Mere Participation In Arbitration Won't Bar Challenge To Arbitrator's Eligibility, Waiver Must Be "Express & In Writing" : Supreme Court

The Supreme Court has ruled that a party's involvement in arbitral proceedings does not, in itself, constitute a waiver of its right to object to an arbitrator's eligibility. The Court clarified that the right to object can only be waived by an express written agreement, rejecting any notion of a "deemed waiver" arising from conduct alone under Section 12(5) of the Arbitration & Conciliation Act, 1996.

“The words “an express agreement in writing” in the proviso to Section 12(5) means that the right to object to the appointment of an ineligible arbitrator cannot be taken away by mere implication. The agreement referred to in the proviso must be a clear, unequivocal written agreement.”, observed a bench of Justices JB Pardiwala and KV Viswanathan.

The Court endorsed the Delhi High Court's decision in Govind Singh v. Satya Group Pvt. Ltd., 2023 SCC OnLine Del 37, where it was held that “it is not necessary to even examine whether the appellant had raised an objection. Even if the appellant had participated in the proceedings without raising any objection, it cannot be said that he had waived his right under Section 12(5) of the Act, 1996.”

The case arose from a licence agreement between Bhadra International and the Airports Authority of India (AAI), under which Clause 78 empowered the Chairman of AAI to appoint a sole arbitrator. After disputes arose and arbitration was invoked, the Chairman appointed an arbitrator pursuant to this clause. The appellants challenged the appointment, contending that it violated Section 12(5) read with the Seventh Schedule of the Act, which mandates independence and impartiality of arbitrators.

Aggrieved by the High Court's decision to reject the its plea to set aside the award passed by the unilaterally appointed arbitrator, the Appellant moved to the Supreme Court.

The High Court's said that the appointment was not unilateral as the arbitration had been invoked by the appellants.

Setting aside the impugned order, the judgment authored by Justice Pardiwala, reiterating the law laid down in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd.,(2020) 20 SCC 760 that a person who is statutorily ineligible to act as an arbitrator is equally barred from appointing one, observed that merely participating in the arbitral proceedings does not amount to consent to a one-sided appointment mechanism, and it wouldn't automatically waive the Appellant's right to challenge the ineligibility of the arbitrator.

The Court said that at the pre-award stage, the aggrieved party can approach to the court for substitution of an arbitrator, and at the post-award stage the aggrieved party may approach the court under Section 34 for setting aside of an arbitral award.

“When an arbitrator is found to be ineligible by virtue of Section 12(5) read with the Seventh Schedule, his mandate is automatically terminated. In such circumstance, an aggrieved party may approach the court under Section 14 read with Section 15 for appointment of a substitute arbitrator. Whereas, when an award has been passed by such an arbitrator, an aggrieved party may approach the court under Section 34 for setting aside the award.”, the court observed.

In light of the aforesaid, the Court drew the following conclusions:

"i. The principle of equal treatment of parties provided in Section 18 of the Act, 1996, applies not only to the arbitral proceedings but also to the procedure for appointment of arbitrators. Equal treatment of the parties entails that the parties must have an equal say in the constitution of the arbitral tribunal.

ii. Sub-section (5) of Section 12 provides that any person whose relationship with the parties or counsel, or the dispute, whether direct or indirect, falls within any of the categories specified in the Seventh Schedule would be ineligible to be appointed as an arbitrator. Since, the ineligibility stems from the operation of law, not only is a person having an interest in the dispute or its outcome ineligible to act as an arbitrator, but appointment by such a person would be ex facie invalid.

iii. The words “an express agreement in writing” in the proviso to Section 12(5) means that the right to object to the appointment of an ineligible arbitrator cannot be taken away by mere implication. The agreement referred to in the proviso must be a clear, unequivocal written agreement.

iv. When an arbitrator is found to be ineligible by virtue of Section 12(5) read with the Seventh Schedule, his mandate is automatically terminated. In such circumstance, an aggrieved party may approach the court under Section 14 read with Section 15 for appointment of a substitute arbitrator. Whereas, when an award has been passed by such an arbitrator, an aggrieved party may approach the court under Section 34 for setting aside the award.

v. In arbitration, the parties vest jurisdiction in the tribunal by exercising their consent in furtherance of a valid arbitration agreement. An arbitrator who lacks jurisdiction cannot make an award on the merits. Hence, an objection to the inherent lack of jurisdiction can be taken at any stage of the proceedings."

