Delhi District Court
Sanirish Textile vs Shri Vidur Khanna on 23 May, 2025
DLCT010038552024
IN THE COURT OF SH. M. K. NAGPAL, DISTRICT JUDGE
(COMMERCIAL COURT)-13, CENTRAL DISTRICT,
TIS HAZARI COURTS, DELHI
Execution (COMM.) No. 113/2024
CNR No.: DLCT01-003855-2024
IN THE MATTER OF:
M/S Sanirish Textiles
Through its proprietor
Sh. Tarun Goel
At 507, Shiv Market, Krishna Gali,
Katra Neel, Chandni Chowk, Delhi-110006.
.......Decree Holder (DH)
Vs.
1) Sh. Vidhur Khanna
Proprietor of M/s Om Embroidery
At IX/1726, First Floor, Gali No. 6,
Main Road, Kailash Nagar,
Gandhi Nagar, Delhi-110031.
2) M/s Om Embroidery
At IX/1726, First Floor, Gali No. 6,
Main Road, Kailash Nagar,
Gandhi Nagar, Delhi-110031.
Also At:
Sh. Vidhur Khanna
Proprietor of M/s Om Embroidery
At House No. 2385, Gali Chhipiwara,
Near Jama Masjid, Nai Sarak,
Delhi-110006.
....... Judgment Debtors (JDs)
Execution (Comm.) 113/2024 Page No. 1 of 30
DLCT010038552024
ORDER ON OBJECTIONS DATED 29-30.05.2025 FILED
ON BEHALF OF JDs
23.05.2025
1. By this order, I shall decide the objections dated 29-
30.05.2025 filed by JDs to the present execution petition filed by
DH. Since JD No. 1 is the proprietor of JD No. 2 firm and a
proprietorship firm is not a legal entity, it should not have been
impleaded as a JD separately and hence, reference in this order
shall be made only to the proprietor of said firm as the sole JD.
2. The arguments advanced on objections by Sh. Vinay Kant
Singh, Ld. Counsel representing the JD and Sh. Satish Kumar
Jain, Ld. Counsel for DH have been heard and considered. The
record of this execution petition, including written submissions
filed on behalf of parties, has been perused and the original
arbitral record lying attached with file of this petition has also
been gone through.
3. The brief facts, as relevant for disposal of these objections,
are that this execution application/petition has been filed by the
DH against JD seeking execution of the arbitral award dated
08.07.2022 passed by a panel of three arbitrators appointed by
the Delhi Hindustani Mercantile Association (hereinafter referred
to as DHMA) in case bearing No. 02/2021-22, in the matter of
M/S Sanirish Textiles Vs. Vidhur Khanna & Anr.
Execution (Comm.) 113/2024 Page No. 2 of 30
DLCT010038552024
4. Vide the above said award, JD has been held liable to pay a
total amount of Rs. 19,10,358/- to DH, along with interest @
15% p.a. till realization of the said amount, and this amount of
Rs. 19,10,358/- includes and consists of an amount of Rs.
13,03,178/- as the principal amount, Rs. 6,02,180/- as interest
thereon @ 15% p.a. upto 31.03.2021 and the expenses/ cost
amount of Rs. 5,000/-. However, in the execution petition, the
total amount which has been claimed by DH is Rs. 21,87,283/- as
it also includes interest at the above said rate till filing of the
execution petition.
5. As gathered from records, there had been business
transactions between parties and the DH claims to have sold
some cloth articles to JD through different invoices and it is the
case of DH that though JD had been making part payments
against the said supplies, but the ledger account being maintained
by him in respect to the said transactions showed a balance of Rs.
13,03,178/- against JD. Since it is the case of DH that there was
an agreement between them for resolution of their disputes in
respect to said transactions through arbitration and the same was
to be conducted through DHMA, the DH had invoked the said
Clause and had approached DHMA through a claim for an
amount of Rs. 22,66,667/- dated 10.04.2021. This amount of Rs.
22,66,667/- consisted of the above amount Rs. 13,03,178/- as
principal and Rs. 9,63,489/- as interest thereon upto 20.02.2021
Execution (Comm.) 113/2024 Page No. 3 of 30
DLCT010038552024
@ 24% p.a. An Arbitral Tribunal consisting of three members
was then appointed by the DHMA for resolution of disputes
between parties and the same resulted in passing of an award
dated 08.07.2022, which is the subject matter of this execution
petition.
6. It is also gathered on perusal of arbitral proceedings and
the award that respondent being the proprietor of his above firm
named as M/S Om Embroidery had duly appeared before the Ld. Arbitral Tribunal and had also filed his reply and some other submissions and documents challenging the claim of DH as raised before the Ld. Arbitral Tribunal. It included an application dated 10.11.2021 filed U/S 13 of the Arbitration and Conciliation Act, 1996 challenging the impartiality, competency and jurisdiction etc. of the Ld. Arbitral Tribunal.
7. The award under execution has been challenged by JD on grounds that the goods in question were never delivered to him and the bills filed by DH are forged and fabricated; that goods were being purchased by him on bill to bill basis and no running account in respect to said transactions was being maintained by DH and no goods were purchased by him on credit basis; that there was no arbitration agreement between him and DH and hence, the DHMA had no jurisdiction to appoint the arbitrators and the award passed in the matter is not binding upon him in Execution (Comm.) 113/2024 Page No. 4 of 30 DLCT010038552024 view of judgment dated 23.05.2007 of the Hon'ble High Court in case Taipack Limited & Ors. Vs. Ram Kishor Nagar Mal, 2007 (3) ARBLR 402 Delhi.
