Trade Association's Arbitrator Appointment Not Unilateral Merely Because One Party Is A Member: Delhi High Court

The Delhi High Court has recently held that the appointment of an arbitrator by an independent trade association cannot be treated as unilateral merely because one party is a member of the association. It said that even non-members can agree to resolve disputes through an association's arbitration mechanism.

The ruling came as a Division Bench comprising Justice Anil Kshetarpal and Justice Bharat Parashar restored proceedings to enforce an arbitral award in favour of paper wholesaler V.K. Jain & Sons against Neeraj Jain, proprietor of  Sarika Enterprises, over unpaid dues of ₹2.18 lakh.

The Bench set aside a Commercial Court order that had declared the arbitral award invalid.

“The distinction between a unilateral appointment by a party and an appointment by an independent third-party body cannot be overlooked. In the former situation, the appointing party itself exercises control over the constitution of the Arbitral Tribunal. In the latter, the appointment is made by an independent body in accordance with the mechanism agreed upon between the parties.” 

“However, membership is not, by itself, the only legally permissible basis on which a person may agree to have disputes referred to an arbitral mechanism administered or facilitated by an Association", It added. 

The dispute arose from commercial dealings between paper wholesaler V.K. Jain & Sons and Neeraj Jain, proprietor of Sarika Enterprises, over unpaid dues of ₹2,18,234.

According to the wholesaler, Neeraj Jain issued a cheque dated March 2, 2017, towards the outstanding amount but failed to clear the dues.

The invoices, including one dated December 23, 2016, contained Clause 6, which provided for referring payment disputes to the Paper Merchants Association (Regd.), Delhi, for arbitration by an arbitrator appointed by its Executive Committee.

Invoking this clause, V.K. Jain & Sons approached the Association, whose Executive Committee appointed Satya Narain Gupta as sole arbitrator.

Arbitration commenced in 2019, but Neeraj Jain did not participate despite notices.

On January 31, 2020, the arbitrator awarded ₹2,18,234 as principal, ₹30,475 as interest and further interest at 15% annually until payment.

V.K. Jain & Sons first sought enforcement in 2022, but the petition was dismissed for non-prosecution. It subsequently filed fresh proceedings in 2024.

However, Neeraj Jain challenged enforcement, arguing that he was not an Association member and had never consented in writing, after the dispute arose, to the arbitrator's appointment.

On January 28, 2025, the Commercial Court accepted his objections, declared the appointment unilateral and the award a nullity, and dismissed enforcement proceedings.

Challenging the decision, V.K. Jain & Sons approached the Delhi High Court under Section 13 of the Commercial Courts Act, 2015, read with Order XXI Rule 58 CPC.

The wholesaler argued that the arbitration clause formed part of its invoices and that the Association's Executive Committee, not the wholesaler, appointed the arbitrator. Neeraj Jain maintained that the Association's mechanism could not bind a non-member without consent.

On examining the dispute, the High Court held that arbitration clauses printed on invoices could constitute valid agreements where commercial dealings and conduct demonstrated acceptance. However, merely issuing a cheque towards outstanding dues could not establish consent to arbitration.

“The question of consent to arbitration must be determined from the invoices and the surrounding circumstances, and cannot be inferred merely from an acknowledgment of monetary liability,” the Court observed.

The Bench further held that the Commercial Court wrongly treated Neeraj Jain's non-membership as sufficient to invalidate the appointment without identifying any disqualification under Section 12(5) of the Arbitration and Conciliation Act, 1996.

It clarified that an association's appointment mechanism was not automatically neutral, but allegations of control or bias required supporting evidence.

“However, such a conclusion must be founded upon material demonstrating the relevant relationship or control and cannot be presumed merely from the membership of one party,” the Court observed. 

The Court also held that executing courts could examine genuine jurisdictional objections, even without an earlier challenge to the award, but could not reassess its merits.

Allowing the appeal, the High Court set aside the January 28, 2025 order, rejected the unilateral-appointment objection and restored enforcement proceedings before the Commercial Court.

It directed the Commercial Court to proceed with enforcement without reopening the decided appointment issue, while considering any other surviving permissible objections.

For Appellant (M/s V.K. Jain & Sons): Advocates Anshul Sharma and Vishesh Tomar.

For Respondent (Neeraj Jain): Advocates Rajeev Gupta and Sandeep Yadav.