Delhi HC Sends MSME Logistics Supplier’s Dispute Over Unpaid Bills To DIAC Arbitration After Facilitation Council Stalls

The petitioner, claiming to be a micro enterprise registered under the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”), provided logistics services to the respondent under agreements referring to a Principal Agreement dated 30 August 2019. After invoices allegedly remained unpaid, the petitioner filed a reference before the Delhi Micro and Small Enterprises Facilitation Council on 7 September 2023.

The Council did not proceed with mediation or arbitration, and the petitioner applied to the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”).

The respondent objected that the Principal Agreement’s arbitration clause designated Bangalore as the arbitral venue and conferred exclusive jurisdiction on Bangalore courts. The Court also recorded that settlement efforts, including mediation, had failed.

Section 18(1)–(3) of the MSMED Act establishes a statutory process under which a party to a dispute concerning amounts due under Section 17 may approach the Facilitation Council; the Council must conduct or arrange conciliation and, if it fails, take up or refer the dispute to arbitration. Section 18(4) gives the Council or designated ADR centre jurisdiction where the supplier is located, notwithstanding other laws, and Section 24 gives the relevant MSMED Act provisions overriding effect.

In Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd. (Unit 2), the Supreme Court held that a party eligible under the MSMED Act may invoke Section 18 despite an independent arbitration agreement, and that the statutory mechanism overrides inconsistent contractual arrangements.

Harcharan Dass Gupta v. Union of India applied that rule to the seat and jurisdiction of arbitration, recognising the authority of the Facilitation Council where the supplier is located.

Under M/s Vallabh Corporation v. SMS India Pvt. Ltd., where the Facilitation Council fails to initiate the statutory process for a considerable period, an application under Section 11(6) may be made, and Section 18 is to be read harmoniously with the Arbitration Act.

The Court held that the contractual Bangalore clause did not displace the MSMED Act mechanism. Since the petitioner was registered in Delhi, Section 18(4), read with Mahakali and Harcharan Dass Gupta, supported the jurisdiction of the Delhi-based statutory process; the petitioner’s failure to file the Principal Agreement was deprecated but did not alter that conclusion.

On prematurity, the petitioner had already invoked the Facilitation Council in 2023, but the Council had not acted for a considerable period. The parties’ later settlement efforts, including two mediation attempts, had failed. Applying Vallabh Corporation, the Court concluded that the Council’s inaction did not require the petitioner to wait indefinitely for the statutory process to commence and that the disputes could proceed to arbitration.

All questions concerning arbitrability, maintainability, and the merits were left open.