Consumer Commission President Acts as Arbitrator Despite Service Restriction; Delhi High Court Says It Does Not Create Section 12(5) Ineligibility and Restores Arbitral Award Against IIT Kanpur
Can Consumer Commission Member Act as Arbitrator? Delhi High Court Distinguishes Service-Rule Violation From Statutory Ineligibility Under Arbitration Act
Facts
The Delhi High Court considered an appeal under Section 37 of the Arbitration and Conciliation Act, 1996, read with Section 13 of the Commercial Courts Act, against a judgment dated 19 May 2026 by the District Judge (Commercial Court), Tis Hazari. The District Judge had allowed IIT Kanpur’s Section 34 petition and set aside an arbitral award dated 28 February 2024. AIRPORT HANDLING
The appellant, M/s Airport Handling Services, is a partnership firm engaged in customs clearance, shipping and freight-forwarding services. It obtained MSME registration on 29 August 2012. The respondent, Indian Institute of Technology, Kanpur, is an autonomous institution of national importance. AIRPORT HANDLING
The parties had entered into various service agreements between 2003–2011 and 2014–2017. Airport Handling Services raised invoices between 2004 and 2018 aggregating to approximately ₹21.29 crore, against which IIT Kanpur paid approximately ₹21.16 crore. AIRPORT HANDLING
After reminders and a legal notice, Airport Handling Services approached the Micro and Small Enterprises Facilitation Council (MSEFC) on 6 May 2022. Conciliation failed, and the dispute was referred to the Delhi Arbitration Centre (DAC) under Section 18(3) of the MSMED Act. AIRPORT HANDLING
The DAC appointed former Delhi High Court Judge Justice Sangita Dhingra Sehgal (Retd.) as Sole Arbitrator. She furnished the statutory Section 12 declaration. Both parties filed pleadings and evidence, and IIT Kanpur raised no objection under Section 16(2) to the Arbitrator’s competence. AIRPORT HANDLING
On 28 February 2024, the Arbitrator awarded ₹27,76,996 inclusive of interest in favour of Airport Handling Services. AIRPORT HANDLING
IIT Kanpur then filed a Section 34 petition.
Significantly, its original petition did not challenge the Arbitrator’s eligibility under Rule 11(3) of the Consumer Protection Service Rules. That objection appeared for the first time in IIT Kanpur’s rejoinder dated 21 January 2025. AIRPORT HANDLING
The District Judge rejected IIT Kanpur’s other objections but accepted this new contention. Since the Arbitrator was serving as President of the Delhi State Consumer Disputes Redressal Commission (SCDRC), the District Judge held that Rule 11(3) legally barred her from undertaking arbitration and consequently made her de jure unable to act. The award was therefore set aside. AIRPORT HANDLING
Airport Handling Services appealed.
Issues
The principal legal issue was:
Does a service-rule restriction preventing the President or Member of a Consumer Commission from undertaking arbitral work make that person statutorily ineligible to act as arbitrator under Section 12(5) read with the Seventh Schedule of the Arbitration Act?
This raised three connected questions:
- What is the distinction between “de jure inability” under Section 14(1)(a) and “de jure ineligibility” under Section 12(5) read with the Seventh Schedule?
- Does Rule 11(3), being a service-condition restriction, automatically invalidate the arbitrator’s mandate?
- Was an express written waiver under the proviso to Section 12(5) necessary in this case? AIRPORT HANDLING
Appellant’s Arguments
Airport Handling Services argued that Rule 11(3) merely governed the conditions of service of the President and Members of the Consumer Commission.
Even if the Arbitrator breached that condition by accepting arbitration work, it did not follow that she became statutorily ineligible under Section 12(5). AIRPORT HANDLING
The appellant argued that an express written waiver is required only where Section 12(5) is actually attracted. Since no relationship or circumstance falling within the Seventh Schedule was identified, there was nothing requiring waiver under its proviso. AIRPORT HANDLING
It further emphasised that this was a statutory arbitration under Section 18 of the MSMED Act, with the arbitrator appointed through the Delhi Arbitration Centre, rather than a private unilateral appointment. AIRPORT HANDLING
Finally, IIT Kanpur had fully participated in the arbitration without:
- raising a Section 16 objection;
- seeking termination of the mandate under Section 14; or
- otherwise questioning the Arbitrator’s competence.