8. It is also found challenged on grounds that there is no cause of action in favour of DH for filing of this execution petition; the DH is guilty of suppression of true and correct material facts from the Ld. Arbitral Tribunal and had obtained an award by manipulation of accounts; that the said award is illegal and invalid and based on conjectures and surmises; that the same is arbitrary and has been passed in collusion with the DH; that the same is in conflict with the public policy of India and against the rules of natural justice and further that the claim of DH raised in arbitration was barred by limitation as the JD had stopped dealing with DH in the month of February, 2017 and nothing was due from him as there were no business transactions between parties during the period from 2017-2021.
9. In terms of Section 35 of the A & C Act, 1996, an arbitral award is final and binding on parties and persons claiming under them, subject to the provisions contained in said Act. Section 36 of the above Act provides that where the time for making an application to set aside the arbitral award U/S 34 of the Act has expired, then subject to the provisions of sub-section (2) of this Section, such award shall be enforced in accordance with Execution (Comm.) 113/2024 Page No. 5 of 30 DLCT010038552024 provisions contained in CPC in the same manner as if it were a decree of the Court. Sub-section (2) of Section 36 lays down that the mere filing of a petition under Section 34 of the Act for setting aside the arbitral award shall not by itself render the award unenforceable, unless the Court stays the operation of award, which can be done by Court on an application filed for the said purpose and subject to the conditions laid down in sub- section (3) thereof.
10. Section 34 of the said Act lays down the grounds on which an arbitral award can be challenged by a party and in terms of sub-section (2) thereof, an award can be set aside by Court only if the party making an application to this effect establishes before the Court that any party to arbitral proceedings was under some incapacity; or that the arbitration agreement is not valid under the law governing parties or being in force at that time; the party moving the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or he was otherwise unable to represent his case; or the arbitral award deals with a dispute beyond the terms of submission to arbitration; the composition of Arbitral Tribunal or the procedure adopted by it was not in accordance with agreement between parties or that the award was in conflict with or derogation to the provisions of said Act; that the subject matter of dispute was not Execution (Comm.) 113/2024 Page No. 6 of 30 DLCT010038552024 capable of settlement through arbitration or that the award was in conflict with the public policy of India etc.
11. In terms of sub-section (3) of Section 34, a petition or application for setting aside an arbitral award has to be made within 3 months from the date on which the party making that application had received the arbitral award and this time can be extended by the Court for a further period of 30 days, as provided by the Proviso to this sub-section, if the Court is satisfied that the said party was prevented by a sufficient cause from making application within the abovesaid period of 3 months. As per sub- section (5) of Section 31 of the Act, after the award is made, a signed copy thereof has to be delivered to each party.
12. As already discussed, the award under execution in this petition is dated 08.07.2022 and a petition under Section 34 challenging the said award could have been filed by JD within a period of 3 months from the date on which a signed copy of the award under execution in this case was delivered to him or within a further period of 30 days as might have been permitted by the Court and as provided by the above Proviso. The JD in this case has no where indicated or claimed as to when a signed copy of the award in question was received by him, but he has not objected to the execution of award in question on ground that this execution petition could not have been filed or maintained by DH Execution (Comm.) 113/2024 Page No. 7 of 30 DLCT010038552024 before expiry of the time provided for in Section 36 of the said Act. Admittedly, JD has not filed any petition U/S 34 of the Act challenging the legality of award under execution on any of the grounds provided for in the said Section and hence, it has to be presumed and inferred from above that a signed copy of the award in execution was duly delivered to him and he had decided not to challenge the said award as per provisions contained in Section 34 of the Act.
13. However, as provided by Section 47 CPC, this Court has still to see as to whether the award under execution can be legally executed or not as this Section provides that all questions arising between the parties to a suit, in which the decree was passed, or their representatives, and relating to the execution, discharge or satisfaction of the decree shall be determined by the Court executing the said decree and not by a separate suit. As already discussed, in terms of Section 36 of the A & C Act, an arbitral award has to be executed like a decree passed by the Court.
14. As per the settled law on this subject, an executing Court cannot go behind a decree unless the decree passed in a case is a nullity or it is the outcome of fraud. Hence, most of the grounds which are found to have been taken or raised by JD herein while challenging the executability of the award in question cannot be looked into or considered by this Court in the present execution Execution (Comm.) 113/2024 Page No. 8 of 30 DLCT010038552024 petition, though the same may have been considered and appreciated had the JD filed a petition under Section 34 of the said Act challenging the validity or legality of the award and in accordance with the limits or constrains of provisions of sub- section (2) thereof.
15. However, in spite of the above, the question of existence or non-existence of an arbitration agreement or clause between parties, as has been raised by the JD in this petition, has to be certainly considered and decided by this Court as it goes to root of the case and it effects the jurisdiction of Ld. Arbitral Tribunal to enter upon the reference or submission of disputes between parties to it and thus, the legality or enforceability of the award itself. Again, any question touching upon the competence or neutrality of the Ld. Arbitral Tribunal and adversely effecting the award in question is also required to be decided by this Court in terms of the provisions contained in Section 47 of the Act.
