Procedural Reform and Substantive Inertia in MSME Payment Regulation

If the invoice has not been paid within 90 days, it is a line on a receivables report in a large company. For the small shop that raised it, it means not getting paid for the employees. The working capital of a micro or small enterprise is the operating cycle—the payment of the buyer, however, is subject to the majorly timely schedule. A situation in which the supplier is forced to borrow at a higher rate of interest, waits for the subsequent ones to pay, or suffers the loss that he or she cannot afford, is the truth behind the shorthand of public discourse: India’s delayed-payment issue.

It’s the Parliament’s newest attempt to tackle it through the Micro, Small and Medium Enterprises Development (‘MSME’) (Amendment) Bill, 2026 (‘the Bill’). It was introduced in the Rajya Sabha on 28 July 2026 and passed by the House on 3 August, following which it went to the Lok Sabha where it was passed on 7 August. It still awaits Presidential assent, a commencement notification, and all the ‘changes’ mentioned below come into effect only after notification. Neither can be said to be true as yet and this Bill is a good starting point to consider what it can achieve because it does not stand alone in India but comes on the back of one of the more aggressive statutory payment regimes provided to any commercial creditor. What, then, is the underlying problem that a faster and better-enforced remedy is intended to address? It is not whether the amendment provides new tools, but whether a better and quicker version of an existing remedy might be able to fix a problem that has less to do with the legal process and more to do with why a small supplier is hesitant to invoke it against a buyer it relies on for its next order?

India Already Had a Delayed-Payment Law

Chapter V of the Micro, Small and Medium Enterprises Development Act, 2006 (‘the Act’) was a smidgen of protection. Section 15 limits the time of the payment period to 45 days from acceptance, or 15 days if there is a written agreement. In the case of Section 16, automatic non-payment comes at an expensive cost: compound interest with monthly rests at three times the bank rate notified by the RBI, on the contrary. The supplier may refer an ‘unresolved claim’ to the Facilitation Council for conciliation, and if that fails, arbitration, pursuant to Section 18, subject to binding decisions of the council. Such a set-aside action by a court would become an expensive headache, according to Section 19, because seventy-five per cent of the award must be paid first. It is no doubt a potent weapon on paper, but this amendment does not change the deadline or interest rate through 2026. What it changes occurs downstream—the speed at which a dispute is resolved; speed at which the award is realised; speed at which liquidity reaches supplier prior to the ruling.

What the 2026 Bill Changes

Section 7(1) of the Act is substituted so that the Central Government, rather than the statute, classifies enterprises as micro, small or medium by notification, on the basis of both investment in plant and machinery or equipment and turnover. Under Explanation 1 to the new Section 7(1), the cost of pollution control, research and development and industrial safety devices is excluded when calculating investment. Section 8 is substituted to provide a national digital platform for free and voluntary registration of all MSMEs, medium enterprises included, with an enabling provision for State platforms. A new Section 15A requires every Central Public Sector Enterprise (‘CPSE’) to route settlement of invoices for procurement from MSMEs through an RBI-authorised Trade Receivables Discounting System (‘TReDS’) platform. The Central and State Governments may extend this to other entities by notification.

There are now hard clocks in Section 18: mediation within 90 days of first appearance or to be substituted by arbitration within 30 days of failure of mediation; award within 90 days of completed pleadings. New Section 18A provides for recovery of such an award as arrear of land revenue and also treats the same as a valid debt under the Insolvency and Bankruptcy Code, 2016 (‘IBC’). The proposal of an award remains in dispute and is not withdrawn for another six months, then this is where Section 19 comes into play: Under Section 19(2), the court pays the supplier such percentage of the deposit as it considers reasonable, but if the application has been pending for more than six months, the proviso requires it to pay at least fifty per cent of the amount awarded out of the deposit. The scheme of Sections 20 and 21 allows the number of Councils and the type of Councils to be increased and diversified at the instance of the State Government. The newly added Section 22A mandates the TReDS-routed invoice to be disclosed. Sections 27 and 27A lay focus on penalties and their adjudication in case of false registration information and non-disclosure of unpaid dues.

From Delay in Payment to Delay in Remedy: The Enforcement Gap

A 90-30-90 structure is a serious attempt to set a limit for an open-ended process but a deadline is only as good as the mechanism behind it: States ‘may’ resource Councils to meet new deadlines.

Here is why: the Annual Report to the Government 2025–26 under the Ministry of MSME indicates that 2,56,892 cases of delayed payment applications were submitted on Samadhaan so far until 31 December 2025 with an estimated value of ₹55,244 crore out of which more than 52,000 applications were yet to be considered and only approximately 54,000 were disposed of after a period of 90 days on pendency which requires the capacity investment which the Bill leaves to the discretion of the Government. Free digital registration also does not resolve a drafting gap: the Bill requires the award within 90 days of completed pleadings, but it does not say how a buyer’s counterclaim is to be accommodated within that period. The counterclaim is a legitimate right under Section 23(2A) of the Arbitration and Conciliation Act, 1996, recognised in Silpi Industries v KSRTC (2021), and it serves natural justice and avoids multiplicity of proceedings. But it lengthens pleadings and widens what the Council must decide, so the 90-day clock may be hard to meet unless the Bill addresses it. Furthermore, the protection of Chapter V extends only to a ‘supplier’ as defined in Section 2(n) of the Act, which requires the filing of a memorandum under Section 8.

