 40,580 applications, or 16%, have been unresolved for more than a year, underscoring how much cash remains trapped in the system.
The report argued that the bill could have an effect similar to the Insolvency and Bankruptcy Code, which changed borrower behaviour by raising the cost of default. Under the new MSME framework, mediation must end within 90 days of the first appearance, disputes move to arbitration within 30 days if mediation fails, and awards are due within 90 days after pleadings close. Buyers that challenge awards will generally need to deposit 75% of the amount, with at least half of that sum potentially released to the MSME if the case drags on for more than six months.
Pushan Sharma, director at Crisil Intelligence, said the proposed structure could improve payment discipline and unlock working capital, but success will depend on implementation, staffing and enforcement. The report also noted sharp differences in council workloads across states, with Karnataka’s 35 councils handling far fewer applications on average than Rajasthan’s nine councils and Uttar Pradesh’s 19 councils, which is one reason the bill gives states more flexibility to set up additional facilitation councils.
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