16. As stated above, one of the main grounds on which JD has challenged the award in question in this case is the non-existence of an arbitration agreement or Clause between parties and it has been argued by Ld. Counsel representing him that a term printed on the invoices of this case regarding reference of disputes between parties to DHMA for arbitration does not constitute a valid and legal agreement between parties to refer their disputes Execution (Comm.) 113/2024 Page No. 9 of 30 DLCT010038552024 in respect to the said transactions for decision through arbitration and moreover, the said term was never signed by the JD.
17. Per-contra, it is the vehement contention of Ld. Counsel for DH that the above printed term constitutes a legal and valid arbitration agreement between parties and hence, the award in question which has been delivered by an Arbitral Tribunal constituted by the DHMA in terms of the said Clause, is legally sustainable and executable and the above objection being raised by JD is a false and frivolous objection and the objections of JD are liable to be dismissed and the award can be legally executed. It is also his submission that the employees or representatives of JD have also signed upon or put their signature on the invoices in question and the same denotes the acceptance of above term printed on these invoices and brings into existence a valid arbitration agreement or Clause between the parties.
18. In the case of Taipack Limited & Ors. (Supra) being referred to by Ld. Counsel for JD, the above question was directly under consideration before the Hon'ble High Court with reference to the interpretation of a similar term printed on the sale invoices of a seller, who was a member of the Paper Merchant Association (Regd.) Delhi. It was held by the Hon'ble High Court in said case that though no particular form was prescribed for an arbitration agreement, but it has to be Execution (Comm.) 113/2024 Page No. 10 of 30 DLCT010038552024 necessarily in writing and it may be in the form of an arbitration Clause in a contract or in the form of a separate agreement and it may even be contained in a document signed by the parties or in the letters etc. exchanged between them, but the mere printing of such a term on an invoice or bill may not amount to such an agreement, unless it can be clearly inferred from that document that the said term was accepted by the buyer and it brought in existence an arbitration agreement between the parties. The relevant observations made by their lordship in the said case are being re-produced as under:-
"13. In my opinion, the submission of the Petitioner that there was no existing agreement between the parties to refer the disputes arising out of their commercial relationship to Arbitration, is well founded. The arbitrator has rejected the objection as to non-existence of an arbitration agreement on the basis of the said Clause 4 printed on the reverse of the invoices etc. raised by the Respondent. The arbitrator held that since the Petitioner herein received the goods without any protest and prejudice, or without intimating any contrary intention through a letter or notice, it was not open for it to resile from the conditions printed on the bills & invoices of the Respondent herein. As per the said clause, the matter was referable to Paper Merchants Association, Chawri Bazaar, for arbitration. Consequently, according to the learned Arbitrator, an arbitration agreement existed between the parties in relation to their commercial transactions and he had jurisdiction to arbitrate the same.
14. The issue that arises for consideration is whether there was an existing and enforceable arbitration agreement between the parties, to refer their disputes in relation to the contract in question to Arbitration by the Paper Merchants Association (Regd.).
15. Arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen, or Execution (Comm.) 113/2024 Page No. 11 of 30 DLCT010038552024 which may arise between them in respect of a defined legal relationship, whether contractual or not. It may be in the form of an arbitration clause in a contract or in the form of a separate agreement. An arbitration agreement has necessarily to be in writing. It may be contained, inter alia, in a document signed by the parties, or in an exchange of letters, telex, telegrams or any other means of telecommunication, which provide a record of the agreement.
16. In the present case, there is no arbitration agreement which could be said to be 'contained in a document signed by the parties'. [See Section 7(4)(a) of the Act]. Therefore, one has to ascertain whether there is an arbitration agreement which could be said to be contained in 'exchange of letters, telex, telegram or any other means of telecommunication, which provide a record of the agreement'. An arbitration agreement is a species of the genus, that is Agreement. There has to be, first and foremost an agreement. For the existence of an agreement there has to be consensus ad idem between the parties, i.e., they should agree to the same thing in the same sense.
17. ...................................
18. What is the legal effect of the aforesaid conduct of the Respondent? In my view, when the Respondent supplied the goods in compliance of the Purchase Order, it accepted the terms and conditions stipulated therein. The mere printing of condition No. 4 on the reverse of the invoice was, at the highest, an offer made by the Respondent to the Petitioner. Unless the said offer was accepted by the Petitioner, it could not result in a binding and enforceable contract. The inclusion of terms and conditions at the back of the invoice, unilaterally issued by the Respondent while effecting delivery of the goods in terms of the Petitioner's purchase order, would not bind the Petitioner. The purchase order itself made it clear that the Petitioner did not intend to refer its disputes to arbitration in respect of the resulting transaction arising out of the said purchase order. Arbitration was clearly contra indicated when the Petitioner's purchase order itself stated that Any dispute arising out of this contract shall be subject to the jurisdiction of Courts in Delhi The Respondent was well aware that the Petitioner had shunned arbitration, yet the Respondent acted furtherance of the said purchase order by effecting supplies."
