Summary
A High Court acting under Section 15(2) of the Arbitration and Conciliation Act, 1996 may only appoint a substitute arbitrator under the rules that governed the original appointment. It cannot declare the arbitral tribunal's earlier proceedings and orders a nullity, here on the ground that the corporate debtor was under an IBC moratorium. That part of the High Court's order was set aside, and under Article 142 the transactions made pursuant to the tribunal's orders were declared valid.
Issues
- Whether the High Court, while appointing a substitute arbitrator under Section 15(2) of the Arbitration and Conciliation Act, 1996, could declare the arbitral proceedings held between 17.03.2022 and 25.08.2022 a nullity because they took place during the moratorium under Section 14 of the IBC.
- What is the scope of a court's jurisdiction under Section 15(2), read with Sections 15(3) and 15(4), and how does it relate to Section 11?
Provisions considered
- Section 15(2), Arbitration and Conciliation Act, 1996Following Yashwith Constructions, the Court read Section 15(2) as requiring a substitute arbitrator to be appointed under the original agreement or provision for appointment. Here the original appointment was under Section 11, so the court's role was equally limited. The Court also held that Section 15(2) must be read with Sections 15(3) and (4). (¶¶ 27, 28, 29, 32, 33, 34, 37, 44)
- Section 15(3), Arbitration and Conciliation Act, 1996Earlier hearings may be repeated at the tribunal's discretion unless the parties agree otherwise. If the parties agree on repetition or non-repetition, that agreement binds the tribunal, and they may agree before or after the substitution. If they do not agree, the tribunal decides. (¶¶ 30, 31)
- Section 15(4), Arbitration and Conciliation Act, 1996Unless the parties agree otherwise, orders made before the arbitrator was replaced do not become invalid merely because the tribunal's composition changed. The Court relied on this to hold that the High Court exceeded its jurisdiction. (¶¶ 17, 27, 37)
- Section 11, Arbitration and Conciliation Act, 1996Because the original arbitrator was appointed under the Act, Section 11 supplied the rules for the substitute appointment. Under Section 11 the court only examines prima facie whether an arbitration agreement exists. (¶¶ 34, 35)
- Sections 16, 17 and 37, Arbitration and Conciliation Act, 1996Section 37 provides appeals against Section 17 orders and against orders accepting a Section 16 plea, but none against orders rejecting it. By nullifying the tribunal's order rejecting the Section 16 application, its Section 17 orders and other procedural orders outside Section 37, the High Court exercised jurisdiction the Act withholds. (¶¶ 36, 40, 41)
- Section 14, Insolvency and Bankruptcy Code, 2016The High Court had treated the moratorium under Section 14 as continuing until the liquidation order of 26.08.2022 and had held the arbitral proceedings during that period a nullity. The Supreme Court held that a court acting under Section 15(2) of the 1996 Act had no jurisdiction to make that declaration. (¶¶ 2, 10, 26, 37, 45)
- Article 142, Constitution of IndiaGiven the lapse of time and the third-party rights of home buyers, the Court declared the transactions valid. (¶ 47)
Held
- Section 15(2) is not a standalone provision and must be read with Sections 15(3) and 15(4). When an arbitrator's mandate ends, a substitute is appointed under the same rules as the original appointment. Where that appointment was made under Section 11, the court has only the limited role Section 11 gives it. (¶¶ 28, 29, 32, 34, 35)
- Under Section 15(3), repeating earlier hearings is for the tribunal's discretion unless the parties agree otherwise, and the parties may agree on this before or after the substitution. (¶¶ 30, 31)
- A court acting under Section 15(2) exceeded its jurisdiction by declaring the proceedings held between 17.03.2022 and 25.08.2022 a nullity on the ground of the IBC moratorium. Section 15(4) preserves earlier orders despite a change in the tribunal's composition. (¶¶ 37, 43, 45)
- The 1996 Act is a self-contained code. Where it prescribes, or withholds, a route for challenging a tribunal's orders, a court whose jurisdiction comes from the Act cannot adopt another procedure. The High Court could not set aside an order rejecting a Section 16 application (which the Act does not allow), set aside Section 17 orders outside a Section 37 appeal, or set aside other procedural orders. (¶¶ 38, 40, 41)
- Relying on Official Trustee v. Sachindra Nath Chatterjee, the Court held that a court cannot nullify orders it had no jurisdiction to consider. The proper course under Section 15(2) was to appoint a substitute arbitrator to continue from the existing stage, because restarting the arbitration afresh would be inequitable and inefficient and would affect flat sales made under the tribunal's Section 17 orders. (¶¶ 42, 43, 44)
Result
Appeal partly allowed and disposed of; the High Court's declaration that the arbitral proceedings on seven dates between 17.03.2022 and 25.08.2022 were a nullity set aside; transactions made pursuant to them declared valid under Article 142; the impugned order otherwise stands, as modified.