Right To Object Appointment Of Ineligible Arbitrator Can’t Be Taken Away By Mere Implication: Supreme Court

The Supreme Court held that the right to object to the appointment of an ineligible Arbitrator cannot be taken away by mere implication.

The Court held thus in Civil Appeals arising from the common Judgment of the Delhi High Court’s Division Bench, by which the Appeals under Section 37 of the Arbitration and Conciliation Act, 1996 (A&C Act) were dismissed.

The two-Judge Bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan observed, “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.”

The Bench said that an Arbitrator who lacks jurisdiction cannot make an award on the merits.

Senior Advocate Navin Pahwa appeared for the Appellants, while Senior Advocate Parag Tripathi appeared for the Respondent.

Facts of the Case

The Appellants (companies) respectively executed an agreement to form a joint consortium namely Bhadra International (India) Pvt. Ltd. and Novia International Consulting Aps, for the purposes of undertaking ground handling services at various airports in India. The Respondent-Airports Authority of India (AAI) floated two tender notices inviting tenders for appointment of an agency for ground handling services at some airports. In response to these notices, the Appellant consortium emerged as the successful bidder. Pursuant to the two notices, the parties executed two License Agreements and the Appellant was permitted to provide ground handling services at the specified airports. The Arbitration and Conciliation (Amendment) Act, 2015 came into effect and sometime in the year 2015, various disputes cropped up between the Appellants and the Respondent.

Resultantly, arbitration clause was invoked and the Sole Arbitrator passed the first procedural order recording that none of the parties had any objection to his appointment. Ultimately, arbitral awards were passed, whereby the claims and counter-claims of the respective parties were rejected. In effect, a ‘Nil’ award was passed. Aggrieved by the dismissal of claim, the Appellants challenged the award before the High Court. The Single Judge dismissed applications filed by the Appellants, against which Appeals were filed. The Division Bench dismissed the same and affirmed the Single Judge’s Order. Hence, the case was before the Apex Court.

Court’s Observations

The Supreme Court after hearing the arguments from both sides, noted, “It is a well settled position of law that in the absence of any contrary stipulation in the agreement, arbitral proceedings commence when a notice invoking arbitration is received by the respondent. … When an arbitration agreement is in violation of sub-section (5) of Section 12 of the Act, 1996, the parties can neither insist on appointment of an arbitrator in terms of the agreement nor would any appointment so made be valid in the eyes of law.”

The Court remarked that unilateral appointments are not consistent with the basic tenet of arbitration, i.e., mutual confidence in the Arbitrator and it would not be unreasonable for a party to apprehend that an Arbitrator unilaterally appointed by the opposite party may not act with complete impartiality.

“In other words, the ineligibility under Section 12(5) precedes de jure inability under Section 14(1)(a). In other words, de jure ineligibility is the specie and de jure inability is the genus. To put this in context, de jure inability is determined when an aggrieved party is able to indicate that the circumstances under the Seventh Schedule have been met”, it enunciated.

The Court clarified that once the Chairman is rendered ineligible by operation of law, he cannot nominate or appoint another person as an Arbitrator and hence, one who cannot sit on a chair himself cannot authorise another to sit on it either.

“The unilateral appointment of a sole arbitrator is void ab initio, and the sole arbitrator so appointed is de jure ineligible to act as an arbitrator in terms of Section 12(5) read with the Seventh Schedule of the Act, 1996. … Thus, we have no hesitation in saying that its High Court, in the impugned judgment, committed an error in holding that the appointment was not unilateral merely because the respondent proceeded to appoint the sole arbitrator pursuant to notice invoking arbitration”, it held.

The Court was of the view that a notice acts as a communication that the sender is aggrieved and seeks to invoke the arbitration agreement and it does not, by itself, operate as consent to any appointment to be made in the future.

“What flows from the aforesaid is when a right exists, i.e., the right to object to the appointment of an ineligible arbitrator in terms of Section 12(5), such a right cannot be taken away by mere implication. For a party to be deprived of this right by way of waiver, there must be a conscious and unequivocal expression of intent to relinquish it. Needless to say, for a waiver to be valid, it is necessary that the actor demonstrates the intention to act, and for an act to be intentional, the actor must understand the act and its consequences”, it explained.