(Emphasis supplied) Execution (Comm.) 113/2024 Page No. 12 of 30 DLCT010038552024
19. Again, in the case of Priknit Retails Ltd. & Ors. Vs. Aneeja Agencies, http://indiankanoon.org/doc/15135985, also the Hon'ble High Court had again reiterated the above legal prepositions in following words:-
"24. Although, petitioner no. 1 had accepted the delivery of the goods, it is difficult to accept that petitioner no. 1 had also agreed to the arbitration clause as set out in the invoice. As noticed above, the name, quantity, as well as the date of the bill, is blank and the said clause also does not bear the signatures of either parties. Thus, for the said acknowledgement to be effective, it was necessary for it to be communicated to the respondent. However, as a signed copy of the said receipt was not returned by petitioner no. 1 to the respondent, it is not possible to accept that the said receipt/ arbitration agreement became effective.
26. Section 7(4) of the Act makes it explicitly clear that an arbitration agreement would be in writing, if it is contained in a document signed by the parties; or contained in exchange of letters, telex, telegrams or other means of telecommunications, which provides a record of the agreement; or in an exchange of Statement of claims and Defence in which the existence of the agreement is alleged and not denied. In the present case, none of the three clause of Section 7(4) of the Act are satisfied. The arbitration clause is not signed by any party. It is also not possible to accept that the said agreement was embodied in exchange of letters, telex, telegrams of other means of telecommunication. An exchange of such communications, which record the agreement between the parties to refer the disputes to arbitration, would be sufficient to fulfill the requisites of Section 7 of the Act. However, ti is necessary that such an agreement between the parties is discernible without any ambiguity.
27. Mere fact, that the delivery of goods had been accepted, would not imply that petitioner no. 1 had also agreed to the arbitration clause. As stated above, the said agreement is inchoate inasmuch as the blanks were never filled in. Further, the agreement remained unsigned. The contention, that petitioner no. 1 had not disputed the invoices would necessarily mean that petitioner no. 1 had also agreed to the arbitration Execution (Comm.) 113/2024 Page No. 13 of 30 DLCT010038552024 agreement, is unmerited. This is so because in order to communicate its acceptance to the arbitration clause, petitioner no. 1 would require acknowledgement of the goods in the form as indicated in the invoices and further also affix its signatures. Admittedly, petitioner no. 1 has neither signed the arbitration agreement nor communicated its acceptance to the same.
28. It is well settled that the arbitration agreement is a separate and an independent agreement, although it may be embodied in as a clause in the main agreement. In the present case, the respondent seems to have acknowledged this distinction and, therefore, had provided a separate receipt at the bottom of the invoice. This was separate from the main invoice. This receipt- cum-arbitration agreement was not executed by the parties and, thus, it is not possible to accept that an arbitration agreement existed between the parties.
29. In M/s Taipack Limited and Ors. v. Ram Kishore Nagar Mal (supra), a Coordinate Bench of this Court had held that the goods supplied pursuant to an offer to purchase would conclude the contract between the parties. The arbitration clause on the reverse of the invoice would not fructify in an agreement, unless specifically accepted by the purchaser.
34. In order to ascertain whether an agreement exists between the parties, it is necessary to establish that there was consensus ad idem between the parties. In the present case, it is not possible to accept that petitioner no. 1 had accepted the arbitration clause printed at the bottom of the invoice, as the same was neither filled in nor signed by petitioner no. 1. It is also not possible to accept that petitioner no. 1 had agreed to the arbitration clause."
(Emphasis supplied)
20. In M/s Hetampuria Tax Fab Vs. M/s Daksh Enterprises, FAO (COMM) No. 169/2022 and CM Nos. 48962/2022, decided on 15.11.2022 also, the Hon'ble High Court had once again reiterated the law laid down in above cases while interpreting a similar term printed on a delivery challan. The observations made their lordship in this case are as under:-
Execution (Comm.) 113/2024 Page No. 14 of 30DLCT010038552024 "7. It is ex facie clear that the above notation cannot be considered as an Arbitration Agreement. There is no statement that the parties had agreed that the disputes would be referred to arbitration, or to accept that the arbitral award as final and binding. The statement, " subject to Delhi Hindustani Mercantile Association delhi jurisdiction" cannot be construed an agreement to refer the disputes to arbitration.
8. The Delivery Challan, includes a statement at the bottom, which read as: " Any dispute whatsoever arising out of this transaction will be settled as per rules of Delhi Hindustani Mercantile Association Delhi, and the award of the arbitrator appointed by the said association will be final and binding upon the parties.
9. ...............
10. The appellant claims that since the respondent had signed the Delivery Challan, he had also accepted the arbitration clause. This contention is unmerited. A plain view of the Delivery Challan indicates that the signature has been appended below the statement to the effect that the goods have been received in good condition. It is apparent that the signatures relate to the said certification. It is well settled that a unilateral document issued by a party cannot, absent anything more, be constructed as a binding arbitration agreement.
11. ..........
12........There is no dispute that the clause has been set out in writing.
However, this Court is unable to accept that the same was agreed to by the respondent. In order to constitute an agreement, there must be a consensus between the parties. This court is unable to accept that the arbitration agreement had come into existence by the appellant unilaterally issuing a Delivery Challan and the respondent accepting delivery of the goods. As noted above, the respondent had accepted the goods and had signed the Delivery Challan indicating such acceptance. However, the same cannot be construed as appending the signatures to the arbitration agreement or agreeing to the arbitration clause as set out in the Delivery Challan.
