Supreme Court Holds High Court Cannot Nullify Arbitral Proceedings While Appointing Substitute Arbitrator Under Section 15(2)

Summary: The dispute arose from an SRA development project between the appellants and the respondent company, which was subsequently admitted to CIRP under the Insolvency and Bankruptcy Code, 2016, and subjected to moratorium under Section 14; during this period, arbitral proceedings continued pursuant to earlier High Court orders and Section 17 applications were decided by the arbitrator; later, upon termination of the arbitrator’s mandate and substitution proceedings under Section 15(2), the Bombay High Court appointed a substitute arbitrator but declared that arbitral proceedings conducted between 17.03.2022 and 25.08.2022 were a nullity as they were undertaken during the moratorium; the Supreme Court examined Section 15(2), 15(3), and 15(4) of the Arbitration Act, along with precedents including Yashwith Constructions and the five-Judge Bench decision in Interplay Between Arbitration Agreements & Stamp Act, and held that Section 15 merely enables substitution and preserves continuity of proceedings; the Court emphasized that the Arbitration Act is a self-contained code and the High Court could not indirectly exercise appellate or supervisory jurisdiction over Section 16 and Section 17 orders while acting under Section 15(2); declaring prior proceedings void exceeded jurisdiction and would undermine finality, efficiency, and third-party rights.

Decision: The Supreme Court partly allowed the appeal, set aside the High Court’s declaration that arbitral proceedings held between 17.03.2022 and 25.08.2022 were a nullity, upheld the appointment of the substitute arbitrator, and in exercise of Article 142 declared the transactions arising from the Section 17 orders to be lawfully valid; the judgment stood modified to that extent and the appeal was disposed of accordingly.