Trade body named the arbitrator, so it was not unilateral: Delhi HC revives Rs 2.18 lakh award

A paper dealer lost its execution case because the buyer was not a member of the Paper Merchants Association. The Delhi High Court held that non-membership does not make the Association Executive Committee appointment of a sole arbitrator unilateral under Section 12(5), and sent the case back to the executing court.

An award of Rs 2,18,234 had been declared a nullity because the man who owed the money never belonged to the trade association that picked the arbitrator. On 6 November 2026 the Delhi High Court said that reasoning confused two different questions, and set the order aside.

A division bench of Justice Anil Kshetarpal and Justice Bharat Parashar held that the buyer’s non-membership of the Paper Merchants Association (Regd.), Delhi did not by itself make the appointment unilateral. The commercial court, it said, never identified any relationship that made the arbitrator ineligible.

The execution petition goes back to the commercial court. The bench left room for other objections that the buyer may still be entitled to raise.

A clause printed on the invoice

M/s V.K. Jain and Sons is a wholesale paper dealer. Neeraj Jain ran a business called Sarika Enterprises, and bought paper from it. The two admittedly had regular dealings.

The dealer said Rs 2,18,234 was outstanding on its running ledger. It said Mr Jain had issued Cheque No. 000074 dated 2 March 2017 for that sum, and then did not pay.

The invoice of 23 December 2016 carried printed terms. Clause 6 said any dispute, including one over non-payment, would go to the Paper Merchant Association (Regd.) Delhi for sole arbitration, and that the award of the arbitrator appointed by its Executive Committee would bind both parties.

An award nobody contested, then a nullity

The dealer went to the Association. Its Executive Committee appointed Mr Satya Narain Gupta as sole arbitrator, and the proceedings began in 2019. Mr Jain did not take part, despite notices.

The award, dated 31 January 2020, allowed the claim of Rs 2,18,234 with Rs 30,475 as interest, and further interest at 15 per cent a year until payment. The first execution petition (No. 187/2022) was dismissed for non-prosecution. A fresh one, Execution (Comm.) No. 14/2024, followed.

In that case Mr Jain objected. He said the arbitrator had been appointed unilaterally, and that he had never agreed in writing, after the dispute arose, to the Association or its committee making the appointment.

The District Judge (Commercial) accepted the objection on 28 January 2025. Membership of the Association was neither pleaded nor proved, the judge held, and part-payments against invoices did not show that Mr Jain accepted the clause. The appointment, on the request of a member, was hit by Section 12(5) and the award was a nullity.

What each side argued

Mr Anshul Sharma and Mr Vishesh Tomar appeared for the dealer. They argued that the clause named an independent body as appointing authority, so the dealer had no hand in the appointment. They said Mr Jain had accepted invoices and made part-payments, and relied on this court’s decision in SRF Limited v. Jonson Rubber Industries Limited.

They also said the commercial court had gone behind the award. Mr Jain had been served, stayed away, and never filed a Section 34 challenge. They cited Punjab State Civil Supplies Corporation v. Atwal Rice and General Mills and Sahayaraj v. Selvakumar.

Mr Rajeev Gupta and Mr Sandeep Yadav appeared for Mr Jain. He was never a member, they said, and so could not be bound by the Association’s machinery. The proviso to Section 12(5), requiring an express written waiver after a dispute arises, was mandatory.

They relied on Union of India v. M.V. Omni Projects, Kotak Mahindra Bank v. Narendra Kumar Prajapat, Taipack Limited v. Ram Kishore Nagar Mal and Rajesh Jain v. Shiv Shakti Impex. An executing court, they added, can always examine whether an award is a nullity.

Does an invoice clause bind the buyer?

The bench framed the main question in these words:

“whether such appointment can be regarded as a unilateral appointment attracting the prohibition contained in Section 12(5)” (para 2)

It began with whether a valid arbitration agreement existed. Justice Kshetarpal, writing the judgment, noted that Section 7 does not need a signed, separate document. What matters is consensus to refer disputes to arbitration, and the clause here was not vague: it said sole arbitration, named the Executive Committee as appointing authority and made the decision binding.

A clause printed on an invoice is not disqualified for that reason, the bench said. The question is whether the buyer received and accepted the invoices. It read SRF Limited as a Section 11 decision on a prima facie case, not a rule that every invoice clause binds the recipient.