13. In terms of Section 7(4) of the A & C Act, an arbitration agreement may also be contained in exchange of letters, telex, telegrams and other means of telecommunication, which provide a record of the agreement. It can also be discerned by an exchange of the statement of Execution (Comm.) 113/2024 Page No. 15 of 30 DLCT010038552024 claims and defence in which the arbitration clause is asserted by one party and not denied by the other. However, it is essential for the Court to find that the parties were ad idem for referring the disputes to arbitration.
14. The Delivery Challan is a unilateral document, which is issued for the purposes of recording the delivery of goods. As an instrument, it does not embody the terms of the contract between the parties. Thus, unilaterally including a clause in the printed Delivery Challan would not constitute an agreement between the parties merely because the counter party had accepted the delivery of the goods."
(Emphasis supplied)
21. The Court further observed in para no.17 of the said judgment:-
"This court is unable to accept that the respondent had agreed to the said stipulation by accepting the delivery of goods...."
(Emphasis supplied)
22. Coming to facts of the present case, it is observed that copies of total 24 invoices issued by DH in respect to the goods supplied by him to JD herein are available in the original records of arbitration proceedings summoned by this Court, with or without the delivery challans in respect to such invoices. It is found on bare perusal of the contents of these invoices and delivery challans that the above term about reference of disputes between parties through DHMA for arbitration is found printed only on invoices issued by DH and not on the delivery challans. Further, though it is found that all these invoices are bearing signatures of some employee or agent of JD, but in none or these invoices the said signatures are found to have been put or affixed as a token of acceptance of the above term about settlement of Execution (Comm.) 113/2024 Page No. 16 of 30 DLCT010038552024 disputes between parties through arbitration and almost on all the invoices, the signatures have apparently been put as a token of receiving of the goods or articles mentioned in these invoices. Again, in some of these invoices an endorsement about the receipt of goods or quantity thereof is also found to have been specifically made along with the above signatures.
23. Hence, in view of the above facts and also in view of the prepositions of the law laid down by the Hon'ble High Court in above said cases, the unilateral mention of an arbitral clause in the above invoices raised by DH herein cannot bring into existence a valid and binding arbitral agreement between the parties, in absence of the express consent or acknowledgment of parties to create such an agreement. It is not the case of DH that apart from the above Clause, there is any such acknowledgment or consent given by JD in any other form for reference of their disputes to arbitration and hence, it can be said that there is even no contemporaneous material to indicate that the parties herein had agreed for reference of their disputes in respect to the above invoices or transactions for adjudication through the arbitration. Further, in view of the above judgments and the facts of this case as discussed above, it can also be said that there was no consensus ad idem between parties to this case for reference of their disputes to arbitration.
Execution (Comm.) 113/2024 Page No. 17 of 30DLCT010038552024
24. Ld. Counsel for DH has also defended the award under execution on ground that the above objection regarding the absence of an arbitration agreement or Clause between parties was not raised by JD before the Ld. Arbitral Tribunal in his application filed under Section 13 of the above said Act and it is also his contention that since the JD has not challenged the jurisdiction of Ld. Arbitral Tribunal in the said application on abovesaid ground, he is now estopped from raising the above objection before this Court. It is also his submission that even otherwise, in terms of provisions contained in Section 16 of the said Act, the Ld. Arbitral Tribunal was competent to adjudicate upon and decide the question pertaining to its jurisdiction and since it had decided to proceed further in the matter and to adjudicate upon the disputes through the award in question, it should be presumed and inferred that there was no merit in the above objections raised by JD in his said application. It is further his contention that moreover, the above objections raised by JD were finally dismissed by the Ld. Arbitral Tribunal in terms of observations made in the award itself.
25. It is true that in terms of provisions contained in Section 16 of the above said Act, Ld. Arbitrator is competent to decide the questions pertaining to his own jurisdiction, but it does not mean that the Court is totally prohibited to decide an objection regarding the jurisdiction or competency of an Arbitrator.
Execution (Comm.) 113/2024 Page No. 18 of 30DLCT010038552024 Moreover, in terms of provisions contained in sub-sections (3) & (4) of this Section, the Ld. Arbitral Tribunal should have first decided the above objections filed by JD through the said application, including the objection about lack of their jurisdiction, and only then they should have proceeded further with the arbitral reference for adjudication thereof. It is observed that though the award under execution states that the Ld. Arbitral Tribunal had decided to keep pending the said objections of JD and to dispose off the same through the final award itself, but from the proceedings found recorded in the file of original arbitral record lying attached herewith, no such order of the Ld. Arbitral Tribunal has been traced out by this Court. Hence, the failure of Ld. Arbitral Tribunal to adjudicate upon the specific objections raised by JD in his above application regarding the lack of their jurisdiction has also resulted in miscarriage of justice to the JD, when it is viewed in light of the facts already discussed by this Court regarding the absence of an arbitral Clause or an agreement between parties for reference of their dispute to arbitration, though this fact may not be sufficient to hold the said award in a nullity and hence, non-executable.
