MSMED Act Overrides Contractual Arbitration Clause, Delhi High Court Refers Logistics Dispute To DIAC

The Delhi High Court has referred a payment dispute between I Hub Express Private Limited and Instakart Services Private Limited over logistics services to arbitration, holding that the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) overrides a contractual clause providing for arbitration in Bengaluru.

Justice Prateek Jalan held that the statutory mechanism under the MSMED Act takes precedence over an independently executed arbitration agreement. The court also held that jurisdiction under the Act is determined by the supplier's place of business.

“However, having regard to the aforesaid judgments, I am of the view that the arbitration clause contained in the Principal Agreement dated 30.08.2019 would be overridden by Section 18 of the MSMED Act, which specifically vests jurisdiction in the Facilitation Council or any institution or centre providing alternative dispute resolution services, which have jurisdiction over the supplier's place of business,” the court observed.

I Hub claimed to be a registered microenterprise that provided logistics services to Instakart under a principal agreement dated August 30, 2019, and related addendum agreements.

Several invoices allegedly remained unpaid, prompting I-Hub to approach the Delhi Micro and Small Enterprises Facilitation Council on September 7, 2023.

According to I-Hub, the Council neither scheduled mediation nor appointed an arbitrator after the first hearing on December 20, 2023. With no further action from the Council, it approached the High Court in 2025 seeking the appointment of an arbitrator.

Instakart opposed the proceedings in Delhi, pointing to the principal agreement's arbitration clause, which provided for arbitration in Bengaluru. The agreement also conferred exclusive jurisdiction on courts in Bengaluru.

It alleged that I, Hub, had deliberately withheld the principal agreement from the court. I Hub, however, argued that the MSMED Act overrode the contractual arbitration arrangement.

The court took note of I Hub's failure to file the principal agreement despite having submitted the addendum agreements.

Emphasising the need for full disclosure, Justice Jalan observed that “the conduct of the petitioner, in failing to do so, is deprecated.”

However, the omission did not change the court's conclusion on jurisdiction.

Relying on Supreme Court judgments in Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Private Limited (Unit 2) and Harcharan Dass Gupta v. Union of India, the court reiterated that parties cannot use a private arbitration agreement to override the statutory mechanism under the MSMED Act.

The Act gives jurisdiction to the Facilitation Council or an alternative dispute resolution centre having jurisdiction over the supplier's place of business. Since I Hub was registered in New Delhi, the court held that it had rightly approached the Delhi High Court.

The court then examined Instakart's objection that the dispute could not be referred to arbitration without another round of statutory conciliation.

Instakart argued that the petition was premature because conciliation under the MSMED Act remained necessary despite the mediation attempts during the court proceedings.

The court traced the settlement efforts made by the parties. On October 13, 2025, it had left it open to them to pursue mediation under the MSMED Act or attempt an amicable settlement themselves. Neither option was pursued.

When the matter came up again on December 2, 2025, Instakart sought more time to explore a settlement. A senior counsel was requested to mediate between the parties, but the effort proved unsuccessful.

The parties were subsequently referred to mediation before the High Court's Mediation Centre on January 8, 2026. A report dated February 16, 2026, recorded that the proceedings had ended as "Not-Settled".

Rejecting Instakart's objection, the court noted that the Facilitation Council had not acted on I Hub's reference for a considerable period. It also took into account the unsuccessful settlement efforts during the court proceedings.

“Neither party took advantage of the liberty granted vide order dated 13.10.2025 and two attempts at mediation have thereafter failed,” the court observed.

The court accordingly referred the dispute to arbitration under the aegis of the Delhi International Arbitration Centre (DIAC), as both parties had agreed to the arrangement.

It requested DIAC to nominate an arbitrator from its panel. The arbitration will be governed by DIAC Rules, including those concerning the arbitrator's remuneration. The arbitrator must also furnish a declaration under Section 12 of the Arbitration and Conciliation Act, 1996, before entering upon the reference.

The court left questions concerning the arbitrability and maintainability of the claims, as well as their merits, open for the arbitrator to decide.

For petitioner (I Hub Express Private Limited): Advocates Piyush Sanghi, Khushbu Sahu, Nikhil Singh, Sana Parveen, Ashish Mishra, Raahithya Raj Mishra, Jayant Yadav, Sharmishta Solanki, Aditya Singh Raghuvanshi, Arshiya Goel.