Service-Condition Restriction Cannot, Without More, Be Ineligibility U/S 12(5) Arbitration Act: Delhi High Court Restores Award Against IIT Kanpur
The Bench restored MSMED award against IIT Kanpur set aside over Arbitrator's Consumer Commission Rules; no written waiver needed where seventh schedule not attracted.
Justice Anil Kshetarpal, Justice Shail Jain, Delhi High Court
The Delhi High Court has held that a restriction contained in the conditions of service of an office cannot, without more, be treated as an ineligibility under Section 12(5) of the Arbitration and Conciliation Act, 1996. The Court said that such a restriction may carry consequences under the law governing that office, but does not automatically terminate the arbitral mandate.
The Bench held that de jure inability under Section 14(1)(a) is wider than de jure ineligibility under Section 12(5) read with the Seventh Schedule. Where the alleged disability does not fall within the Seventh Schedule, the proviso to Section 12(5) cannot be invoked to insist on an express written waiver. It set aside the finding that the sole arbitrator was de jure unable to act and restored the award.
A Bench of Justice Anil Kshetarpal and Justice Shail Jain observed, “Rule 11(3), as relied upon by the Respondent, is a provision governing the conditions of service of the President and Members of the State Commission or District Commission. The prohibition contained therein may, depending upon its interpretation and applicability, regulate the conduct of a person holding such office and may have consequences under the law governing such office. However, a service-condition restriction cannot, without more, be transposed into an ineligibility under Section 12(5)”.
Advocate Manish Paliwal appeared for the appellant and Advocate Jawahar Raja appeared for the respondent.
The appellant, a customs clearance and freight forwarding firm registered as an MSME, had raised invoices on IIT Kanpur between 2004 and 2018. It claimed the unpaid balance before the Micro and Small Enterprises Facilitation Council, which referred the dispute to the Delhi Arbitration Centre under Section 18(3) of the MSMED Act. The Centre appointed a retired High Court judge as sole arbitrator, who awarded Rs 27,76,996 including interest on February 28, 2024.
IIT Kanpur challenged the award under Section 34. The District Judge (Commercial Courts), Tis Hazari, rejected the other grounds but set the award aside on May 19, 2026. The ground, raised first in a rejoinder, was that Rule 11(3) of the Consumer Protection Model Rules, 2020 barred the arbitrator, then President of the Delhi State Consumer Disputes Redressal Commission, from arbitral work. The District Judge held her de jure unable to act, in the absence of an express written waiver. The appellant then filed an appeal under Section 37.
The Bench explained, following Bhadra International (India) Pvt. Ltd. v. Airports Authority of India 2026 SCC OnLine SC 7, that ineligibility is the species and inability the genus. Every Seventh Schedule case is a case of inability, but not every legal disability is an ineligibility. The question of waiver arises only after Section 12(5) is attracted.
The Court found no Seventh Schedule relationship, relied on a Delhi High Court ruling that breach of consumer forum service conditions does not automatically terminate an arbitrator's mandate, and distinguished the Allahabad High Court's judgment in Lucknow Development Authority Through Vice Chairman v. Sudhanshu Rastogi 2023:AHC-LKO:2097 as an ad hoc arbitration matter. It noted that no objection under Section 16(2) was taken and no bias was alleged, though it did not rest its decision on waiver under Section 4, and it declined to enlarge the categories of ineligibility.
“…while de jure inability refers to a legal incapacity to perform the functions of an arbitrator, which may arise under the A&C Act or any other existing law, de jure ineligibility specifically flows from Section 12(5) read with the Seventh Schedule. The Supreme Court has accordingly held that de jure ineligibility is a species of de jure inability, which is the genus. Thus, while a person falling within a category specified in the Seventh Schedule would necessarily be de jure unable to act as an arbitrator, every legal disability rendering a person incapable of acting as an arbitrator would not, by that fact alone, constitute an ineligibility under Section 12(5)”, the Bench noted.
The Court allowed the appeal, set aside the finding on Rule 11(3) and the judgment to that extent, and restored the award. The District Judge's findings on the other grounds were not challenged and remain undisturbed. The pending application was closed.
Cause Title: M/s Airport Handling Services v. Indian Institute of Technology, Kanpur (Neutral Citation: 2026:DHC:8387-DB)
Appearances:
Appellant: Jawahar Raja, Anirudh Ramanathan, Sonali Shelar, Tamanna Pankaj, Sumit Wadhva, Priya Vats, Anoop George, Nitai Hinduja and Ishaan Goel, Advocates.
Respondent: Manish Paliwal, Advocate.