Late-paying buyers already pay for it — most MSMEs never collect. A new Bill wants to close that gap

A textile trader in Ring Road came in last month with an MSEFC award in hand — six figures, in his favour, against a buyer who had sat on his bills for the better part of a year. He assumed the award meant the money was coming. It wasn't. The buyer had filed to challenge it, and the file had disappeared into the district court's backlog. "What do I do now?" he asked. The honest answer was: something he could have done eighteen months earlier, and almost nobody does.

That gap — between what the law already allows a supplier to do and what suppliers actually do — is the real story behind a Bill introduced in the Rajya Sabha on 28 July 2026. It is not law yet. It has to clear both Houses and get presidential assent before a single clause takes effect, and there is no announced timeline for that. But it is worth understanding now, because it is built entirely around the point where the existing law already works — and stops working.

What Parliament actually did last week

Union MSME Minister Jitan Ram Manjhi introduced the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, which would amend the MSMED Act, 2006. As reported, its focus is delayed payments and enforcement of arbitral awards — not new subsidy schemes or fresh registration mandates. That framing matters: this is a Bill about collection, aimed at the stage after a supplier has already won on paper and still can't get paid.

The 45-day rule already has teeth

Under section 15 of the MSMED Act, 2006, a buyer must pay a micro or small supplier within 45 days of acceptance if there is a written agreement, and within 15 days if there isn't — and no agreement can extend that beyond 45 days. Two things give that deadline force. First, under section 43B(h) of the Income-tax Act, a buyer who misses the window cannot deduct that expense at all in that year — the deduction is allowed only in the year the amount is actually paid. Second, since this now sits in Clause 22 of Form 3CD, the buyer's own tax auditor has to disclose the overdue amount in the tax audit report. A buyer's accountant, not the supplier, ends up flagging the default to the tax department.

Both protections apply only if the supplier is registered as a micro or small enterprise under Udyam. That single condition is where a large share of suppliers lose the argument before it starts — many still trade for years without registering, on the assumption that GST registration is enough. It isn't.

The law's biggest gap isn't the 45-day deadline. It's what happens after a supplier wins and the buyer simply refuses to pay anyway.

Where the leverage actually stops

If payment doesn't come, the supplier refers the dispute to the state's Micro and Small Enterprises Facilitation Council under section 18 — first conciliation, then arbitration if that fails, with a 90-day statutory clock. In practice that clock is routinely exceeded; councils are thinly staffed and conciliation drags. Even so, most disputes that are actually filed do eventually produce an award.

What buyers with resources do next is the part most suppliers underestimate: challenge the award under section 34 of the Arbitration and Conciliation Act. Section 19 of the MSMED Act already makes that expensive for the buyer — no challenge can even be admitted unless the buyer first deposits 75% of the awarded amount with the court. Few buyers walk away from a genuine award once that deposit is due. The ones who do file anyway are usually betting on time, not law: litigation can run for years, and while it runs, the 75% deposit typically just sits with the court.

What else the Bill proposes

Beyond the deposit-release floor, the Bill as reported would: allow a mediated settlement or an arbitral award to be recovered as an arrear of land revenue, using revenue-recovery machinery instead of a fresh civil suit; recognise such awards as valid debt for insolvency proceedings under the IBC, giving suppliers another route against a buyer who simply won't pay; replace some conviction-based penalties with graded penalties, starting with a warning at first instance; set up a national digital platform for free, voluntary Udyam registration; give states flexibility to constitute more Facilitation Councils, easing the caseload bottleneck; and require central public sector enterprises to route their supplier payments through TReDS — the receivables-discounting platform — rather than pay directly, which lets a supplier get financed against the invoice sooner instead of waiting out the buyer's own payment cycle.

The decriminalisation point deserves an honest caveat: replacing a conviction-based fine with a first-time warning could read either way depending on which side of a dispute you sit on. Framed as a whole, though, the package leans toward the supplier — faster money in hand, more recovery routes, and a state machinery that scales with demand rather than one court list per state.

What to actually do now

None of this changes anything about today's filing. If you supply goods or services to a larger buyer, the moves that matter are the same ones the Bill assumes you're already making: register on Udyam as a micro or small enterprise, get your credit terms in writing and capped at 45 days, and file with your state's Facilitation Council through the MSME Samadhaan portal as soon as a payment crosses that line rather than waiting to see if the buyer eventually pays. And if you already hold an award that a buyer is challenging, don't simply wait for the court date — ask your advocate to move for release of part of the 75% deposit under section 19 now. That provision exists today; the Bill would only make using it automatic.

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This article is general information, not professional advice. Rules change; verify current provisions or contact the office for advice on your situation.