Unilateral Appointment of Arbitrators After Bhadra: Why Most Arbitration Clauses Are Now Legally Risky

Many government and infrastructure contracts in India still carry arbitration clauses that allow one party to appoint the arbitrator. On paper, these clauses look routine and commercially practical. In reality, they have become one of the most litigated and risky provisions in modern arbitration law and clients often assume that once arbitration proceedings have concluded and an award is passed, the matter is largely settled. Practically, what we have seen is the exact opposite. Awards are increasingly being set aside purely on the ground that the arbitrator was appointed unilaterally, even when the entire arbitration ran without objection.

Traditionally, arbitration law respected party autonomy. If parties agreed that one side could appoint the arbitrator, courts would generally uphold it. This position fundamentally changed with the introduction of Section 12(5) of the Arbitration and Conciliation Act, 1996.

Section 12(5) read with the Seventh Schedule creates a statutory bar. If the arbitrator has a relationship that falls within the prohibited categories, the arbitrator becomes ineligible by operation of law. The Supreme Court in TRF Ltd. v. Energo Engineering Projects Ltd., (2017) 8 SCC 377, laid the foundation by holding that a person who is ineligible to act as an arbitrator cannot nominate another arbitrator. This principle was further strengthened in Perkins Eastman Architects DPC v. HSCC (India) Ltd., (2020) 20 SCC 760, where the Court held that even a party interested in the outcome cannot unilaterally appoint an arbitrator.

In Bharat Broadband Network Ltd. v. United Telecoms Ltd., (2019) 5 SCC 755, the Supreme Court clarified that any waiver of such ineligibility must be through an express agreement in writing. The recent Supreme Court judgment in Bhadra International (India) (P) Ltd. v. Airports Authority of India, 2026 SCC OnLine SC 7 has now cemented this position. It categorically held that unilateral appointments are void unless there is a clear post-dispute written waiver.

The dispute in the Omni Projects case arose from a public works contract where the arbitration clause allowed the CPWD authority to appoint the arbitrator. After disputes arose, the contractor invoked arbitration and even approached the High Court under Section 11. The Court recorded that the respondent would appoint the arbitrator. Subsequently, the authority appointed a sole arbitrator, and the arbitration proceeded without objection.

An award was passed. Only after the award went against the respondent, it challenged the award under Section 34, arguing that the appointment violated Section 12(5). The Single Judge accepted this argument and set aside the award. The Division Bench upheld this decision.

The Court made one critical observation. The arbitrator was not appointed by the Court. The Court merely recorded that the respondent would appoint the arbitrator. Therefore, the appointment remained unilateral and invalid. This distinction is extremely important in practice.

One of the most common misconceptions among clients is that if both parties participated in arbitration without objection, the defect is cured. The Supreme Court in Bhadra decisively rejected this argument. It held that participation, filing of claims, or even procedural consent does not amount to waiver. The Court explained that a waiver under Section 12(5) must be:

• Express
• In writing
• Executed after disputes arise

Anything short of this is legally insufficient. In fact, the Court went further to say that even a procedural order recording “no objection” does not satisfy the statutory requirement. This principle was applied in the Omni Projects case as well. The Court clearly held that silence and participation cannot replace a statutory requirement.

In our experience, this judgment has far-reaching consequences, especially for infrastructure and public contracts where unilateral clauses are still standard. Practically, what we have seen is that many organizations continue to rely on outdated arbitration clauses without realizing the legal exposure.

A common mistake clients make is assuming that if the arbitrator is independent, in fact, the appointment process does not matter. Legally, the process itself is now decisive. If the appointment violates Section 12(5), the entire arbitration can collapse, regardless of the merits of the case.

This creates three major risks:

• First, even a successful award can be set aside purely on jurisdictional grounds.
• Second, years of arbitration effort and cost can become meaningless.
• Third, the dispute effectively restarts, leading to further delay and expense.

The law now requires a clear shift in how arbitration clauses are drafted and executed.

Parties must avoid clauses that give one side exclusive power to appoint the arbitrator. Instead, neutral mechanisms such as mutual appointment or institutional arbitration should be adopted. If parties still wish to proceed with a potentially ineligible arbitrator, they must execute a clear, post-dispute written agreement waiving Section 12(5). This is not a procedural formality. It is a substantive legal requirement.

The Omni Projects judgment is not just another arbitration case. It is a reminder that arbitration law in India has moved decisively toward neutrality and fairness in tribunal constitution. The principle is now settled. Unilateral appointment of arbitrators is legally fragile and, in most cases, invalid. In our experience, the safest approach is to revisit and redraft arbitration clauses before disputes arise. Once a dispute begins, options become limited and risks multiply.

From a strategic standpoint, arbitration today is not just about winning the case. It is about ensuring that the process itself survives judicial scrutiny.