Delayed payments to MSEs have been a persistent governance failure. Critically examine the new institutional and legal mechanisms introduced to resolve this, and assess their likely effectiveness.

Despite the MSMED Act, 2006 prescribing a statutory payment timeline with interest liability, delayed dues — especially from large and public-sector buyers — remain the sector's chronic working-capital crisis. The MSMED (Amendment) Bill, 2026, passed by Parliament in August 2026, attempts a structural, not merely exhortatory, fix.

New mechanisms introduced

• Mandatory TReDS settlement: every Central Public Sector Enterprise must settle MSME invoices through the RBI-regulated Trade Receivables Discounting System [1][2], converting delayed receivables into discountable cash.
• Time-bound dispute resolution: mediation within 90 days, arbitration referral within 30 days of its termination, and award within 90 days of pleadings [1].
• Interim relief: where a set-aside application is pending beyond six months, at least 50% of the awarded amount must be paid to the supplier [1].
• Decriminalisation with graded civil penalties for non-disclosure of unpaid dues — warning, then escalating fines rising 10% every three years [1].

Assessment — strengths

• TReDS is proven at scale: discounting rose from about ₹40,000 crore to ₹3.47 lakh crore in FY 2025-26 [2], so the mandate builds on demonstrated capacity, not an untested platform.
• The 50% interim payout ends the buyer's incentive to litigate purely for delay.
• Statutory, voluntary Udyam registration lowers the entry barrier for the crores of enterprises already formalised, widening eligibility for these remedies [1][3].

Limitations

• The mandate covers CPSEs only — state PSUs, government departments and large private buyers, major sources of default, remain outside [2].
• Timelines bind councils, but capacity, staffing and appellate delays are unaddressed; enforcement of awards still depends on state machinery.
• Micro suppliers may hesitate to invoke remedies against buyers on whom they depend commercially.

The reforms shift redressal from litigation to liquidity — a sound design. Effectiveness will hinge on extending TReDS coverage beyond CPSEs, adequately resourcing facilitation councils, and publishing compliance data, so that payment discipline becomes routine rather than adjudicated.