The objection was raised only later in the Section 34 rejoinder. AIRPORT HANDLING
Respondent’s Arguments
IIT Kanpur argued that Rule 11(3) imposed an absolute restriction upon the Arbitrator from undertaking arbitral assignments while serving as President of the SCDRC.
Therefore, according to IIT Kanpur, she was legally incapable of acting as arbitrator and the award could not survive. AIRPORT HANDLING
It relied particularly on the Supreme Court’s decision in Bhadra International (India) Pvt. Ltd. v. Airports Authority of India to contend that a legally ineligible arbitrator becomes de jure unable to act under Section 14(1)(a).
IIT Kanpur also argued that because there was no express written waiver, continuation of the Arbitrator’s mandate was invalid. AIRPORT HANDLING
Analysis of the Law
Section 12(5) — De Jure Ineligibility
Section 12(5) applies where the arbitrator’s relationship with:
- the parties;
- counsel; or
- the subject matter of the dispute
falls within a category specified in the Seventh Schedule.
In such circumstances, the person is statutorily ineligible to be appointed as arbitrator.
After the dispute arises, the parties can waive that disqualification only by an express agreement in writing. AIRPORT HANDLING
Section 14(1)(a) — De Jure Inability
Section 14(1)(a) is wider.
It provides for termination of the mandate where an arbitrator becomes de jure or de facto unable to perform his or her functions.
The High Court stressed that the expression “de jure inability” is not confined to circumstances arising under Section 12(5) and the Seventh Schedule. AIRPORT HANDLING
This distinction became decisive.
Precedent Analysis
Bhadra International (India) Pvt. Ltd. v. Airports Authority of India
The Delhi High Court relied extensively upon the Supreme Court’s 2026 judgment.
The Supreme Court explained that de jure inability is the broader category. It may arise under the Arbitration Act or another law that legally prevents an arbitrator from acting.
By contrast, de jure ineligibility specifically arises from Section 12(5) read with the Seventh Schedule. AIRPORT HANDLING
The Delhi High Court distilled the relationship as follows:
De jure ineligibility is a species; de jure inability is the genus.
Therefore:
A person falling within the Seventh Schedule is necessarily de jure unable to act, but every legal disability does not automatically constitute Section 12(5) ineligibility.
That distinction was central to the outcome. AIRPORT HANDLING
HRD Corporation v. GAIL (India) Ltd. and Clarke Energy India Pvt. Ltd. v. SAS EPC Solution Pvt. Ltd.
These decisions reinforced the proposition that the Seventh Schedule identifies specific relationships and circumstances creating statutory ineligibility.
Once such ineligibility exists, the arbitrator becomes de jure unable to act.
But the reverse proposition does not follow: every case of de jure inability is not necessarily Section 12(5) ineligibility. AIRPORT HANDLING
Bharat Broadband Network Ltd. v. United Telecoms Ltd.
The High Court explained that the stringent requirement of an express written waiver applies when Section 12(5) itself is attracted.
Where an arbitrator falls within the Seventh Schedule, waiver can only occur through an express written agreement after the dispute arises. AIRPORT HANDLING
But this raised a logically prior question:
Was Section 12(5) attracted at all?
The answer was no.
There was no allegation or finding that Justice Sehgal had any prohibited relationship with Airport Handling Services, IIT Kanpur, their lawyers or the subject matter falling within the Seventh Schedule. The challenge rested entirely on Rule 11(3). AIRPORT HANDLING
Service Restriction ≠ Section 12(5) Ineligibility
The Court held that Rule 11(3) concerns the conditions of service of Presidents and Members of Consumer Commissions.
Such a rule may regulate the conduct of the person holding that office and may carry consequences under the statutory framework governing that office.
But:
a service-condition restriction cannot, without anything more, be converted into statutory ineligibility under Section 12(5) of the Arbitration Act. AIRPORT HANDLING
This is the ratio of the judgment.
Delhi Integrated Multi Modal Transit Systems Ltd. v. Delhi Jal Board
This Delhi High Court precedent dealt with a similar challenge involving a Consumer Forum member acting as arbitrator.
The Court had held that even if accepting an arbitral assignment violated the person’s conditions of service, consequences might follow under those service conditions.
However, that did not automatically terminate the arbitral mandate. AIRPORT HANDLING
Applying that principle, the Division Bench held that consequences arising from a breach of service rules and consequences affecting the validity of the arbitration itself are legally distinct.
District Judge’s Fundamental Error
The High Court found that the District Judge had conflated de jure inability with de jure ineligibility.
