Delhi High Court Dismisses Challenge to MSME Facilitation Council Arbitrator Order for Want of Territorial Jurisdiction

A single-judge bench of Justice Jasmeet Singh heard a petition under Section 39(2) of the Arbitration and Conciliation Act, 1996 challenging an empaneled Expert's order which directed the petitioner to pay the Expert's fees of Rs. 18,04,057/- to adjudicate a counterclaim arising from commercial agreements between the parties. The petitioner contested both the direction to pay the entire fee for adjudicating its counterclaim and the territorial competence of the Delhi High Court to entertain the petition.

The court held that it lacked territorial jurisdiction and dismissed the petition. The court accepted the respondents' submission that once a dispute under the MSMED Act proceeded before a Facilitation Council and the Council took up or referred the matter for arbitration, the special statutory scheme under the MSMED Act governed territorial jurisdiction. The Court, in its reasoning, observed: “A perusal of the aforesaid judgment clearly shows that the Hon'ble Supreme Court, by relying on Mahakali Foods (supra), held that MSMED Act is a special legislation to protect MSMEs and would override the provisions of the 1996 Act, being a general and a prior enactment. Additionally, in terms of Section 18(4) of the MSMED Act, the jurisdiction vests in the Facilitation Council where the supplier is located.” The court further noted the parties' contract language that "the seat and venue shall be Delhi", but held that the statutory scheme under the MSMED Act prevailed over the contractual seat clause in the circumstances where the supplier had approached a Facilitation Council.

Background The petitioner, Geniemode Global Pvt. Ltd., a registered MSME, supplied advances and raw materials to respondent Priyanka Impex Pvt. Ltd. under a Service Agreement dated 09.02.2022 and an Affiliate Agreement dated 30.06.2023. The petitioner alleged outstanding dues of approximately Rs. 4.26 crores and issued a demand notice under the Insolvency and Bankruptcy Code, 2016; it also initiated Section 9 IBC proceedings before the NCLT, Chandigarh. Respondent No.1 invoked the MSMED Act and filed a reference before the MSME Facilitation Council at Panchkula claiming recovery. The Council terminated conciliation, converted to a Multi Member Arbitration Tribunal, and appointed a former High Court judge as an Expert. The Expert allowed the respondent’s claim and directed the petitioner to pay the Expert's fee to adjudicate the counterclaim. The petitioner challenged that order before the Delhi High Court under Section 39(2) of the Arbitration Act.

Counsel for the petitioner argued that the Service Agreement expressly conferred exclusive jurisdiction on Delhi courts and that arbitral costs must be apportioned equally under Sections 31(8), 31A and 38(2) of the Arbitration Act; it also contended interest could not be included in the "sum in dispute" for fee calculation. Counsel for respondent disputed Delhi High Court's territorial competence, relied on authority that the seat of arbitration determines supervisory jurisdiction, and invoked Harcharan Dass Gupta and Mahakali Foods to assert that the MSMED Act's statutory scheme, including Section 18(4), vested jurisdiction in the Facilitation Council where the supplier was located.

The court considered binding Supreme Court precedent, including Harcharan Dass Gupta (2025 SCC OnLine SC 1111) and Mahakali Foods, which held that the MSMED Act, being a special law, overrode the Arbitration Act in disputes covered by Chapter V and that the Facilitation Council where the supplier was located had jurisdiction. Applying those principles, the court found that because the Facilitation Council at Panchkula had taken the dispute and conducted the arbitration process, the proper forum to challenge the Expert's order under Section 39(2) was the court having jurisdiction over the seat/location of the Facilitation Council proceedings. The court therefore dismissed the petition for want of territorial jurisdiction, without deciding the merits. The court observed that "the petitioner is at liberty to approach the competent Court in accordance with law" and directed that the interim stay granted earlier would continue for four weeks to enable the petitioner to approach the appropriate forum.

Case Details: Case No.: O.M.P. (MISC.)(COMM.) 150/2025 & I.A. 4459/2025 Case Title: Geniemode Global Pvt. Ltd. v. Priyanka Impex Private Limited & Anr. Appearances: For the Petitioner(s): Mr. Vivek Pathak, Adv.; Mr. Tanuj Dogra, Adv.; Mr. Rakesh Pandey, Adv. For the Respondent(s): Mr. Rakesh Gaur, Adv.