The Court observed that the expression “express agreement in writing” demonstrates a deliberate and informed act that although a party is fully aware of the arbitrator’s ineligibility, yet it chooses to forego the right to object against the appointment of such an arbitrator.

“The requirement of an express agreement in writing has been introduced as it reflects awareness and a conscious intention to waive the right to object under sub-section (5) of Section 12. A clear manifestation of the expression of waiver assumes greater importance in light of the fact that the parties are overcoming a restriction imposed by law”, it added.

The Court elucidated that appointment of an arbitrator with the consent of both parties is the general rule, while unilateral appointment is an exception and when one party appoints an arbitrator unilaterally, even if its own consent is implicit, the consent of the opposite party stands compromised, and the choice of the former is effectively imposed upon the latter.

“Undoubtedly, the statute does not prescribe a format for the agreement. However, the absence of a prescribed format cannot be construed to mean that the waiver may be inferred impliedly or through conduct. We say so because the legislature has consciously prefaced the term “agreement” with the word “express” and followed it with the phrase “in writing”. This semantics denote the intention of the legislature that the waiver under the proviso to Section 12(5) must be made only through an express and written manifestation of intention”, it said.

The Court further held that the ineligibility of an arbitrator can be waived only by an express agreement in writing and in the present case, there is no agreement in writing, after the disputes arose, waiving the ineligibility of the sole arbitrator or the right to object under Section 12(5) of the A&C Act.

“The conduct of the parties is inconsequential and does not constitute a valid waiver under the proviso. The requirement of the waiver to be made expressly in the form of agreement in writing ensures that parties are not divested of their right to object inadvertently or by procedural happenstance”, it added.

The Court also noted that a notice invoking the arbitration clause under Section 21 of the A&C Act, a procedural order, submission of statement of claim by the Appellants, the filing an application seeking interim relief, or a reply to an application under Section 33 of the A&C Act, cannot be countenanced to mean “an express agreement in writing” within the meaning of the proviso to sub-section (5) of Section 12 of the A&C Act.

“… when an arbitrator is de jure unable to perform his function, his mandate would be automatically terminated under Section 14(1)(a), and the parties would be within their rights to apply to the court under Section 14(2) for termination of the arbitrator’s mandate and appointment of a substituted arbitrator”, it said.

The Court was of the opinion that a party aggrieved by the arbitrator’s ineligibility may challenge the award by filing an application under Section 34 of the A&C Act, as an award passed by an ineligible arbitrator is nullity, non-est, or void ab initio, and against the public policy of India.

“A challenge to an arbitrator’s ineligibility could be raised at any stage because an award passed in such circumstance is non-est, i.e., it carries no enforceability or recognition in law. We say so because an arbitrator does not possess the jurisdiction to pass an award. In arbitration, the parties vest the jurisdiction in the tribunal by virtue of a valid arbitration agreement and an appointment made in accordance with the provisions of the Act, 1996. This jurisdiction is grounded in the consent of the parties as explained in the foregoing paragraphs of this judgment”, it observed.

Conclusion

The Court emphasised that an arbitrator is better equipped with the position of law on appointments, more particularly, unilateral appointments and therefore, it becomes incumbent upon the arbitrator that upon entering reference and at the very first hearing, to ensure from the parties that they are willing to participate in the proceedings and to insist upon a written agreement waiving the requirement of Section 12(5) of the Act, 1996.

“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”, it explained.

Moreover, the Court said that 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.

“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”, it added.

The Court remarked that in arbitration, the parties vest jurisdiction in the tribunal by exercising their consent in furtherance of a valid arbitration agreement and hence, an objection to the inherent lack of jurisdiction can be taken at any stage of the proceedings.

“… we have reached the conclusion that the High Court committed an egregious error in passing the impugned judgment. We are left with no other option but to set aside the impugned judgment”, it concluded.

Accordingly, the Apex Court allowed the Appeals and set aside the impugned Judgment.

Cause Title- Bhadra International (India) Pvt. Ltd. & Ors. v. Airports Authority of India (Neutral Citation: 2026 INSC 6)

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