The commercial court had said part-payment against an invoice does not show acceptance of the clause. The bench rejected that as an absolute rule. Invoices accepted over a continuing relationship, with part-payments, are a relevant circumstance.

The cheque was a different matter. It may support the debt, the court said, but it does not by itself show consent to arbitration. That has to come from the invoices and the surrounding facts.

Membership is not the only route in

The bench distinguished Taipack, where the stipulation was vague and the parties had exchanged inconsistent documents. Here, it noted, nothing showed Mr Jain had issued a purchase order with a contradictory dispute clause.

Rajesh Jain, the court said, dealt with the Association’s rules where both parties were members. It does not say a non-member can never agree to an Association-appointed arbitrator.

Membership may decide whether the Association’s internal rules bind a person. But a party can also agree, in writing, to have disputes referred to a tribunal appointed by a named third-party body. Non-membership, the court held, cannot be treated as conclusive proof that no arbitration agreement existed.

The Seventh Schedule was never invoked

On Section 12(5), the bench set out the rule: a person whose relationship with the parties, counsel or the dispute falls within the Seventh Schedule is ineligible to be an arbitrator, unless the parties waive this by an express written agreement made after the dispute arises.

It then looked at what the commercial court had found. There was no finding that Mr Gupta was an employee, consultant or adviser of the dealer, or part of its management, or interested in the outcome. The order named no item of the Seventh Schedule.

The clause did not give the dealer the power to appoint, the bench noted. The dealer may have invoked the clause, but the Executive Committee made the appointment. The commercial court, it held, had conflated membership with the separate statutory question of eligibility (para 44).

The judgment drew a line between a party appointing its own arbitrator and an independent body appointing under an agreed mechanism. It said the second

“cannot be equated with the former merely because one party happens to be a member” (para 41)

of the institution that made the appointment.

Precedents that did not fit

The Supreme Court’s decisions in Perkins Eastman Architects v. HSCC (India) and Bhadra International (India) v. Airports Authority of India were examined. Those cases, the bench said, assume that the appointing person is himself ineligible, or that the arbitrator has a Seventh Schedule relationship.

M.V. Omni Projects involved a power to appoint vested in an authority of one party. In Narendra Kumar Prajapat, the arbitrator was unilaterally appointed by the bank and his ineligibility was admitted. Mr Jain, the bench held, had shown no equivalent facts.

The bench added a caution. An Executive Committee is not neutral just because the clause names it. If the Association’s rules, or the circumstances of the appointment, show it was controlled by or acting for one side, the appointment would have to be tested against Sections 12 and 18. That must rest on material, not on membership alone.

Waiver and the absent respondent

The proviso to Section 12(5), the court said, comes into play only once an arbitrator is shown to be ineligible. Without a Seventh Schedule relationship, the lack of a separate written agreement after the dispute does not invalidate the appointment.

The bench also refused to accept the dealer’s argument on the other side. Relying on Bhadra International, it held that staying away from the arbitration does not cure an appointment that is otherwise hit by Section 12(5), because the waiver must be express and in writing.

It said its ruling did not rest on waiver at all. It rested on the fact that the specific statutory disqualification relied on had not been established.

How far an executing court can go

Mr Jain never filed a Section 34 petition. The bench still held that the commercial court could look at his objection. Citing Punjab State Civil Supplies Corporation, it said an executing court cannot go behind a decree, but can examine a jurisdictional defect that makes it a nullity.

The objection here went to the constitution of the tribunal, not to errors in appreciating evidence or computing the amount. Expiry of the limitation period cannot confer jurisdiction on a tribunal that inherently lacked it, the bench said. But any such inquiry must stay confined to the alleged defect.

Order

The Division Bench set aside the commercial court order of 28 January 2025 in Execution (Comm.) No. 14/2024. It rejected Mr Jain’s objections to the extent they challenged enforceability of the award solely on the ground of unilateral appointment under Section 12(5).

The execution petition is restored to its original number and sent back to the commercial court. That court is to proceed with execution without reopening the validity of the appointment on the grounds decided. It is to consider any other permissible objections that survive and have not been decided, within the limited jurisdiction of an executing court.

The appeal was allowed and the pending application closed. The judgment was reserved on 3 November 2026 and pronounced on 6 November 2026.