Crisil Intelligence Report Says MSME Development Amendment Bill Could Transform Payment Discipline

The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, could serve as an IBC-style moment for the MSME sector by tackling the persistent challenge of delayed payments, according to a recent report by Crisil Intelligence (CI).

Data from MSME Samadhaan as of August 14, 2026, shows that micro and small enterprises filed 256,892 applications regarding delayed payments. These applications involve a total value of ₹55,244 crore, with claims amounting to ₹20,979 crore remaining pending. Furthermore, about 40,580 applications, translating to 16 percent, have remained unresolved for over a year, locking up critical working capital. CI notes that because many MSMEs do not formally report payment delays, the actual figures are likely higher.

Under the existing framework of the MSMED Act, dispute resolution through Micro and Small Enterprises Facilitation Councils (MSEFCs) lacked clearly defined timelines for individual stages. The proposed Bill aims to resolve this by mandating that mediation conclude within 90 days from the date fixed for the first appearance. If mediation fails, disputes must be referred to arbitration within 30 days, with awards issued within 90 days of the completion of pleadings.

Pushan Sharma, Director at Crisil Intelligence, stated that introducing time-bound dispute resolution and strengthening the enforceability of awards can improve payment discipline and unlock working capital across the sector. He noted that the success of this framework depends heavily on effective implementation and institutional capacity.

The legislation also addresses structural disparities among states. For instance, MSME Samadhaan data highlights uneven caseloads, where Karnataka's 35 MSEFCs handle an average of 397 applications each, compared to 1,767 per council in Rajasthan and 1,095 per council in Uttar Pradesh. To counter this, the amendment provides states with greater flexibility to determine the composition of facilitation councils, allowing for the creation of additional councils and faster case disposal.

To protect MSMEs from prolonged litigation, the Bill requires buyers challenging MSEFC awards to deposit 75 percent of the award amount before filing a challenge. If proceedings remain pending for more than six months, at least 50 percent of the deposited amount must be released to the MSME. Additionally, mediated settlement agreements and arbitral awards may be recovered as arrears of land revenue and are recognized as legally enforceable debt under the insolvency framework.

Elizabeth Master, Associate Director at Crisil Intelligence, pointed out that delayed payments strain liquidity, raise borrowing costs, and weaken bargaining power for MSMEs. She suggested that structured case management, such as indicative hearings and minimum participation requirements for buyers, could further enhance the effectiveness of the proposed timelines.

CI concluded that adequate staffing, strict adherence to timelines, robust digital systems, and continued investment in council infrastructure will be necessary for the Bill to achieve its objectives and reshape payment behavior across India's MSME ecosystem.

"Delayed payments have historically choked the growth and working capital of micro, small, and medium enterprises in India. The proposed MSME Development Amendment Bill introduces a structured approach to dispute resolution and imposes financial conditions on buyers challenging awards. If implemented effectively with adequate institutional capacity, this framework can significantly improve cash flows and bring much-needed financial discipline to the ecosystem." — Dr. Shishir Gupta, Founder & CEO, StartupLanes