26. Further, Section 12 of the A & C Act, 1996 contains the grounds on which appointment of an arbitrator can be challenged and a bare perusal of the provisions contained in this Section shows that an arbitrator has to be an independent person. Any Execution (Comm.) 113/2024 Page No. 19 of 30 DLCT010038552024 relation or interest of arbitrator with any of the parties or even the non-disclosure thereof can render an arbitrator to be incompetent to conduct the arbitration proceedings in terms of said Section and the award to be delivered by such an arbitrator to be non-est or a nullity in eyes of law and hence, non-executable. The entire thrust of provisions contained in above Section and Act is to ensure that an arbitrator is a neutral person and he represents the consent of all parties concerned. Sub-section (2) of Section 12 of the said Act makes it necessary for the Arbitrator to make certain disclosures mentioned in Sub-section (1) thereof in form specified in Sixth Schedule of the Act and Sub-section (5) thereof, which was inserted by the A & C (Amendment) Act, 2015, provides that notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule of Act shall be ineligible to be appointed as an arbitrator. However, as per proviso added to this sub-section, the parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.
27. As already discussed, the above printed term and condition of invoices issued by DH in respect to his business transactions with the JD has been held to be insufficient to constitute a legal, valid and binding arbitration agreement between parties or the Execution (Comm.) 113/2024 Page No. 20 of 30 DLCT010038552024 intent of parties to enter into any such agreement as the relevant part of the said invoices, on which the above term and condition about resolution of dispute between parties by arbitration through DHMA is printed, has not been found to be signed by the parties or the JD and the signatures of employees or representatives of JD as appearing on these invoices are found to have been put by them only in token of receiving of the goods sold and supplied by DH to JD through the said invoices. Hence, it has been inferred therefrom and held on its basis that there was no agreement between the parties to refer their disputes pertaining to said invoices for adjudication to the DHMA or any other person as an arbitrator. Since the DHMA is not a natural person and has been stated to be a body or association consisting of traders in some particular fields or businesses, the appointment of the above panel of three arbitrators by it for adjudication of such disputes has also to be taken without any valid and legal agreement between parties to appoint them in the said capacity.
28. Further, even if for the sake of arguments it is assumed that the above printed term and condition of invoices constituted a valid arbitration agreement between parties, then also the DH alone should not have unilaterally appointed or got appointed the above arbitral tribunal for adjudication of disputes between parties and it was required to be done with the consent and concurrence of JD herein or by having resort to the provisions of Execution (Comm.) 113/2024 Page No. 21 of 30 DLCT010038552024 Section 11 of the above said Act, in case the JD was not coming forward to get their disputes in respect to the said invoices resolved through the process of arbitration. A perusal of the arbitral record shows that at no point of time or at no stage of arbitral proceedings, the JD herein had given his such consent for adjudication of his disputes with DH through the arbitration proceedings, which were assumed or being conducted by the Ld. Arbitral Tribunal. Hence, simply because if the JD failed to respond to the notice dated 23.02.2021 given by DH invoking the above said arbitration clause or agreement or the notice dated 30.06.2021 sent by DHMA about constitution of the arbitral panel, or even the initial notices sent by Ld. Arbitral Tribunal regarding assumption of the arbitral process or proceedings conducted on above claim raised by DH, it cannot be assumed, said or held that the JD had surrendered to or accepted the jurisdiction of Ld. Arbitral Tribunal as in terms of proviso to Section 12 (5) of the said Act, any such waiver of the objection to jurisdiction has to be made by an express agreement in writing and it cannot be inferred from the conduct of a party.
29. It is now well settled that an award which has been given by a sole arbitrator unilaterally appointed or got appointed by a party is void ab inito and it has to be treated as non est in the eyes of law. It is also settled that if a person himself is not competent to act as an arbitrator because of the reason that he has Execution (Comm.) 113/2024 Page No. 22 of 30 DLCT010038552024 an interest in any of the parties or the subject matter of dispute between them, then he cannot also appoint any other person to act as an arbitrator. The principles of fair play are considered pivotal and sacrosanct to the appointment of arbitrators as well as to the proceedings in arbitration and any omission thereof or deviation therefrom would result in striking at the very root of jurisdiction of arbitrator and it would render the entire proceedings conducted and award given by him as unacceptable and unsustainable in the eyes of law.
30. In case of Dharma Prathishthanam vs M/S. Madhok Construction Pvt. Ltd., 2005 (9) SCC 686, the Hon'ble Supreme Court of India observed as under:-
" The Constitution Bench in Khardah Company Ltd. Vs. Raymond & Co.(India) Private Ltd. AIR 1962 SC 1810 decided the issue from the view point of jurisdictional competence and held that what confers jurisdiction on the arbitrators to hear and decide a dispute is an arbitration agreement and where there is no such agreement there is an initial want of jurisdiction which cannot be cured even by acquiescence. It is clearly spelled out from the law laid down by the Constitution Bench that the arbitrators shall derive their jurisdiction from the agreement and consent. Thus, there is ample judicial opinion available for the proposition that the reference to a sole arbitrator as contemplated by para 1 of the First Schedule has to be a consensual reference and not an unilateral reference by one party alone to which the other party does not consent."
(Emphasis supplied)
31. In case of M/s Voestalpine Schienen Gmbh Vs. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665, the Hon'ble Supreme Court while dealing with the effect of introduction of Execution (Comm.) 113/2024 Page No. 23 of 30 DLCT010038552024 sub-section (5) of Section 12 of the Arbitration & Conciliation Act, 1996, with simultaneous inclusion of Seventh Schedule of the said Act, has emphasized and highlighted the need of neutrality of arbitrators and it was held by their Lordships in the said case that any relation or interest of arbitrator with any of the parties in any of the forms as mentioned in Seventh Schedule may effect the legality of award. It was also held by their Lordships in this case that even if any arbitration clause permitting unilateral appointment existed in an agreement prior to insertion of sub-section (5) of Section 12, the same is rendered a nullity by insertion of the said sub-section (5) and Seventh Schedule of the said Act.
