Statutory Jurisdiction under MSMED Act Overrides Contractual Seat Agreements in Arbitration Proceedings.

The Petitioner, a 'Micro' industry, entered into a Service Agreement (2022) and an Affiliate Agreement (2023) with Respondent No. 1 for the supply of apparels

Both agreements contained arbitration clauses designating Delhi as the seat and venue of arbitration

Following financial disputes, Respondent No. 1 (the supplier) filed a reference under Section 18 of the MSMED Act before the MSME Facilitation Council at Panchkula, Haryana

The Council terminated conciliation and transitioned into a Multi-Member Arbitration Tribunal, subsequently appointing a former High Court Judge as an 'Expert' to facilitate proceedings in Faridabad, Haryana

The Petitioner challenged an order dated 18.01.2025 passed by the Expert regarding the payment of arbitrator fees for its counter-claim

Respondent No. 1 challenged the territorial jurisdiction of the Delhi High Court, arguing that the seat of arbitration transposed to Haryana by virtue of the MSMED Act

Whether the Delhi High Court has the territorial jurisdiction to entertain a petition under Section 39(2) of the Arbitration Act when proceedings were initiated under Section 18 of the MSMED Act in Haryana, despite a contractual clause fixing the seat in Delhi

The court primarily applied the overriding effect of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, specifically Sections 18(3), 18(4), and 24, which provide that the provisions of the MSMED Act prevail over the Arbitration and Conciliation Act, 1996

It heavily relied on the Supreme Court precedents in Gujarat State Civil Supplies Corporation Ltd. v. Mahakali Foods Pvt. Ltd., which established that the MSMED Act is a special legislation that overrides private arbitration agreements

and Harcharan Dass Gupta v. Union of India, which clarified that the jurisdiction for arbitration vests in the Facilitation Council where the supplier is located, regardless of contrary contractual seat designations

The Court observed that while the Service Agreement explicitly designated Delhi as the "seat and venue"

the statutory mechanism under the MSMED Act was triggered when the supplier (Respondent No. 1) approached the Facilitation Council at Panchkula, Haryana

Applying the principles from Harcharan Dass Gupta, the Court reasoned that Section 18(4) of the MSMED Act vests exclusive jurisdiction in the Council where the supplier is located

Since the Panchkula Council dealt with the dispute, appointed the arbitrator, and the proceedings were conducted in Haryana, the legal seat was effectively transposed to the location of the Council

The Court rejected the Petitioner’s reliance on earlier case law, noting that it was bound by the recent Supreme Court mandate that the MSMED Act's statutory jurisdiction overrides private "seat" agreements

The petition was dismissed with liberty to approach the competent Court

However, the Court extended the interim stay on the impugned order for four weeks to allow the Petitioner to file the matter in the correct jurisdiction