High Courts Cannot Nullify Arbitral Proceedings While Appointing Substitute Arbitrator : Supreme Court

The Supreme Court recently observed that it is impermissible for the High Courts to interfere with an arbitration proceeding while deciding an application seeking a substitution of an arbitrator.

A bench of Justices JB Pardiwala and KV Viswanathan set aside a Bombay High Court order that had declared arbitral proceedings a nullity while considering an application for substitution of an arbitrator under Section 15(2) of the Arbitration & Conciliation Act, 1996.

The Court said 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.”, and not to assume and exercise power which has clearly not been conferred by the Act, 1996, more particularly, wherein the statute itself envisages minimal judicial intervention.

The dispute began from a partnership formed to carry out an SRA project. After differences arose, the parties began arbitration in 2019, and the Bombay High Court appointed former Chief Justice J.N. Patel as the sole arbitrator with the consent of both sides.

On 26 September 2019, the respondent company was taken into insolvency proceedings by the NCLT, which meant that a legal moratorium came into force under the IBC. Even so, arbitration started again in 2022 after the High Court said that the Interim Resolution Professional was no longer in charge. During this time, the arbitrator rejected an objection based on the moratorium and passed interim orders allowing certain flats to be sold.

Later, in August 2022, the Respondent went into liquidation, and a fresh moratorium was imposed. After the arbitration was terminated in 2023, the appellants asked the High Court to appoint a new arbitrator. While doing so, the High Court also cancelled the arbitration proceedings held between March and August 2022, saying they were invalid because they took place during the moratorium.

Disagreeing with the High Court's decision, the bench stated that the impugned decision ignored the objective and purpose of the Arbitration Act which supports minimum judicial intervention when the matter is pending for adjudication before an arbitration tribunal. The Court said the impugned order had frustrated the objective of the Act, while declaring the earlier proceedings to be a nullity.

“Following the dictum as laid in Interplay (supra), it would be impermissible for a court acting under Section 15(2) to adopt a procedure whereby it exercises jurisdiction barred to it by the Act, 1996 as has occurred in the present case…where the High Court has set aside Section 17 orders but not in a proceeding under Section 37;”, the court held.

Referencing Official Trustee v. Sachindra Nath Chatterjee, 1968 SCC Online SC 103, the bench underscored that since the High Court wasn't vested with a jurisdiction to hear the objection to the arbitration proceedings, it was impermissible for it to decide upon the same at the stage of substitution of an arbitrator.

“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 court said.

Accordingly, the appeal was partly allowed, whereby the decision to appoint a substituted arbitrator was upheld, but the High Court's decision to declare the arbitrator's earlier proceedings to be a nullity was set aside.

Headnote

Arbitration and Conciliation Act, 1996; Section 15(2), 15(3), and 15(4) — Substitution of Arbitrator — Validity of prior proceedings — The Supreme Court held that while appointing a substitute arbitrator under Section 15(2), the High Court cannot declare proceedings undertaken by the previous tribunal as a "nullity" on the grounds of an IBC moratorium - Held that Section 15 is a mechanism to preserve continuity; prior proceedings remain valid unless the parties agree otherwise or the substitute tribunal, in its discretion, decides to repeat hearings.

Arbitration and Conciliation Act, 1996; Section 5 and Section 15 — Scope of Judicial Interference — Supreme Court clarified that the jurisdiction under Section 15(2) is limited and must be read with the principle of minimal judicial intervention - A court acting under Section 15(2) cannot exercise powers barred to it under other sections, such as setting aside a Section 16 rejection order (which is not appealable) or interfering with Section 17 orders outside of a Section 37 proceeding.

Insolvency and Bankruptcy Code, 2016; Section 14 — Moratorium vs. Arbitral Continuity — Noted that the High Court erred in nullifying arbitral orders passed during a moratorium period while exercising jurisdiction under the Arbitration Act - The Supreme Court used its powers under Article 142 to declare transactions (sale of flats) made pursuant to such arbitral orders as lawfully valid to protect third-party homebuyer rights. [Relied on Yashwith Constructions Pvt. Ltd. v. Simplex Concrete Piles India Ltd. & Anr. (2006) 6 SCC 204; Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 & Stamp Act, 1899, In re, (2024) 6 SCC 1; Hindustan Construction Co. Ltd. v. Bihar Rajya Pul Nirman Nigam Ltd., 2025 SCC OnLine SC 2578; Official Trustee v. Sachindra Nath Chatterjee, 1968 SCC Online SC 103; Paras 28-47]

Cause Title: ANKHIM HOLDINGS PVT. LTD. & ANR. VERSUS ZAVERI CONSTRUCTION PVT. LTD.

Citation : 2026 LiveLaw (SC) 133

Click here to download order

Appearance:

For Petitioner(s) : Mr. Ashim Sood, Adv. Mr. Saahil Memon, Adv. Mr. Sidharth Srivastava, Adv. Ms. Pallavi Pratap, AOR

For Respondent(s) : Mr. Shakti Kanta Pattanaik, AOR Mr. Santosh Kumar, Adv. Mr. Rajeev Nayan, Adv. Mr. Rupesh Sashi, Adv.