32. On this aspect, it is also relevant here to state that while relying upon its earlier judgment in case of TRF Limited Vs. Energo Engineering Products Ltd., (2017) 7 SCR 409, the Hon'ble Supreme Court in case of Perkins Eastman Architects DPC & Anr. (Supra) has held that the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator and hence, a party to the agreement would be disentitled to make any appointment of an arbitrator. The relevant extracts of the said decision read as under:-
"21. But, in our view that has to be the logical deduction from [TRF Ltd. (TRF Ltd. v. Energo Engg. Projects Ltd., MANU/SC/0755/2017 :
(2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] Para 50 of the decision Execution (Comm.) 113/2024 Page No. 24 of 30 DLCT010038552024 shows that this Court has concerned with the issue, "whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator" The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator......"
(Emphasis supplied)
33. Following the above said decision of the Hon'ble Supreme Court in case of Perkins Eastman Architects DPC & Ors. (Supra), the Hon'ble High Court of Delhi in the case of Proddatur Cable TV Digi Services v. Citi Cable Network Limited (2020) 267 DLT 51 also held that it would be impermissible for a party to unilaterally appoint an arbitrator as in terms of Section 12(5) of the Arbitration & Conciliation Act read with the Seventh Schedule of the said Act, an employee would be ineligible to act as an arbitrator by virtue of the law as explained by the Hon'ble Supreme Court in TRF Ltd. (Supra) and Perkins Eastman Architects DPC & Ors. (Supra). It was further held by their Lordships that such ineligibility would also extend to a person appointed by such officials who are otherwise ineligible to act as arbitrators.
34. In the case of Narendra Kumar Prajapat (Supra), the Hon'ble High Court held as under :-
"4. In TRF Ltd. v. Energo Engineering Projects Ltd.: (2017) 8 SCC 377, the Supreme Court held that once the Arbitrator has become Execution (Comm.) 113/2024 Page No. 25 of 30 DLCT010038552024 ineligible by operation of law, he cannot nominate another as an arbitrator. In Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd.: (2020) 20 SCC 760, the Supreme Court, following the earlier decision in TRF Ltd. (supra), held that the Chairman-cum-Managing Director of a party was ineligible to appoint an arbitrator. Following the aforesaid decisions, this court in Proddatur Cable TV Digi Services v. Siti Cable Network Limited: (2020) 267 DLT 51 held that it is not permissible for a party to unilaterally appoint an arbitrator without the consent of the other party(ies). It is important to note that the aforesaid decisions were rendered in the context of Section 12(5) of the A&C Act.
xxx xxx xxx xxx
7. We find little merit in the aforesaid contentions. The proviso to Section 12(5) of the A&C Act is unambiguous. A party can waive its right to object to the ineligibility of an arbitrator under Section 12(5) of the A&C Act but the same is subject to two conditions. First, that the waiver is required to be by and done by an express agreement in writing; and second, that such agreement is entered into after the disputes have arisen. Unless both the aforesaid conditions are satisfied, there can be no waiver of the ineligibility of an arbitrator.
8. In Bharat Broadband Network Limited v. United Telecoms Limited:
(2019) 5 SCC 755, the Supreme Court had authoritatively held that waiver of a right to object to ineligibility of an arbitrator under Section 12(5) of the A&C Act cannot be inferred by conduct of a party. Such waiver can only be by an express agreement in writing. The Court had also clarified that "the expression 'express agreement in writing' refers to an agreement made in words as opposed to an agreement which is to be inferred by conduct".
9. In view of the above, the failure, if any, on the part of the respondent to object to the unilateral appointment of the sole arbitrator, cannot be construed as waiver of his right under Section 12(5) of the A&C Act.
10. The award rendered by an arbitrator who is ineligible to be appointed as such cannot be enforced.
11. In HRD Corporation v. GAIL (India) Ltd.: (2018) 12 SCC 471, the Supreme Court held as under:
"Since ineligibility goes to the root of the appointment, Section 12(5) read with the Seventh Schedule makes it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes "ineligible" to act as arbitrator. Once he becomes ineligible, Execution (Comm.) 113/2024 Page No. 26 of 30 DLCT010038552024 it is clear that, under Section 14(1)(a), he then becomes dejure unable to perform his functions inasmuch as, in law, he is regarded as "ineligible". In order to determine whether an arbitrator is de jure unable to perform his functions, it is not necessary to go to the Arbitral Tribunal under Section 13. Since such a person would lack inherent jurisdiction to proceed any further, an application may be filed under Section 14(2) to the Court to decide on the termination of his/her mandate on this ground."
