When Control Over The Referee Decides The Game: Supreme Court's Ruling On Unilateral Arbitrator Appointments And The New Governance Code For Indian Businesses

Introduction

Arbitration has long been the preferred dispute resolution mechanism for Indian businesses, promising speed, confidentiality, and commercial pragmatism. Yet, the Supreme Court's 2026 decision in Bhadra International v. Airports Authority of India marks a decisive shift: how an arbitrator is appointed is no longer a procedural footnote it is a governance issue with existential consequences for arbitral awards.

In an era where CXOs are increasingly accountable for legal risk, compliance architecture, and ESG-linked governance, this judgment redraws the red lines around party autonomy, neutrality, and power asymmetry in dispute resolution. The Court sends a clear signal: efficiency cannot come at the cost of fairness, and contractual convenience cannot override statutory ethics.

This case is not merely about arbitration law. It is about control, trust, and institutional credibility, issues every business leader must now internalise.

The Anatomy of a Commercial Dispute

Bhadra International (India) Pvt. Ltd., along with its consortium partners, entered into licence agreements with the Airports Authority of India (AAI) in 2010 for providing ground handling services at Indian airports. Like many public-sector contracts of the era, the arbitration clause vested exclusive power in the Chairman of AAI to appoint a sole arbitrator.

When disputes arose in 2015, Bhadra invoked arbitration. The Chairman of AAI appointed a sole arbitrator, who recorded that both parties had "no objection" to his appointment. Arbitration proceeded smoothly, extensions were jointly sought, and in 2018 a nil award was passed. Only at the Section 34 stage challenging the award did Bhadra raised a crucial objection: the arbitrator's appointment was void ab initio under Section 12(5) of the Arbitration and Conciliation Act, 1996, as amended in 2015.

The High Court rejected this argument, citing consent, participation, and waiver. The Supreme Court was asked to decide whether processual silence can legitimise a structurally illegal appointment.

Issues before the Court: Three Questions That Reshaped Arbitration Governance

The Supreme Court framed three pivotal issues:

• Does unilateral appointment by a party's controlling authority render an arbitrator statutorily ineligible under Section 12(5)?
• Can participation, silence, or procedural acquiescence amount to a waiver of such ineligibility?
• Can this objection be raised for the first time at the Section 34 (award challenge) stage?

Judgment Analysis

1. Unilateral Power Is Structural Bias, Not Procedural Choice

The Supreme Court unequivocally held that the Chairman of AAI was ineligible to appoint an arbitrator, as he squarely fell within multiple entries of the Seventh Schedule (employee, management, controlling influence). The Court grounded this principle in thenemo judex rule, the ancient legal axiom that no one can be a judge in their own cause. When one party possesses unilateral power to appoint the sole arbitrator, particularly in public-private contracts, the Court found this violates Article 14 of the Constitution itself, rendering such clauses "arbitrary" and hence unconstitutional. The Court cited its earlier decisions inTRF Ltd. v. Energo Engineering Projects Ltd.andPerkins Eastman Architects v. HSCC India Ltd.to establish that an ineligible person cannot appoint an arbitrator. The Court deployed a striking metaphor: "One cannot have a building without the plinth. Once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated."

The principle ofequal treatment of parties, extracted from Section 18 of the Arbitration Act, applies not merely to arbitral proceedings but to theappointment process itself. Equal participation in tribunal constitution, the Court held, is integral to ensuring impartiality and preserving fairness of the arbitral process. For Business Leaders:If your contract gives one side exclusive control over the referee, the match itself may be called off retroactively.

2. Can Conduct Constitute Waiver of Ineligibility?

Perhaps the most business-critical aspect of the judgment is its rejection of implied waiver. The respondent had argued that the consortium's conduct, invoking arbitration, filing statements of claim, requesting time extensions under Section 29A, and remaining silent for two years, constituted an express waiver in writing as required by the proviso to Section 125.

