The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, passed by Parliament this month, is expected to create an 'IBC moment' for small enterprises facing payment delays. According to a report by Crisil Intelligence, this legislation could improve payment discipline among buyers and unlock working capital for small businesses, similar to how the Insolvency and Bankruptcy Code (IBC) transformed credit discipline. The new framework provides time-bound resolution of payment disputes and stronger enforcement of awards, which could fundamentally change buyer behavior in the MSME sector. As reported by Crisil Intelligence, Pushan Sharma, Director at Crisil Intelligence, stated that "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." The proposed framework could create a stronger culture of timely payments, although its success would depend on effective implementation and institutional capacity.
The extent of delayed payment problems in the MSME sector is substantial, as reported by Crisil Intelligence. As of August 14, 2026, micro and small enterprises had filed 2,56,892 applications involving delayed payments worth ₹55,244 crore on the MSME Samadhaan portal. Of these claims, ₹20,979 crore remains pending, highlighting the significant working capital challenges facing small businesses. Around 40,580 applications, or 16%, have remained unresolved for over a year, leading to substantial working capital being locked in the system. According to Crisil Intelligence, the scale of the delayed-payment problem is significant, with much of the working capital getting locked in the system due to prolonged resolution processes. Crisil Intelligence officials emphasized that given that many MSMEs do not formally report payment delays, the actual figure could be significantly higher.
The amended framework introduces strict timelines for dispute resolution processes. Mediation must conclude within 90 days from the date fixed for first appearance, and if mediation fails, disputes must be referred to arbitration within 30 days, with awards to be issued within 90 days of completion of pleadings. The bill also proposes that buyers challenging MSEFC awards deposit 75% of the award amount, with at least 50% of the deposited amount being released to the MSME if proceedings remain pending for more than six months. These provisions could provide MSMEs greater leverage against defaulting buyers and discourage frivolous challenges. As noted by Crisil Intelligence, the proposed measures would also strengthen MSME protection when buyers challenge MSEFC awards, with mediated settlements and arbitral awards being recovered as arrears of land revenue and recognised as legally enforceable debt under the insolvency framework. Elizabeth Master, Associate Director at Crisil Intelligence, noted that "While the proposed timelines are a significant step forward, their effectiveness can be further enhanced through structured case management, including an indicative number of hearings and minimum participation requirements for buyers during proceedings."
According to MSME Samadhaan data, there are significant variations in case handling across states. Karnataka's 35 MSEFCs handle an average of 397 applications each, compared with 1,767 for Rajasthan's nine councils and 1,095 for Uttar Pradesh's 19 councils. Recognizing such disparities, the amendment gives states greater flexibility to constitute additional councils and determine the composition of facilitation councils. As reported by Crisil Intelligence, the bill's success will depend on investment in council infrastructure, trained mediators and arbitrators, and robust digital systems to meet the prescribed timelines. The report emphasizes that much like the IBC improved credit discipline, this framework has the potential to create a stronger culture of timely payments, but its success will depend on effective implementation and institutional capacity. Crisil Intelligence noted that council workloads vary considerably across states, making institutional strengthening particularly important, and without adequate staffing and digital monitoring, even clearly defined statutory timelines could prove difficult to enforce.
The report emphasizes that the bill has the potential to become a landmark reform in India's MSME ecosystem. According to Pushan Sharma, director at Crisil Intelligence, the framework could improve payment discipline, reduce uncertainty around recoveries and unlock much-needed working capital for MSMEs. If supported by adequate staffing, strict adherence to timelines, effective enforcement and stronger digital monitoring, it could become a landmark reform for the MSME ecosystem and unlock much-needed working capital. The proposed framework seeks to address the persistent problem of delayed payments by setting clear timelines for dispute resolution through Micro and Small Enterprises Facilitation Councils (MSEFCs), potentially creating a major shift in payment discipline for MSMEs. The report noted that IBC demonstrated how time-bound resolution, backed by stronger creditor rights and credible enforcement, can improve recoveries and reshape payment behaviour, suggesting similar potential for this MSME reform. 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.
