In a significant ruling, the Supreme Court of India has ruled that High Courts cannot interfere with ongoing arbitration proceedings while handling applications for Substitution of an arbitrator. A bench comprising Justices JB Pardiwala and KV Viswanathan overturned a Bombay High Court order that had nullified Arbitral proceedings during such a substitution process under Section 15(2) of the Arbitration and Conciliation Act, 1996.
The Apex court emphasized that High Courts must limit their role to appointing a substitute arbitrator to seamlessly continue from the current stage of proceedings. “The proper and legal course for the High Court acting under Section 15(2) of the Act, 1996, should have been to appoint a substitute arbitrator to continue from the existing stage of the proceedings,” the bench observed. It criticized the lower court for assuming powers not granted by the Act, which prioritizes minimal judicial intervention.
The case stemmed from a partnership formed for a Slum Rehabilitation Authority (SRA) project. Disputes led to arbitration initiation in 2019, with the Bombay High Court appointing the sole arbitrator by mutual consent.
On September 26, 2019, the respondent company entered insolvency proceedings before the National Company Law Tribunal (NCLT), triggering a legal moratorium under the Insolvency and Bankruptcy Code (IBC). Arbitration resumed in 2022 after the High Court ruled that the Interim Resolution Professional (IRP) was no longer in control. The arbitrator dismissed moratorium-based objections and issued interim orders permitting the sale of certain flats.
In August 2022, the company entered liquidation, imposing another moratorium. Arbitration terminated in 2023, prompting the appellants to seek a new arbitrator from the Bombay High Court. In its order, the Bombay High Court not only appointed a substitute Arbitrator but also declared the proceedings from March 17 to August 25, 2022, a nullity on the ground that those proceedings were undertaken while the Company was under a moratorium under Section 14 of the IBC.
The Court strongly disagreed, holding that the High Court’s approach undermined the Arbitration Act’s core objective of minimal judicial interference once a tribunal is seized of the matter. Declaring prior proceedings void frustrated this purpose, the bench noted.
Citing the precedent in Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 & Stamp Act, 1899, In re, (2024) 6 SCC 1, wherein a five judge bench of Supreme Court has held as : “92. The Arbitration Act is a self-contained code inter alia with respect to matters dealing with appointment of arbitrators, commencement of arbitration, making of an award and challenges to the arbitral award, as well as execution of such awards. [ Pasl Wind Solutions (P) Ltd. v. GE Power Conversion (India) (P) Ltd., (2021) 7 SCC 1 : (2021) 3 SCC (Civ) 702; Kandla Export Corpn. v. OCI Corpn., (2018) 14 SCC 715 : (2018) 4 SCC (Civ) 664]. When a self-contained code sets out a procedure, the applicability of a general legal procedure would be impliedly excluded. [Subal Paul v. Malina Paul, (2003) 10 SCC 361]. Being a self-contained and exhaustive code on arbitration law, the Arbitration Act carries the imperative that what is permissible under the law ought to be performed only in the manner indicated, and not otherwise. Accordingly, matters governed by the Arbitration Act such as the arbitration agreement, appointment of arbitrators and competence of the Arbitral Tribunal to rule on its jurisdiction have to be assessed in the manner specified under the law. The corollary is that it is not permissible to do what is not mentioned under the Arbitration Act. Therefore, provisions of other statutes cannot interfere with the working of the Arbitration Act, unless specified otherwise.” it ruled that courts under Section 15(2) cannot exercise barred jurisdiction, such as setting aside Section 17 interim orders outside a Section 37 appeal. While further referring to Official Trustee v. Sachindra Nath Chatterjee (1968 SCC Online SC 103), the court clarified that High Courts lack jurisdiction to adjudicate objections to arbitration validity during substitution.
“We are of the view that the part of the impugned order by which the High Court declared the proceedings undertaken between 17.03.2022 and 25.08.2022 as a nullity deserves to be interfered with,” the bench concluded.
The appeal was partly allowed as the appointment of a substitute arbitrator stood upheld, but the declaration of earlier proceedings as null and void was set aside.
