MSME Development (Amendment) Act 2026: TReDS Mandatory for CPSEs
The MSME Development (Amendment) Act, 2026 got Presidential Assent on 13 August 2026, turning CPSE onboarding to TReDS from an administrative directive into enforceable law under new Section 15A. Here's what every MSME supplier to a CPSE needs to know about payment routing, dispute timelines, and penalties.
CA Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Legal basis: Micro, Small and Medium Enterprises Development (Amendment) Act, 2026, Section 15A — Effective: Presidential Assent 13 August 2026 (Section 15A itself becomes operative on a Central Government appointed-date notification). Source: PIB Press Release PRID:2283195. Last reviewed by CA Harun Raaj: September 2026.
On 13 August 2026, the Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 received Presidential Assent, converting what had been an administrative directive into statutory law. For the first time, an MSME supplier's right to have its invoice routed through a Reserve Bank-authorised TReDS platform is backed by a specific section of the Act — and by graded financial penalties on defaulting buyers.
What Changed and Why It Matters
Parliament passed the MSME Development (Amendment) Bill on 7 August 2026. Presidential Assent on 13 August 2026 formally enacted it. The Central Government will separately issue an appointed-date notification bringing Section 15A into force. Until that notification is issued, the Ministry of MSME's administrative notification of 30 June 2026 — which already mandates CPSE onboarding to TReDS — remains the operative directive on the ground. MSME suppliers to CPSEs should treat the current period as a transition window, not a reason to wait.
Section 15A — TReDS Mandatory for CPSEs
Under newly inserted Section 15A of the MSME Development Act, 2006:
- Every Central Public Sector Enterprise (CPSE) must route settlement of invoices for procurement from MSMEs through an RBI-authorised TReDS platform.
- The Central Government may extend this requirement to State Government PSEs, autonomous bodies, and other public authorities by future notification.
- CPSEs must disclose details of MSME invoices routed through TReDS, a standalone compliance reporting obligation.
Three RBI-licensed TReDS platforms currently operate under the RBI (Trade Receivables Discounting System) Directions, 2026 — circular RBI/DPSS/2026-27/406, dated 23 June 2026 — which also removed the mandatory due-diligence requirement for MSME sellers at onboarding.
Key point: Section 15A makes CPSE routing of MSME invoices through an RBI-authorised TReDS platform a statutory obligation, not a discretionary practice.
Section 7 — Flexible MSME Classification
The Act rationalises the MSME definition without changing the underlying two-part test of investment in plant/machinery plus annual turnover:
- The current classification thresholds are retained.
- Pollution control equipment, R&D expenditure, and safety devices are now excluded from the investment calculation.
- This effectively widens investment headroom — a business can retain MSME status even after larger capital outlay, provided part of it goes into pollution control or R&D.
Section 18 — Faster Dispute Resolution
The amended Act tightens timelines for the Micro and Small Enterprises Facilitation Council (MSEFC) process:
Awards remain recoverable as arrears of land revenue.
Section 27 — Graded Penalties
For MSME buyers, including CPSEs, that fail to comply:
- First instance: a warning.
- Subsequent violations: ₹10,000 to ₹1 lakh per violation.
- These penalty amounts auto-escalate by 10% every three years.
For false MSME registration, the graded penalty runs from a warning up to ₹1,000 to ₹50,000.
Illustrative Example
Ratan Castings Pvt Ltd (Illustrative Example) is a small enterprise supplying precision components to a large CPSE, with monthly invoices of ₹40 lakh on 60-day credit terms. Before the Amendment Act, the company routinely waited 60–75 days for payment, straining working capital.
Under Section 15A, the CPSE must now route these invoices through TReDS. Once the CPSE accepts the invoice on the platform, Ratan Castings can choose to discount it immediately. At a typical TReDS factoring rate of around 7.75% per annum, discounting ₹40 lakh for 60 days costs approximately ₹16,000 — a fraction of the working capital stress caused by delayed payment.
The company retains full discretion: discount for immediate cash, or simply use TReDS as the settlement channel and wait for the due date.
Internal links: Invoice Discounting via TReDS | Virtual CFO Services
Disclaimer: This article is for educational purposes only and does not constitute legal or financial advice. Specific applicability depends on the Central Government's appointed-date notification for Section 15A. Please consult a qualified CA or legal advisor for your business situation.
I'm CA Harun Raaj, Visakhapatnam. If your business supplies a CPSE and you need help getting TReDS-ready or recovering delayed payments, reach out to our team.
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See Also
Frequently Asked Questions
Does the MSME Amendment Act 2026 force MSMEs to discount their invoices?
No. Section 15A only mandates that CPSEs route invoice settlement through an RBI-authorised TReDS platform. The MSME seller retains full discretion to discount for immediate cash or simply use TReDS as the payment settlement channel and wait for the due date.
Which companies are covered by the Section 15A TReDS mandate?
Section 15A currently covers Central Public Sector Enterprises (CPSEs) only. The Central Government may extend the requirement to State Government PSEs, autonomous bodies, and other public authorities by future notification.
When must CPSEs actually comply with the TReDS mandate?
The Ministry of MSME's administrative notification mandating CPSE onboarding has been operative since 30 June 2026. Section 15A of the Amendment Act becomes fully operative once the Central Government issues its appointed-date notification, so MSME suppliers to CPSEs should register on a TReDS platform now.
What happens if a CPSE refuses to route invoices through TReDS?
An MSME supplier can file a complaint with the MSEFC of the relevant State. Under amended Section 18, mediation must complete within 90 days, followed by arbitration with a 90-day award timeline, and the resulting award is recoverable as arrears of land revenue.
How much can penalties reach for a CPSE that repeatedly fails to comply?
Under Section 27, a first instance draws a warning, and subsequent violations attract a penalty of ₹10,000 to ₹1 lakh per violation. These penalty amounts auto-escalate by 10% every three years.
How does the Amendment Act change MSME classification thresholds?
Section 7 keeps the existing two-part test of investment in plant/machinery plus annual turnover, but now excludes pollution control equipment, R&D expenditure, and safety devices from the investment calculation, giving businesses more headroom to retain MSME status.
How long can a CPSE dispute run before an MSME supplier gets an arbitral award?
Under amended Section 18, mediation must complete within 90 days of first appearance, arbitration must begin within 30 days of failed mediation, and the arbitral award must follow within 90 days of completion of pleadings.
Can a CPSE challenge an MSEFC arbitral award in court?
Yes, but under Section 18 the CPSE must pre-deposit 75% of the award amount to challenge it in court. If court proceedings run beyond 6 months, the court must release 50% of that pre-deposit to the MSME.
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