(Emphasis Supplied)
12. In Govind Singh v. M/S Satya Group Pvt Ltd & Anr.:
2023/DHC/000081 this court held as under:
"In view of the above, the remaining question to be addressed is whether an arbitral award rendered by a person who is ineligible to act as an arbitrator is valid or binding on the parties. Clearly, the answer must be in the negative. The arbitral award rendered by a person who is ineligible to act as an arbitrator cannot be considered as an arbitral award. The ineligibility of the arbitrator goes to the root of his jurisdiction. Plainly an arbitral award rendered by the arbitral tribunal which lacks the inherent jurisdiction cannot be considered as valid. In the aforesaid view, the impugned award is liable to be set aside as being wholly without jurisdiction.
xxx xxx xxx xxx
14. This Court finds no infirmity with the aforesaid view. A person who is ineligible to act an Arbitrator, lacks the inherent jurisdiction to render an Arbitral Award under the A&C Act. It is trite law that a decision, by any authority, which lacks inherent jurisdiction to make such a decision, cannot be considered as valid. Thus, clearly, such an impugned award cannot be enforced."
(Emphasis supplied)
35. The Special Leave Petition (Civil) Diary No. 47322/2023 filed by Kotak Mahindra Bank Ltd. against the above said order of the Hon'ble High Court was also dismissed on 12.12.2023 by the Hon'ble Supreme Court with following words:-
"From paragraph 6 of the impugned order, it appears to be an admitted position that the Arbitrator unilaterally appointed by the petitioner was in eligible to be appointed as an arbitrator by virtue of Section12(5) of the Arbitration and Conciliation Act, 1996. Hence, in view of this peculiar factual position, no case for interference is made out in Execution (Comm.) 113/2024 Page No. 27 of 30 DLCT010038552024 exercise of our jurisdiction under Article 136 of the Constitution of India. The Special Leave Petition is accordingly dismissed."
(Emphasis supplied)
36. In the case of Narendra Kumar Prajapat (Supra), their Lordships have further held that even the non participation by a party in arbitration proceedings despite issuance of notice and non filing of objections on his behalf to the appointment of arbitrator or the proceedings being conducted by him cannot constitute a waiver of his rights to object to the appointment of arbitrator or to challenge the award passed by him and such waiver by a party has to be by an express agreement between the parties. These observations were made by their Lordships while quoting and following the view taken by the Hon'ble Supreme Court in case Bharat Broadband Network Ltd. Vs. United Telecoms Ltd., (2019) 5SCC 755 and the relevant extracts of the said observations are being reproduced herein below:-
"7. We find little merit in the aforesaid contentions. The proviso to Section 12(5) of the A&C Act is unambiguous. A party can waive its right to object to the ineligibility of an arbitrator under Section 12(5) of the A&C Act but the same is subject to two conditions. First, that the waiver is required to be by and done by an express agreement in writing; and second, that such agreement is entered into after the disputes have arisen. Unless both the aforesaid conditions are satisfied, there can be no waiver of the ineligibility of an arbitrator.
8. In Bharat Broadband Network Limited v. United Telecoms Limited:
(2019) 5 SCC 755, the Supreme Court had authoritatively held that waiver of a right to object to ineligibility of an arbitrator under Section 12(5) of the A&C Act cannot be inferred by conduct of a party. Such waiver can only be by an express agreement in writing. The Court had also clarified that "the expression 'express agreement in writing' refers Execution (Comm.) 113/2024 Page No. 28 of 30 DLCT010038552024 to an agreement made in words as opposed to an agreement which is to be inferred by conduct".
(Emphasis supplied)
37. As already discussed, the DHMA has been stated to be a body or association of traders, of which the DH herein was a member and hence, in light of the case law discussed above, the above association or body cannot be considered as a neutral or impartial or independent body and can be legitimately expected to be having some tilt in favour of its members. Therefore, the apprehensions expressed by JD and the challenge made by him to the appointment of above Arbitral Tribunal by the said association or body or the doubts raised about its neutrality for resolving the disputes between him and a member of the said body, i.e. DH herein have also to be viewed in the same perspective and it can be considered as a sufficient ground to raise a strong suspicion regarding the neutrality or impartiality of said association or the arbitrators appointed by it. Hence, for this reason also, the impugned arbitral proceedings can be said or considered to have been held against the spirit of principles of neutrality and impartiality running through the provisions of the above said Act and the Rules framed thereunder and it makes the impugned award unsustainable and unenforceable in the eyes of law.
38. Therefore, in view of the above factual and legal discussion, it is held that above award dated 08.07.2022 under Execution (Comm.) 113/2024 Page No. 29 of 30 DLCT010038552024 execution in this petition and as pronounced and delivered by the Ld. Arbitral Tribunal constituted by the DHMA, on a reference received from the DH herein for resolution of his disputes with JD as arising from the above business transaction and in terms of the above arbitration Clause printed or agreement contained in the above invoices issued by DH, is held to be a nullity and non- est in the eyes of law. Hence, the same is not legally executable and thus, this petition/application filed by the DH seeking execution thereof is being dismissed and the objections filed by JD are being allowed.
39. Let the file of this execution petition be consigned to record room after completion of due formalities.
40. The original arbitral record be sent back to the DHMA/ Ld. Arbitral Tribunal.
Digitally
signed by M
K NAGPAL
MK Date:
NAGPAL 2025.05.23
17:14:59
Announced in open
+0530
Court on 23.05.2025 (M. K. Nagpal)
District Judge, Commercial Court-13
Central District, Tis Hazari Courts,
Delhi/23.05.2025(r/rr)
Execution (Comm.) 113/2024 Page No. 30 of 30