In Bhadra International (India) Pvt. Ltd. v. Airports Authority of India¹, the Supreme Court examined the validity of a unilateral appointment of a sole arbitrator under Section 12(5) of the Arbitration and Conciliation Act, 1996 (“A&C Act, 1996”), and clarified the scope of waiver under the proviso thereto. Allowing the appeals, the Court held that an arbitrator appointed unilaterally by an authority rendered ineligible under the Seventh Schedule is de jure incompetent to act, and that mere participation in proceedings does not amount to waiver by “express agreement in writing”.

The dispute arose out of two License Agreements (“Agreement”) dated 29th November 2010, executed between the Airports Authority of India (“AAI”) and a consortium comprising Bhadra International (India) Pvt. Ltd. and Novia International Consulting Aps for providing ground handling services at certain airports. Clause 78 of the Agreement provided that disputes would be referred to the sole arbitration of a person appointed by the Chairman of AAI. The clause expressly stipulated that it would be no objection that the arbitrator was a servant of AAI.

Disputes emerged in 2015. On 27th November 2015, the appellants invoked arbitration. Thereafter, the Chairman of AAI appointed a sole arbitrator in terms of Clause 78 of the Agreement. In the first procedural order dated 22 March 2016, the arbitrator recorded that “none of the parties have any objection to my appointment as the Sole Arbitrator.” The proceedings continued for over two years, including extensions of mandate under Section 29A of the A&C Act, 1996. Eventually, the arbitrator passed a ‘Nil’ award rejecting both claims and counter-claims.

The appellants being aggrieved by the award challenged it under Section 34 of the A&C Act, 1996 and subsequently sought amendment to contend that the appointment itself was invalid under Section 12(5) of the A&C Act, 1996, as inserted by the Arbitration and Conciliation (Amendment) Act, 2015. The Single Judge and thereafter the Division Bench of the Delhi High Court rejected the challenge, holding that the appointment was not unilateral since it followed the appellants’ invocation notice and that the appellants had waived objection by participating in the proceedings without protest.

Before the Supreme Court, the central question was whether the Chairman of AAI, being ineligible under the Seventh Schedule, could validly appoint a sole arbitrator, and whether the appellants had waived their objection by conduct.

The Court commenced its analysis by underscoring that Section 18 of the Arbitration Act, which mandates equal treatment of parties, applies not only to arbitral proceedings but also to the process of constituting the arbitral tribunal. Equal treatment necessarily entails equal participation in the appointment process. Party autonomy, though recognised under Section 11(2), is subject to the mandatory safeguards contained in the A&C Act, 1996.

Relying on TRF Ltd. v. Energo Engineering Projects Ltd., (2017) 8 SCC 377, Bharat Broadband Network Ltd. v. United Telecoms Ltd., (2019) 5 SCC 755, and Perkins Eastman Architects DPC v. HSCC (India) Ltd., (2020) 20 SCC 760, the Court reiterated that once a person becomes ineligible to act as arbitrator by operation of Section 12(5) read with the Seventh Schedule, such person is equally incompetent to nominate or appoint another arbitrator. The ineligibility strikes at the root of the appointment and renders the mandate void ab initio. The Court observed that “one who cannot sit on the chair himself cannot authorise another to sit on it either.”

The Court held that the Chairman of AAI, being part of the management of one of the parties, squarely fell within Items 1, 5 and 12 of the Seventh Schedule. Consequently, the unilateral appointment of the sole arbitrator was invalid and the arbitrator was de jure unable to perform his functions under Section 14(1)(a) of the A&C Act, 1996.

Turning to waiver, the Court examined the proviso to Section 12(5), which permits parties to waive ineligibility “by an express agreement in writing” entered into after disputes have arisen. Rejecting the respondent’s contention that the first procedural order recording “no objection” constituted such waiver, the Court held that waiver requires a conscious, clear and unequivocal written agreement. Mere participation, filing of statement of claim, seeking extension under Section 29A, or failure to object at the initial stage does not satisfy the statutory requirement. The right to object under Section 12(5) cannot be taken away by implication.

On the stage of objection, the Court clarified that ineligibility under Section 12(5) results in de jure inability and goes to the inherent jurisdiction of the tribunal. An objection based on such ineligibility can therefore be raised at any stage, including for the first time in proceedings under Section 34. An award rendered by an ineligible arbitrator is liable to be set aside.

Significantly, the Court also observed that unilateral appointment clauses in public-private contracts are vulnerable to challenge under Article 14 of the Constitution of India, for being arbitrary and violative of the principle of nemo judex in causa sua, which forms part of the fundamental policy of Indian law.

Accordingly, the Supreme Court allowed the appeals, set aside the impugned judgment of the High Court, and held that the appointment of the sole arbitrator was invalid. The decision reinforces the mandatory nature of Section 12(5) of the A&C Act, 1996, affirms that neutrality in tribunal constitution is a non-negotiable statutory requirement, and clarifies that waiver must strictly conform to the proviso’s textual mandate.

By - Akarsh Pandey and Vaibhav Shahi