Summary
| Category | Data |
|---|---|
| Court | Supreme Court of India |
| Case Number | C.A. No.-000037-000038 – 2026 |
| Diary Number | 25327/2025 |
| Judge Name | HON’BLE MR. JUSTICE J.B. PARDIWALA |
| Bench | HON’BLE MR. JUSTICE J.B. PARDIWALA; HON’BLE MR. JUSTICE K.V. VISWANATHAN |
| Precedent Value | Binding authority |
| Overrules / Affirms |
|
| Type of Law | Arbitration and Conciliation Act, 1996 |
| Questions of Law |
|
| Ratio Decidendi | The Court held that an appointment by a person disqualified under Section 12(5) (Seventh Schedule) is void ab initio and the arbitrator is de jure unable to perform any functions. No implied or conduct-based waiver can cure this bar; only an express written agreement entered into after disputes have arisen satisfies the proviso. Challenges to ineligibility lie under Section 14 before an award or under Section 34 if an award has been rendered. |
| Judgments Relied Upon |
|
| Logic / Jurisprudence / Authorities Relied Upon by the Court |
|
| Facts as Summarised by the Court |
|
Practical Impact
| Category | Impact |
|---|---|
| Binding On | All subordinate courts |
| Persuasive For | Other High Courts |
| Overrules | High Court decisions permitting implied or conduct-based waiver of Section 12(5) (e.g., Man Industries v. IOC) |
| Follows |
|
What’s New / What Lawyers Should Note
- Arbitrators appointed by persons ineligible under Section 12(5)/Seventh Schedule (e.g., employer, director, affiliate) are void ab initio and de jure unable to act.
- Waiver of Section 12(5) requires an express written agreement post-dispute; procedural orders, pleadings, extensions or participation do not suffice.
- Affected parties may apply under Section 14(1)(a) to terminate the arbitrator’s mandate or, if an award has been rendered, under Section 34(2)(b) to set aside as against public policy.
- Unilateral appointment clauses breach equal treatment (Section 18) and the nemo judex rule; they cannot create a valid tribunal without statutory compliance.
- Arbitrators should, at the first hearing, obtain and record a signed waiver from all parties or withdraw if waiver is absent to avoid a coram non judice proceeding.
Summary of Legal Reasoning
- Equal Treatment & Party Autonomy: Section 18 requires both parties to participate equally in constituting the tribunal; autonomy cannot override mandatory disqualifications (Seventh Schedule).
- Section 12(5) & De Jure Ineligibility: Persons with relationships listed in the Seventh Schedule are ineligible to be appointed; any prior agreement is overridden. Such ineligibility is a matter of law and terminates the arbitrator’s mandate under Section 14(1)(a).
- Waiver Requirement: The proviso allows waiver only by an express written agreement after disputes arise; implied waiver or conduct-based consent is rejected.
- Challenge Mechanism: Ineligible arbitrator’s mandate must be challenged under Section 14(2) with substitution under Section 15, or, if an award is passed, challenged under Section 34(2)(b) as violating public policy.
- Jurisdiction & Nullity: Valid jurisdiction stems from consent under a lawful appointment; a tribunal lacking consent and statutory validity is coram non judice and its awards are nullities.
Arguments by the Parties
Petitioners (Appellants)
- Appointment by the AAI Chairman (an ineligible person under Section 12(5)/Seventh Schedule) was void ab initio.
- Awards issued by such an arbitrator contravene public policy and lack enforceability.
- No express written waiver was ever executed; participation and extensions do not operate as waiver.
- Objection to ineligibility can be raised under Section 14 at any time or under Section 34 after an award.
Respondent (AAI)
- Appointment followed the appellants’ invocation notice; it was consensual, not unilateral.
- Procedural Order No. 1 recording “no objection” constitutes an express written waiver.
- Continued participation (statement of claim, extension requests) implies waiver under the proviso.
- Belated challenge under Section 34 is an afterthought; no error in the High Court’s dismissal.
Factual Background
- Bhadra International and Novia formed a consortium to provide ground-handling services under two 2010 License Agreements with AAI containing a sole-arbitrator clause vesting appointment power in the AAI Chairman.
- In November 2015, disputes arose and the appellants invoked arbitration; the AAI Chairman (an employee of AAI) unilaterally appointed a sole arbitrator.
- The 2015 Amendment Act added Section 12(5), disqualifying persons like the Chairman; appellants did not object when the arbitrator’s first procedural order recorded “no objection.”
- The sole arbitrator issued ‘nil’ awards in July 2018; challenges under Section 34 were dismissed by the Single Judge and Division Bench of the Delhi High Court, prompting these appeals.
Statutory Analysis
- Section 12(5): Persons with specified relationships under the Seventh Schedule are ineligible to be appointed as arbitrators; prior agreements overridden. Waiver only by express written post-dispute agreement.
- Seventh Schedule: Lists disqualifying relationships (employee, director, financial interest, affiliate).
- Section 14(1)(a): De jure inability of an ineligible arbitrator terminates their mandate.
- Section 15: Procedure for substitution of arbitrator upon termination of mandate.
- Section 18: Mandates equal treatment and full opportunity to present a case.
- Section 21: Arbitration commences when notice invoking arbitration is received.
- Section 34(2)(b): Awards in conflict with public policy (including bias/nemo judex) are void.
Procedural Innovations
- Arbitrators should insist on a signed, express written waiver under Section 12(5) at the first hearing post-dispute, and record it in the minutes.
- If any party fails or refuses to execute the waiver or appear, the arbitrator must withdraw to prevent a coram non judice tribunal and forestall null awards.
Alert Indicators
- ✔ Precedent Followed