MSMED Act Overrides Arbitration Clause; Jurisdiction Lies Where Supplier Is Located: Delhi High Court

The Delhi High Court recently reiterated that once a dispute is taken to a Micro and Small Enterprises Facilitation Council under the MSMED Act, jurisdiction to entertain challenges arising from those proceedings lies with courts at the location of the Council where the supplier is situated, even if the contract names a different arbitration seat.

Dismissing the petition for want of territorial jurisdiction, Justice Jasmeet Singh held,

"Since it is the Facilitation Council at Panchkula, Haryana which has dealt with the issue in controversy, appointed the Arbitrator, conducted the arbitration proceedings, applying the principles of Harcharan Dass Gupta (supra) and Mahakali Foods (supra) as discussed above, is the Courts at the location of Facilitation Council where the supplier is located which will have jurisdiction. This Court lacks the jurisdiction to entertain and try the present petition.",

Geniemode Global Private Limited, a microenterprise under the MSMED Act, had entered into a Service Agreement dated February 9, 2022 with Priyanka Impex Private Limited for supply of apparels. The agreement stated that the “seat and venue shall be Delhi” and that Delhi courts would have exclusive jurisdiction.

Disputes arose over alleged dues of Rs. 4,25,97,247. While Geniemode initiated insolvency proceedings before the NCLT, Chandigarh, Priyanka Impex invoked Section 18 of the MSMED Act before the MSME Facilitation Council at Panchkula seeking recovery of Rs. 2,93,72,124.

After conciliation failed, the Council converted the matter into arbitration and appointed a former Judge of the Punjab and Haryana High Court as an Expert. On January 18, 2025, the Expert directed Geniemode to pay Rs. 18,04,057 towards fees for adjudicating its counterclaim.

Challenging the fee direction under Section 39(2) of the Arbitration and Conciliation Act, Geniemode relied on the Delhi seat clause. Relying on the Supreme Court's decisions in Harcharan Dass Gupta v. Union of India and Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd., the High Court held that the MSMED Act, being a special statute, overrides the Arbitration Act. The Court also noted that under Section 18(4), jurisdiction lies with the Facilitation Council where the supplier is located.

Clarifying that it had not gone into the merits of the fee order, the Court dismissed the petition for want of territorial jurisdiction. However, it granted liberty to the petitioner to approach the competent court and continued the interim stay for four weeks.