The Supreme Court has held that participation in arbitration without timely objection amounts to waiver, clarifies that insolvency does not bar a corporate debtor from pursuing its own claims, and reiterates that extension of an arbitrator’s mandate under Section 29A must be sought before the competent court under Section 2(1)(e) of the Arbitration and Conciliation Act.
The Court clarified that a party that agrees to the appointment of a sole arbitrator, participates in proceedings, files pleadings and counterclaims, and raises no timely objection cannot subsequently challenge the tribunal’s composition. Hence, the Court disapproved attempts to question the validity of a sole-arbitrator tribunal after years of participation, holding that such conduct amounts to acquiescence and waiver.
The Court also said that insolvency proceedings do not bar a corporate debtor from prosecuting arbitration claims that may result in recoveries for its benefit and enhance the value of its assets. The power to extend the mandate of an arbitral tribunal under Section 29A rests with the court defined under Section 2(1)(e) of the Arbitration and Conciliation Act, and not merely with the High Court that appointed the arbitrator under Section 11.
Briefly, South Bihar Power Distribution Company Ltd., a power distribution licensee in Bihar, awarded a distribution franchise for the Bodhgaya area to India Power Corporation Ltd., which incorporated a special purpose vehicle, initially named India Power Corporation (Bodhgaya) Ltd., for implementation of the franchise agreement. Disputes later arose between the parties under the Distribution Franchisee Agreement dated Dec 31, 2013, leading to invocation of the arbitration clause. Although the agreement contemplated a three-member arbitral tribunal, both sides consented before the Patna High Court to appointment of a sole arbitrator, first Justice Shashank Kumar Singh and subsequently Justice Dipak Misra after the former could not continue.
The arbitration proceeded for several years. During this period, insolvency proceedings were initiated against the special purpose vehicle before the NCLT, and a resolution plan was eventually approved. As the arbitration could not be concluded within the statutory timeline, the respondents sought extension of the arbitrator’s mandate under Section 29A of the Arbitration and Conciliation Act, 1996. The appellant opposed the extension, contending that a sole arbitrator could not continue because the agreement required a three-member tribunal, that the special purpose vehicle lacked authority to pursue the arbitration after insolvency proceedings, and that the High Court lacked jurisdiction to extend the arbitrator’s mandate under Section 29A.
On objection to the Sole Arbitrator, a Two-Judge Bench comprising Justice Ujjal Bhuyan and Justice Atul S. Chandurkar observed that the appellant had expressly consented on two separate occasions before the High Court to appointment of a sole arbitrator and had also participated in the arbitration without objection for a substantial period. The appellant filed its statement of defence, counterclaim and supplementary counterclaim, and even agreed to extension of the arbitral timeline. Having participated throughout the proceedings, it could not later challenge the composition of the arbitral tribunal only when a further extension was sought.
The Court held that such conduct clearly attracted the principle of waiver under Section 4 of the Arbitration and Conciliation Act, 1996. The appellant’s conduct also amounted to acquiescence, disentitling it from reopening the issue of whether the tribunal should have comprised three arbitrators. The earlier High Court orders appointing sole arbitrators were never challenged and had therefore attained finality.
On effect of Insolvency Proceedings, the Supreme Court observed that the insolvency moratorium under Section 14 of the Insolvency and Bankruptcy Code is intended to protect the corporate debtor from recovery actions against it. However, the moratorium does not prevent the corporate debtor from pursuing claims that may result in recovery of money in its favour. Such proceedings can enhance the value and financial position of the corporate debtor.
The Court further noted that the Resolution Professional had authorised continuation of the arbitration and that such action had also received approval from the Committee of Creditors in accordance with the IBC framework. Therefore, there was no legal impediment preventing the special purpose vehicle from continuing the arbitration proceedings.
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On jurisdiction under Section 29A, the Supreme Court found that the Patna High Court had erred in holding that it had jurisdiction under Section 29A merely because it had exercised powers under Section 11 and appointed the arbitrator. The Court reiterated its recent precedents holding that the ‘court’ referred to in Section 29A is the court defined under Section 2(1)(e) of the Arbitration Act, namely the Principal Civil Court of original jurisdiction or a High Court exercising original civil jurisdiction. It is not the High Court acting under Section 11.
The Court clarified that once an arbitral tribunal is constituted under Section 11, the appointing High Court does not retain supervisory jurisdiction over the arbitral proceedings. Consequently, applications for extension of time under Section 29A must be considered by the competent court under Section 2(1)(e) and not by the Section 11 court.