In Silpi Industries, the Supreme Court held that the registration must precede the contract, so a supplier registering after the contract is made cannot claim Chapter V’s benefits for it. The Bill’s new, free digital registration under Section 8 makes registration easier, but it does not change this timing requirement. The Economic Survey 2025–26 had estimated the total amount of delayed MSME payments across the economy at around ₹8.1 lakh crore, which translates to many folds the ₹55,244 crore value of such payments reflected in the Samadhaan filings since the launch. That gap is where under-filing occurs when suppliers are not aware of or willing to take advantage of the mechanism and a formal channel that only collects adversarial disputes, with much greater delay being absorbed quietly. This may be due to capacity and documentation requirements and low awareness. But what the data cannot unequivocally conclude, its structure implies, is that some suppliers able to file fail to do so, for the reason the buyer they would sue is the buyer they wish to source for next quarter anyway.

TReDS: Moving from Recovery to Liquidity

TReDS is an RBI-regulated electronic platform on which financiers bid to discount invoices accepted by the buyer. Because the financier lends against the buyer’s accepted invoice and not the MSME’s balance sheet, the supplier typically receives funds within a day or two, and the buyer pays the financier on the due date. Liquidity therefore does not depend on whether a dispute later arises since the dispute date is not necessarily the date the funds are received.

The Act builds on this in two ways. Section 15A(1) requires every CPSE to route settlement of invoices for procurement from MSMEs through an RBI-authorised TReDS platform. The new Section 22A requires CPSEs, and other entities notified under Section 15A, to disclose details of invoices routed and settled through TReDS, in a form and manner to be prescribed.

The contribution is limited, however. Sections 15A(2) and (3) only enable the Central and State Governments to extend the requirement, by notification, to other entities, which could include large private buyers. However, the Act itself extends it to none of them. Since private buyers are a significant source of delayed payments, they remain outside these provisions unless notified, so the mandate is a modest first step and not a solution.

The Missing Problem: Bargaining Power

This amendment has added recovery as an arrear of land revenue and recognition as a valid debt under the IBC as an extra arm to the toolkit of an award. Against the practical constraints of using either, it looks more modest. Insolvency proceedings require a minimum default of ₹1 crore (Section 4 of the IBC), which a typical MSME claim falls well short of: the Samadhaan data in the discussion of the enforcement gap implies an average claim of about ₹21.5 lakh (₹55,244 crore across 2,56,892 applications). Even a supplier whose award crosses the threshold is unlikely to use it against a buyer on whom its future orders depend. What is the real obstacle, however, is the disparity of the remedy, and how it will ultimately destroy relationships.

Does the Amendment Solve the Crisis?

With regard to access to justice, this amendment is a true, albeit small, improvement: free digital registration reduces friction, supplier-location jurisdiction eliminates a logistical disadvantage, and firm timelines under Section 18 give complainants something to point to. But councils have binding deadlines without any assured resources to meet them. Section 20(3) provides only that the State Government ‘may’ provide infrastructure, digital systems and trained manpower, and the pendency recorded on Samadhaan suggests that capacity is already stretched. Capacity would address delay in applications already filed. It would not address under-filing, which, as the discussion of the enforcement gap suggests, stems from reluctance to sue a buyer, documentation burdens and low awareness.

Liquidity, on the other hand, has one ‘meaningful’ and one more ‘narrow’ contribution: the guaranteed 50 per cent release after six months replaces the ‘trickle’ of discretionary payments with a ‘floor’, eliminating deposit-and-appeal as a delaying strategy, and the TReDS mandate is a true exception from the payment-contestation nexus, but as drafted, it applies only to CPSEs. Here, the remedy offered by the amendment would have no real effect on the buyer’s incentive to pay on time, see Sections 15–17 for details, and the case is weakest. The amendment is primarily a transparency measure, and works by making these data more visible, rather than by impacting on the cost of delay, which remains unchanged.

From Faster Remedies to Better Payment Discipline

The mandate of TReDS to be applicable to entities with a minimum threshold of MSME transactions, by number or value, to be fixed by notification under Section 15A(2) would benefit the liquidity of MSMEs more than all the dispute-resolution clauses put together, as it precedes the actual occurrence of a dispute. The most significant threat to the new timelines' credibility under Section 20(3) is that they are implemented on a  ‘may’ basis for Councils. Disclosure information is only useful when it is usable, unless it is placed on a public payment record, run by a system, and linked to the ability of future contracts to be served, then it can do the work that reputation does, which a Council cannot. While awareness initiatives are unlikely to result in fewer defaults, the IBC linkage should be considered as a specific measure and as a remedy for larger awards against financially distressed buyers, not as the general enforcement route.

Conclusion

The amendment shortens the path after filing: Section 18 sets timelines, and the proviso to Section 19(2) guarantees the supplier at least fifty per cent of the awarded amount from the buyer’s deposit after six months. Its TReDS mandate under Section 15A(1), however, binds only CPSEs, so it is a modest start and not a solution for private buyers. It leaves the payment deadline and interest rate in Sections 15 and 16 untouched, and does not ease the supplier’s reluctance to sue a buyer it depends on. The unfinished work is extending TReDS by notification to large private buyers, resourcing Councils, and publishing buyers’ payment records drawn from Section 22A disclosures.

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This blog has been authored by Kshitiz Kumar and Bhavya Saxena, students at National Law University, Odisha. It is part of RSRR’s Rolling Blog Series.