Headnote

Arbitration and Conciliation Act, 1996; Section 12(5) and Seventh Schedule – Ineligibility of Arbitrator – Unilateral Appointment – The principle of equal treatment of parties under Section 18 applies not only to arbitral proceedings but also to the procedure for appointment of arbitrators - Equal treatment entails that parties must have an equal say in the constitution of the arbitral tribunal - Any person whose relationship with the parties, counsel, or the dispute falls within the Seventh Schedule is ineligible to be appointed as an arbitrator by operation of law – Held a person who is statutorily ineligible to act as an arbitrator cannot nominate or appoint another person as an arbitrator - A unilateral appointment by one party, where that party has exclusive power to appoint a sole arbitrator, violates the principle of impartiality and neutrality.

Arbitration and Conciliation Act, 1996; Section 12(5) Proviso – Waiver of Ineligibility – “Express Agreement in Writing” – Held that the ineligibility of an arbitrator under Section 12(5) can only be waived by an "express agreement in writing" entered into by the parties subsequent to the disputes having arisen – Supreme Court laid down Parameters of Waiver- i. Mere participation in proceedings, filing a Statement of Claim, requesting an extension of time under Section 29A, or failing to object in the first procedural order does not constitute an "express agreement in writing" ii. Recording "No Objection": A procedural order recording that parties have "no objection" to the appointment is insufficient to satisfy the requirement of a conscious, written waiver under the proviso to Section 12(5).

Arbitration and Conciliation Act, 1996; Sections 14 and 34 – Challenge to Jurisdiction – Stage of Objection – Constitution of India; Article 14 – Public-Private Contracts - Held that an arbitrator falling under the Seventh Schedule becomes de jure unable to perform his functions, and his mandate terminates automatically - An objection to the inherent lack of jurisdiction due to such ineligibility can be raised at any stage, including for the first time in an application under Section 34 for setting aside the award – Held that unilateral appointment clauses in public-private contracts violate Article 14 for being arbitrary and failing to provide the minimum level of integrity required for quasi-judicial functions - Such clauses also violate the nemo judex rule, which constitutes a part of the fundamental policy of Indian law – Appeals allowed. [Relied on TRF Ltd. v. Energo Engineering Projects Ltd. (2017) 8 SCC 377; Perkins Eastman Architects DPC v. HSCC (India) Ltd. (2020) 20 SCC 760; Bharat Broadband Network Ltd. v. United Telecoms Ltd. (2019) 5 SCC 755; Dharma Prathishthanam v. Madhok Construction (P) Ltd. (2005) 9 SCC 686; Paras 55-107]

Supreme Court drew the following conclusions: i. The principle of equal treatment of parties provided in Section 18 of the Act, 1996, applies not only to the arbitral proceedings but also to the procedure for appointment of arbitrators - Equal treatment of the parties entails that the parties must have an equal say in the constitution of the arbitral tribunal; ii. Sub-section (5) of Section 12 provides that any person whose relationship with the parties or counsel, or the dispute, whether direct or indirect, falls within any of the categories specified in the Seventh Schedule would be ineligible to be appointed as an arbitrator - Since, the ineligibility stems from the operation of law, not only is a person having an interest in the dispute or its outcome ineligible to act as an arbitrator, but appointment by such a person would be ex facie invalid; iii. The words “an express agreement in writing” in the proviso to Section 12(5) means that the right to object to the appointment of an ineligible arbitrator cannot be taken away by mere implication - The agreement referred to in the proviso must be a clear, unequivocal written agreement; iv. When an arbitrator is found to be ineligible by virtue of Section 12(5) read with the Seventh Schedule, his mandate is automatically terminated - In such circumstance, an aggrieved party may approach the court under Section 14 read with Section 15 for appointment of a substitute arbitrator - when an award has been passed by such an arbitrator, an aggrieved party may approach the court under Section 34 for setting aside the award; v. In arbitration, the parties vest jurisdiction in the tribunal by exercising their consent in furtherance of a valid arbitration agreement - An arbitrator who lacks jurisdiction cannot make an award on the merits - an objection to the inherent lack of jurisdiction can be taken at any stage of the proceedings.

Cause Title: BHADRA INTERNATIONAL (INDIA) PVT. LTD. & ORS. VERSUS AIRPORTS AUTHORITY OF INDIA

Citation : 2026 LiveLaw (SC) 4

Click here to download judgment

Appearance:

For Petitioner(s) :Mr. Navin Pahwa, Sr. Adv. Mr. Ashish Mohan, Sr. Adv. Mr. Akshit Mago, Adv. Mr. Akshit Pradhan, AOR

For Respondent(s) :Mr. Parag Tripathi, Sr. Adv. Mr. Sonal K Singh, Adv. Mr. Ayan De, Adv. Mr. Shivang Singh, Adv. Mr. Anmol Adhrit, Adv. Ms. Sukanya Lal, AOR