The Supreme Court categorically rejected this. The proviso requires "an express agreement in writing," which the Court defined as follows: "The expression express agreement in writing refers to an agreement made in words as opposed to an agreement which is to be inferred by conduct." This is crucial. The Court explicitly stated that filing a statement of claim isnotan express agreement. Joint applications for time extensions under Section 29A, while showing higher consent than mere participation, still cannot constitute an express written waiver under Section 125. The Court held that such applications "signify continued consent and confidence in the tribunal" but "cannot be equated with an express written post-dispute waiver under Section 125. The statutory language is categorical, only an express written post-dispute waiver can cure Seventh Schedule ineligibility." Even more tellingly, the Court held that such a waiver must be "conscious and unequivocal," made "with complete knowledge that although the proposed arbitrator is ineligible to be appointed as an arbitrator, yet they express their confidence in him to continue as the arbitrator."

3. When Can Ineligibility Be Challenged?

The third issue concerned procedural timing: could the consortium challenge the arbitrator's ineligibility for the first time in a Section 34 application to set aside the award? The court held that an objection can be raised:

• During arbitration,
• After the award,
• Even for the first time under Section 34.

The Court established that challenges based onde jureineligibility under Section 125 are fundamentally different from challenges based on bias or independence concerns. They concern whether the arbitrator possessed inherent legal authority to act at all.

The Court stated: "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." The consortium's delay in raising the objection became irrelevant because an award passed by a de jure ineligible arbitrator is a nullity, it is legally non-existent from inception.

The Unilateral Appointment Doctrine: A New Paradigm

What makes this judgment truly groundbreaking is its treatment of unilateral appointment in public-private contracts. This decision reframes arbitration from a legal tool to a governance mechanism. For business leaders, three strategic insights emerge:

• Control over dispute resolution is now a regulated space, not a contractual privilege.
• Legacy contracts carry latent invalidity risks, especially where one party dominates tribunal appointment.
• Compliance failures in arbitration design can nullify years of litigation and cost millions.

The Business Implications: A Checklist for Corporate Executives

(a) For Companies with Government Contracts

1. Audit Arbitrational Clauses:Review all active arbitration clauses in government contracts. Any clause allowing unilateral appointment by a government entity is now constitutionally suspect. Begin negotiations for amendments now, before disputes arise.
2. The Timing Window Matters:Under the Bhadra ruling, amendments proposedbeforedisputes arise carry different legal weight than those after disputes. Use this window strategically.
3. Draft Hybrid Mechanisms:Consider arbitration clauses that provide for either mutual appointment or third-party appointment by institutions.

(b) For All Entities Drafting Arbitration Clauses

1. The "Express Agreement in Writing" Standard:If you anticipate scenarios where an arbitrator might fall within the Seventh Schedule, draft a post-dispute waiver clause that explicitly contemplates this. However, be aware that courts scrutinise such clauses carefully.
2. Avoid the "No Objection" Trap:Do not assume that remaining silent at the first procedural hearing constitutes waiver. If your counterparty has unilateral appointment authority, clarify your position explicitly and in writing.
3. Section 29A Applications:Recognise that joint applications for time extensions do not waive ineligibility objections. If you later discover ineligibility, document your discovery promptly and communicate your position in writing.

Closing Thought: Arbitration Is a Trust Architecture

Beyond the technical arbitration law, this judgment reflects a deeper judicial philosophy about institutional integrity and fairness. By anchoring the decision in Article 14 of the Constitution and the nemo judex rule, the Supreme Court has signalled that arbitration cannot be used as a backdoor to circumvent constitutional principles. This has implications beyond arbitration. It suggests that where one party controls the dispute resolution process itself, courts will scrutinise the fairness of the entire mechanism, whether in arbitration, adjudication, or regulatory decision-making.For corporate strategists, this means that convenience cannot trump fairness.A contract that appears efficient on the surface but concentrates dispute resolution authority in one party will face judicial scepticism.

In arbitration, as in governance, who appoints the referee often decides whether the game itself survives scrutiny.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.