MSME Bill can be an IBC moment for delayed payments if executed well: Crisil

The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, could bring greater discipline to delayed payments to MSMEs, much like the Insolvency and Bankruptcy Code (IBC) did for distressed-asset resolution, if implemented effectively, according to a report by Crisil.

The IBC demonstrated how time-bound resolution, stronger creditor rights and credible enforcement can improve recoveries and influence payment behaviour. The proposed MSME Bill seeks to apply similar principles to one of the sector’s most persistent challenges, delayed payments.

Under the existing framework, dispute resolution through Micro and Small Enterprises Facilitation Councils (MSEFCs) does not prescribe clear timelines for individual stages of the process. The proposed amendments seek to address this by requiring mediation to conclude within 90 days from the date fixed for the first appearance. If mediation fails, disputes would have to be referred to arbitration within 30 days, with awards to be issued within 90 days of completion of pleadings.

₹55,244 crore in delayed-payment claims

As of August 14, 2026, data from the MSME Samadhaan portal showed that micro and small enterprises had filed 256,892 applications involving delayed payments worth ₹55,244 crore. Claims worth ₹20,979 crore remained pending.

Around 40,580 applications, or 16% of the total, had remained unresolved for more than a year, highlighting the amount of working capital locked in delayed or disputed receivables. The actual scale of delayed payments could be significantly higher, as many MSMEs may not formally report such instances, Crisil said.

“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,” said Pushan Sharma, Director, Crisil Intelligence.

“Much like the IBC improved credit discipline, this framework has the potential to create a stronger culture of timely payments. Its success, however, will depend on effective implementation and institutional capacity,” Sharma added.

Beyond prescribing timelines, the Bill seeks to strengthen the dispute-resolution ecosystem by giving states greater flexibility in determining the composition of facilitation councils. This could allow states to establish additional councils, improve access to redressal mechanisms and speed up case disposal.

Crisil said investment in council infrastructure, trained mediators, and arbitrators, and robust digital systems would be critical to ensuring compliance with the proposed timelines.

75% deposit requirement for challenges

The Bill also proposes greater protection for MSMEs when buyers challenge MSEFC awards. Buyers would be required to deposit 75% of the award amount before filing a challenge. At least 50% of the deposited amount would have to be released to the MSME if the proceedings remain pending for more than six months.

In addition, mediated settlement agreements and arbitral awards could be recovered as arrears of land revenue and would be recognised as legally enforceable debt under the insolvency framework. These provisions could give MSMEs greater leverage against defaulting buyers while discouraging frivolous challenges, Crisil said.

“Delayed payments strain MSME liquidity, raise borrowing costs, disrupt operations and weaken bargaining power,” said Elizabeth Master, Associate Director, Crisil Intelligence. “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,” she added.