The Supreme Court has set aside a Bombay High Court decision that declared certain arbitration hearings a nullity on the ground that they were conducted during a moratorium under the Insolvency and Bankruptcy Code (IBC).
The Bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan has held that “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 dispute arose between Ankhim Holdings Pvt. Ltd. and Zaveri Construction Pvt. Ltd., partners in a real estate development project in Mumbai. After insolvency proceedings were initiated against Zaveri Construction and a moratorium under Section 14 of the IBC came into force, arbitration proceedings nonetheless continued. Subsequently, when the original arbitrator’s mandate terminated, the Bombay High Court appointed a substitute arbitrator under Section 15(2) of the Arbitration and Conciliation Act, 1996.
However, while doing so, the High Court also declared that arbitral proceedings conducted between March 17, 2022 and August 25, 2022, were void as they fell within the moratorium period. This finding was challenged before the Supreme Court.
The apex court held that the High Court had exceeded its jurisdiction. It clarified that Section 15(2) confers a limited power: the appointment of a substitute arbitrator in accordance with the original procedure. It does not authorise courts to reopen, invalidate, or nullify prior proceedings undertaken by the arbitral tribunal.
Reading Section 15 in conjunction with subsections (3) and (4), the Court emphasised that prior hearings and orders do not become invalid merely because there has been a change in the tribunal’s composition. The Arbitration Act, the Bench reiterated, is a self-contained code that strictly circumscribes judicial intervention.
The Court further observed that the High Court had exercised appellate powers that were not available under Section 15, including interference with orders under Sections 16 and 17 of the Act. Such interference, the judgment noted, is governed specifically by Section 37 and cannot be indirectly assumed under the guise of substitution.
Significantly, the ruling also took into account the impact on third-party rights. Certain flat sale transactions had been undertaken pursuant to interim arbitral orders. Declaring the proceedings a nullity would have jeopardised those transactions and created uncertainty for homebuyers. Invoking its powers under Article 142 of the Constitution, the Supreme Court declared the transactions lawfully valid.
Appearances
Petitioners- Mr. Ashim Sood, Adv. Mr. Saahil Memon, Adv. Mr. Senu Nizar, Adv. Mr. Ekansh Gupta, Adv. Mr. Kartikeya Jaiswal, Adv. Mr. Prateek Kundu, Adv. Mr. Karan Kumar, Adv. Ms. Pallavi Pratap, AOR
Respondent- Mr. Tushar Mehta, S.G. Mr. Sanjay Kapur, AOR Mr. Surya Prakash, Adv. Ms. Shubhra Kapur, Adv. Ms. Santha Smruthi, Adv. Mr. Shakti Kanta Pattanaik, AOR Mr. Santosh Kumar, Adv.
