MSME Suppliers To Get At Least 50% Of Award If Court Challenge Takes Over Six Months Under New Amendment

MSME suppliers will be entitled to receive at least 50% of an awarded amount if an application to set aside a decree, award, other order, or mediated settlement agreement remains pending for more than six months under the Micro, Small, and Medium Enterprises Development (Amendment) Act, 2026, once the provision comes into force.

The bill was introduced in the Rajya Sabha on July 28 by the Union Minister for Micro, Small and Medium Enterprises Jitan Ram Manjhi. It was passed by the Rajya Sabha on August 3 and by the Lok Sabha on August 7.

The amendment retains the existing 75% pre-deposit requirement for challenges to decrees, awards, and other orders, while extending it to mediated settlement agreements and making payment of at least 50% of the awarded amount to the supplier mandatory if the application remains pending for more than six months.

The provision will take effect once the central government notifies the amendment.

The amendment also creates a new recovery mechanism for mediated settlement agreements and arbitral awards.

Under Section 18A, these can be recovered as arrears of land revenue through the District Collector, Deputy Commissioner or another authority notified by the state government where the buyer's assets are located.

The amount determined under a mediated settlement agreement or arbitral award will also constitute a valid and legally enforceable debt and be liable to recognition under the Insolvency and Bankruptcy Code, 2016.

Delayed-payment disputes before Micro and Small Enterprises Facilitation Councils will also be subject to fixed timelines.

Mediation must be completed within 90 days from the date fixed for the first appearance. If mediation fails, the Council must take up the dispute for arbitration or refer it to an alternative dispute resolution institution within 30 days from the date of termination of mediation.

The council or the institution or centre providing alternative dispute resolution services must make the arbitral award within 90 days from the completion of pleadings.

The amendment also allows the central government to establish an online mechanism for mediation and arbitration through audio-video and other electronic means, including video conferencing, filing of pleadings, and recording of evidence.

Another major change requires every Central Public Sector Enterprise to route settlement of invoices for goods and services procured from MSMEs through a Trade Receivables Discounting System platform authorised by the Reserve Bank.

The central government can extend the requirement to other notified entities, while State Governments can apply it to State Public Sector Enterprises and other entities.

The amendment also requires state governments to establish an adequate number of Micro and Small Enterprises Facilitation Councils in addition to existing councils.

Each council will have three to five members, including an officer not below the rank of Joint Director as chairperson, one or more representatives of micro or small industry associations and at least one member from the field of law.

Click here to view the Micro, Small and Medium Enterprises Development Act, 2006