The Supreme Court has clarified the law on substitution of arbitrator, holding that earlier arbitral proceedings do not become invalid merely because a new arbitrator is appointed under Section 15 of the Arbitration and Conciliation Act, 1996.
In Ankhim Holdings v. Zaveri Constructions Pvt. Ltd., a Bench of Justices J.B. Pardiwala and K.V. Viswanathan set aside a Bombay High Court order that had declared previous arbitral proceedings a nullity while appointing a substitute arbitrator.
The Court emphasized the principle of minimal judicial intervention under the Arbitration Act.
“There is no doubt that the High Court assumed and exercised power which has clearly not been conferred by the Act, 1996, more particularly, wherein the statute itself envisages minimal judicial intervention,” the Supreme Court observed.
Substitution of Arbitrator Under Section 15 Explained
A Division Bench comprising Justices G.S. Kulkarni and Aarti Sathe ruled in favour of the advocate, relying on the 2012 “mega exemption” notification and the reverse charge mechanism notification issued under the Finance Act, 1994.
The Court observed that these notifications create a distinct and self-contained tax regime for advocates, clearly separating them from other categories of service providers.The dispute arose from a partnership between Ankhim Holdings and Zaveri Constructions Pvt. Ltd. for a Slum Rehabilitation Authority (SRA) project in Andheri (West) through a partnership firm, M/s Anmol Alliance.
In 2019, disputes led to a Section 9 petition before the Bombay High Court seeking interim relief. On July 9, 2019, the High Court recorded consent terms and appointed a former Chief Justice of the Calcutta High Court as the sole arbitrator. The Section 9 petition was treated as an application under Section 17 (interim measures by arbitral tribunal).
Impact of Insolvency Proceedings
While arbitration was ongoing, Zaveri Constructions entered Corporate Insolvency Resolution Process (CIRP) on September 26, 2019. A moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) came into force.
In March 2022, the Bombay High Court recorded that the Interim Resolution Professional (IRP) had become functus officio and permitted parties to move Section 17 applications before the tribunal.
The arbitral tribunal resumed proceedings and held hearings between March 17 and August 25, 2022. These included:
- A Section 16 objection (jurisdictional challenge)
- A Section 17 interim relief plea
However, on August 26, 2022, the NCLT ordered liquidation under Section 33 of the IBC, triggering a fresh moratorium under Section 33(5).
Bombay High Court’s Order
In October 2023, the sole arbitrator terminated proceedings due to non-payment of arbitral fees. Ankhim Holdings approached the High Court under Section 15(2) seeking substitution of the arbitrator.
Justice Bharati Dangre:
- Appointed a substitute arbitrator
- Held that the IBC moratorium remained operative
- Declared arbitral proceedings conducted between March and August 2022 as unsustainable
- Nullified orders passed during that period
This declaration of nullity led to the appeal before the Supreme Court.
Supreme Court’s Analysis
The Supreme Court held that the High Court exceeded its jurisdiction under Section 15(2) of the Arbitration Act.
The Court clarified that:
- Section 15(2) must be read with
- Section 15(3) (continuity of proceedings after substitution)
- Section 15(4) (protection of prior orders of the tribunal)
Referring specifically to Section 15(4), the Bench underscored that prior arbitral orders are protected from invalidation merely because of substitution of the arbitrator.
The Court observed:
“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.”
The High Court had effectively set aside orders under Sections 16 and 17 without invoking the appellate remedy under Section 37, which provides limited statutory appeal rights.
Key Legal Principles Clarified
The Supreme Court reaffirmed:
- Substitution of an arbitrator preserves continuity of arbitration.
- Courts cannot invalidate prior arbitral proceedings while acting under Section 15.
- Judicial intervention must remain minimal under the Arbitration Act.
- Section 15 does not confer appellate powers over arbitral orders.
Final Outcome
The Supreme Court:
- Set aside the Bombay High Court’s declaration that arbitral proceedings conducted between March and August 2022 were a nullity.
- Clarified that prior orders remain valid.
- Upheld the substitution of the arbitrator.
Representation
The appellants were represented by Advocates Ashim Sood, Saahil Memon, Senu Nizar, Ekansh Gupta, Kartikeya Jaiswal, Prateek Kundu, Karan Kumar and Pallavi Pratap.
The respondent was represented by Solicitor General Tushar Mehta along with Advocates Sanjay Kapur, Surya Prakash, Shubhra Kapur, Santha Smruthi, Shakti Kanta Pattanaik and Santosh Kumar.
Significance of the Judgment
This ruling strengthens the principle that arbitral continuity must be preserved, even when procedural disruptions such as substitution of arbitrators occur. It also serves as a reminder that High Courts must operate strictly within the statutory boundaries of the Arbitration and Conciliation Act, 1996.
The decision reinforces India’s pro-arbitration stance and the legislative intent of limiting judicial interference in arbitral proceedings.
