The Delhi High Court has clarified that Rule 11(3) of the Consumer Protection (Conditions of Service of President and Members of the State Commission or District Commission) Model Rules, 2020, regulates the office of the SCDRC President and does not, by itself, attract the Seventh Schedule or trigger the written-waiver requirement under the proviso to Section 12(5) of the Arbitration Act. The Court held that a breach of a service-condition rule governing the office held by an arbitrator may entail consequences under the law regulating that office, but it does not automatically terminate the arbitral mandate under the Arbitration and Conciliation Act, 1996.
The Court further said that de jure inability under Section 14(1)(a) is the genus, while de jure ineligibility under Section 12(5) read with the Seventh Schedule is the species, and every legal disability does not translate into a Seventh Schedule disqualification. Further, the proviso to Section 12(5) requiring an express written waiver has no application unless the arbitrator falls within one of the categories specified in the Seventh Schedule, and the burden of establishing such a relationship lies on the party raising the objection.
The High Court also emphasised that a party that participates in arbitral proceedings without raising an objection under Section 16(2) and raises the alleged disability of the arbitrator for the first time in a Section 34 rejoinder cannot convert a service-condition restriction into a statutory bar under Section 12(5). Further, in statutory arbitrations under Section 18 of the MSMED Act conducted through institutional centres such as the DAC, the appointment of a Sole Arbitrator by the Registrar under the DAC Arbitration Rules stands on a materially different footing from ad hoc appointments and is not vitiated merely because the arbitrator holds another statutory office.
The Division Bench comprising Justice Anil Kshetarpal and Justice Shail Jain examined the interplay between Section 12(5) and Section 14(1)(a) of the A&C Act, drawing heavily upon the Supreme Court’s decision in Bhadra International (India) Pvt Ltd. v. Airports Authority of India [2026 SCC OnLine SC 7]. The Court noted that Section 12(5) read with the Seventh Schedule creates a specific category of ‘de jure ineligibility’ arising only from the relationships and circumstances enumerated in the Schedule, whereas Section 14(1)(a) contemplates ‘de jure inability’ which is a broader genus that may arise from the A&C Act or any other existing law.
The Court observed that de jure ineligibility is a species of de jure inability, and therefore, while every Seventh Schedule ineligibility results in de jure inability, the converse is not true. The Bench further observed that Rule 11(3) of the Service Rules is a condition governing the office of the President of the SCDRC and regulates the conduct of the office-holder, but a service-condition restriction cannot, without more, be transposed into a statutory ineligibility under Section 12(5).
The Court reiterated that even if acting as an arbitrator violated the conditions of service of a Consumer Forum member, the consequence of such violation would follow under the governing service law, but the arbitral mandate would not stand automatically terminated. The Court also noted that no material had been placed on record to establish that the Sole Arbitrator had any relationship with the parties, counsel, or subject-matter falling within the Seventh Schedule, and that the Respondent had not alleged any actual bias, partiality or lack of independence.
Briefly, Airport Handling Services, a partnership firm registered as an MSME and engaged in customs clearance, shipping and freight forwarding, entered into a series of Service Agreements with the Indian Institute of Technology, Kanpur (IIT Kanpur) between 2003 and 2011 and again between 2014 and 2017. The Appellant raised invoices aggregating approximately Rs. 21.29 crores between 2004 and 2018, against which IIT Kanpur made payments totalling approximately Rs. 21.16 crores, with the last two payments of Rs.2,200/- and Rs.5,035.83/- being made on May 03, 2018.
After reminders and a legal notice, the Appellant filed its claim before the Micro and Small Enterprises Facilitation Council (MSEFC) on May 06, 2022, following which the dispute was referred to the Delhi Arbitration Centre (DAC) on June 08, 2023, under Section 18(3) of the MSMED Act. The DAC appointed Ms. Justice (Retd.) Sangita Dhingra Sehgal, then President of the Delhi State Consumer Disputes Redressal Commission (SCDRC), as the Sole Arbitrator, who made a declaration under Section 12 of the Arbitration and Conciliation Act, 1996 (A&C Act) on July 11, 2023.
The Respondent filed its Statement of Defence without raising any objection under Section 16(2) of the A&C Act, and the Arbitrator passed an Award dated Feb 28, 2024, granting Rs. 27.76 lakhs in favour of the Appellant. The Respondent then filed a Section 34 petition, in which the objection regarding the Sole Arbitrator’s alleged de jure inability under Rule 11(3) of the Consumer Protection (Conditions of Service of President and Members of the State Commission or District Commission) Model Rules, 2020 was raised for the first time in the Rejoinder dated Jan 21, 2025. The District Judge rejected all other grounds but accepted this solitary objection and set aside the Award on the ground that the Sole Arbitrator was de jure unable to act by virtue of Rule 11(3).
