Recently, the Supreme Court held that while appointing a substitute arbitrator under Section 15(2) of the Arbitration and Conciliation Act, 1996, a Court cannot declare earlier arbitral proceedings void on account of a moratorium imposed under the Insolvency and Bankruptcy Code, 2016. The Court set aside the High Court’s declaration that certain arbitral proceedings were a nullity, emphatically reiterating that the power under Section 15(2) is limited and does not confer appellate or supervisory authority over prior arbitral orders. In a significant reaffirmation of arbitral autonomy, the Court underscored that the Arbitration Act is a “self-contained code” permitting only minimal judicial interference.
Brief Facts:
The dispute arose out of a joint venture styled as M/s Anmol Alliance, formed for execution of a Slum Rehabilitation Authority (SRA) project in Mumbai. Differences between the parties led to invocation of arbitration, and in July 2019, the Bombay High Court appointed a sole arbitrator. Shortly thereafter, on 26 September 2019, the National Company Law Tribunal (NCLT) admitted insolvency proceedings against the respondent under Section 7 of the IBC and imposed a moratorium under Section 14. Despite this, the arbitral tribunal proceeded to pass orders under Sections 16 (jurisdictional challenge) and 17 (interim measures) of the Arbitration Act.
On 26 August 2022, the NCLT ordered liquidation of the respondent under Section 33 of the IBC, triggering a fresh moratorium under Section 33(5), which led to termination of the arbitral proceedings. The appellants then sought appointment of a substitute arbitrator under Section 15(2) of the Arbitration Act. While the High Court appointed a substitute arbitrator, it went further and declared the proceedings conducted between 17 March 2022 and 25 August 2022 to be null and void on the ground that they were hit by the IBC moratorium. This declaration became the subject of challenge before the Supreme Court.
Contentions of the Appellants:
Counsel for the appellants contended that the High Court’s jurisdiction under Section 15(2) is strictly confined to appointing a substitute arbitrator in accordance with the original appointment procedure. It was argued that the High Court had no authority to nullify earlier proceedings or indirectly set aside orders passed under Sections 16 and 17 of the Act. Heavy reliance was placed on Yashwith Constructions Pvt. Ltd. v. Simplex Concrete Piles India Ltd. and Official Trustee v. Sachindra Nath Chatterjee to submit that courts cannot assume powers not expressly conferred by statute. The appellants maintained that substitution ensures continuity of proceedings and does not wipe the slate clean.
Contentions of the Respondents:
On the other hand, the State Bank of India contended that it held a mortgage over certain flats involved in the project and that its interests required protection, particularly in light of the insolvency proceedings and third-party rights that had emerged. It was suggested that proceedings conducted during the moratorium were legally unsustainable. The appellants disputed this, arguing that such concerns could not justify expanding the scope of Section 15(2).
Observations of the Court:
The Apex Court undertook a close reading of Section 15 of the Arbitration Act, which deals with termination of mandate and substitution of arbitrator. It emphasized that Section 15(2) must be read harmoniously with Sections 15(3) and 15(4), which preserve the validity of prior hearings and evidence unless the parties agree otherwise. Reaffirming Yashwith Constructions, the Court held that substitution of an arbitrator “does not invalidate prior proceedings” and is intended to maintain continuity rather than restart the process.
The Bench found that the High Court had clearly exceeded its jurisdiction by: first, effectively setting aside an order rejecting a Section 16 application, which is not appealable under the Act; second, interfering with Section 17 orders outside the limited appellate framework under Section 37, and third, nullifying procedural steps without any statutory foundation.
Drawing strength from Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 & Stamp Act, 1899 and Hindustan Construction Co. Ltd. v. Bihar Rajya Pul Nirman Nigam Ltd., the Court reiterated that the Arbitration Act is a “self-contained code” and that judicial intervention must remain minimal. It categorically ruled that a court acting under Section 15(2) “cannot assume supervisory or appellate powers not expressly conferred by the statute.” The proper course, the Court observed, was to appoint the substitute arbitrator and allow proceedings to continue from the stage already reached.
The decision of the Court:
The Apex Court partly allowed the appeal, setting aside the High Court’s declaration that the arbitral proceedings conducted between 17.03.2022 and 25.08.2022 were a nullity. Invoking its powers under Article 142 of the Constitution, it also validated transactions involving third-party homebuyers to protect accrued rights. The ruling firmly establishes that substitution of an arbitrator under Section 15(2) preserves procedural continuity and does not authorize courts to invalidate prior arbitral proceedings, reinforcing the principle of minimal judicial interference under the Arbitration and Conciliation Act, 1996.