A legal provision might conceivably make an arbitrator de jure unable to act under Section 14(1)(a), but this does not automatically bring the arbitrator within Section 12(5).
Section 12(5) must independently be satisfied by demonstrating a Seventh Schedule disqualification. AIRPORT HANDLING
Consequently, if the alleged disability does not fall within Section 12(5), the absence of an express written waiver cannot invalidate the mandate. AIRPORT HANDLING
Statutory MSME Arbitration
The Court also distinguished the Allahabad High Court judgment in Lucknow Development Authority v. Sudhanshu Rastogi.
That case concerned appointment and substitution in an ad hoc arbitration, where the arbitrator had herself recused after appointment to the Uttarakhand SCDRC.
Here, however:
- arbitration arose from Section 18 of the MSMED Act;
- the MSEFC referred the matter to the Delhi Arbitration Centre;
- DAC appointed the Sole Arbitrator; and
- DAC Arbitration Rules expressly recognise statutory arbitrations as a separate category. AIRPORT HANDLING
The real question was therefore not whether service discipline permitted a Consumer Commission President to accept arbitration work.
It was whether that restriction by itself created Section 12(5) ineligibility.
The High Court held that it did not.
IIT Kanpur’s Participation Without Objection
The Court found it material that Justice Sehgal furnished her Section 12 declaration before entering upon the reference.
IIT Kanpur then:
- filed its Statement of Defence;
- participated throughout the proceedings;
- did not raise a Section 16(2) objection; and
- did not seek termination of her mandate during arbitration. AIRPORT HANDLING
The Rule 11(3) objection appeared for the first time in the rejoinder in the Section 34 proceedings.
The Court clarified that delay in raising an objection cannot itself cure genuine statutory ineligibility under Section 12(5). But timing became relevant here because IIT Kanpur was attempting retrospectively to convert a service-condition restriction into an absolute Section 12(5) statutory bar. AIRPORT HANDLING
No Bias or Lack of Independence Alleged
The Court further recorded that IIT Kanpur had not alleged actual bias, partiality or lack of independence against the Arbitrator.
Its challenge rested exclusively upon the Service Rules.
Therefore, absent the factual foundation required by the Fifth or Seventh Schedule, the service-rule objection could not be converted into an independence or impartiality challenge under the Arbitration Act. AIRPORT HANDLING
Court’s Reasoning
The Court drew a precise distinction:
A service rule can regulate whether a person holding public/statutory office should accept an arbitral assignment.
But:
breach of that service rule does not automatically determine whether an arbitral award is valid under the Arbitration and Conciliation Act.
If the service restriction was violated, consequences could potentially follow under the law governing the office held by the Arbitrator.
That does not mean the arbitral award becomes void ab initio. AIRPORT HANDLING
The Court emphasised that Section 12(5)’s statutory categories cannot judicially be enlarged merely because some other statutory or regulatory provision imposes a restriction upon the person serving as arbitrator. AIRPORT HANDLING
Conclusion
The Delhi High Court allowed the appeal.
It set aside the District Judge’s finding that Justice Sangita Dhingra Sehgal (Retd.) was de jure unable to act as arbitrator merely because of Rule 11(3) governing her office as President of the State Consumer Commission. AIRPORT HANDLING
Importantly, the District Judge had already rejected IIT Kanpur’s other challenges concerning:
- limitation;
- the period for which the claim could be entertained; and
- appreciation of evidence.
Those findings were not challenged in the appeal and therefore remained undisturbed. AIRPORT HANDLING
Since the supposed de jure inability of the Arbitrator was the only ground on which the District Judge had set aside the award, removal of that ground meant that nothing remained to sustain the Section 34 interference.
Accordingly, the arbitral award dated 28 February 2024 was restored. AIRPORT HANDLING
Case Details
Case: M/s Airport Handling Services v. Indian Institute of Technology, Kanpur
Court: High Court of Delhi at New Delhi
Case Number: FAO (COMM) 231/2026 with CM APPL. 53142/2026
CNR: DLHC010368972026
Judges: Justice Anil Kshetrapal and Justice Shail Jain AIRPORT HANDLING
Reserved: 16 September 2026
Pronounced: 28 September 2026 AIRPORT HANDLING
Result: Appeal allowed; District Judge’s finding of de jure inability set aside; Section 34 interference reversed to that extent; arbitral award of ₹27,76,996 restored
