The Supreme Court Of India Clarifies The Scope And Ambit Of The Power Regarding Appointment Of A Substitute Arbitrator; Reiterates That Substitution Preserves Continuity, And Prior Proceedings Remain Valid Unless Either Party Objects

The Supreme Court of India clarifies the scope and ambit of the power regarding appointment of a substitute arbitrator; reiterates that substitution preserves continuity, and prior proceedings remain valid unless either party objects

The Hon'ble Supreme Court of India ("Supreme Court"), in Ankhim Holdings Private Limited and Anr. vs. Zaveri

Construction Private Limited¹, has held that while appointing a substitute arbitrator under Section 15(2) of the Arbitration and Conciliation Act, 1996¹ ("Arbitration Act"), the High Court cannot declare proceedings held before the erstwhile arbitrator as a nullity on the ground that they were conducted during the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016² ("IBC").

Brief facts

1. Ankhim Holdings Private Limited ("Appellants") and Zaveri Construction Private Limited("Respondent") (now under liquidation) formed a partnership firm to develop and construct a slum rehabilitation project in Mumbai.
2. Disputes arose between the parties, and the Appellants filed an application under Section 9 of the Arbitration Act before the Bombay High Court ("Bombay HC") for certain interim relief. Vide an Order dated July 9, 2019 ("Consent Order"), the Bombay HC appointed a sole arbitrator ("Arbitral Tribunal").
3. Thereafter, the National Company Law Tribunal, Mumbai ("NCLT") admitted the Respondent into insolvency under the IBC and imposed a moratorium under Section 14 of the IBC.
4. In the meantime, the arbitration proceedings before the Arbitral Tribunal continued and several sittings were conducted.
5. Subsequently, the Respondent's interim resolution professional filed an application under Section 16 of the Arbitration Act, challenging the jurisdiction of the Arbitral Tribunal considering the moratorium imposed under the IBC ("Section 16 Application"). The Section 16 Application was dismissed by the Arbitral Tribunal.

6. Thereafter, the NCLT initiated liquidation proceedings against the Respondent, and the liquidator filed the Statement of Defence before the Arbitral Tribunal. The Arbitral Tribunal directed the liquidator to seek clarification from the Bombay HC regarding continuation of arbitration proceedings. The Bombay HC, however, dismissed the liquidator's application seeking a declaration that the disputes between the parties were nonarbitrable.
7. While the matter stood thus, the Arbitral Tribunal terminated the proceedings, following which the Appellants filed an application under Section 15(2) of the Arbitration Act seeking, inter alia, appointment of a substitute arbitrator.
8. By its judgment dated 12 April 2024 ("Impugned Judgment"), the Bombay HC appointed a substitute arbitrator. However, it also declared all proceedings undertaken by the erstwhile Arbitral Tribunal to be a nullity on the ground that there was a subsisting moratorium.
9. Aggrieved by the Impugned Judgment, the Appellants filed the present appeal before the Supreme Court.

Issue

Whether the Bombay HC, while deciding an application for substitution of arbitrator, was justified in holding that the proceedings held by the earlier arbitrator were liable to be declared as nullity on the premise that those proceedings were undertaken during the period of moratorium under Section 14 of the IBC?

Findings and analysis

1. The Supreme Court held that the Bombay HC exceeded its limited jurisdiction under Section 15(2) of the Arbitration Act by declaring the arbitral proceedings held previously, a nullity. It held that a court acting under Section 15(2) of the Arbitration Act can only appoint a substitute arbitrator to continue from the existing stage and cannot, in that guise, set aside an order rejecting a Section 16 Application or interfere with Section 17 orders.
2. It further clarified that Section 37 of the Arbitration Act provides for appeals against orders under Section 17 of the Arbitration Act, and also against orders accepting pleas under Section 16. However, orders rejecting Section 16 applications are not subject to judicial interference under the Arbitration Act.
3. Placing reliance on Hindustan Construction Co. Limited vs. Bihar Rajya Pul Nirman Nigam Limited⁴, the Supreme Court reiterated that substitution preserves continuity, and prior proceedings remain valid unless either party objects. Reliance was also placed on Interplay Between Arbitration Agreements under Arbitration Act and Stamp Act, 1899⁵, wherein the Supreme Court underscored the limits of judicial intervention under the Arbitration Act.
4. As a result, the Supreme Court set aside only that part of the Impugned Judgment which had declared the hearings/proceedings held previously as a nullity, while otherwise maintaining the appointment of the substitute arbitrator.
5. In arriving at this conclusion, the Supreme Court also observed that part of the Impugned Judgment could have resulted in a situation where the arbitration proceedings would have to start de novo, which would be contrary to the object of speedy dispute resolution.
6. Taking note of the long lapse of time and creation of third-party/home-buyer rights under the Section 17 orders passed by the Arbitral Tribunal, the Supreme Court, in exercise of its powers under Article 142 of the Constitution of India, expressly declared those transactions to be lawfully valid and modified the Impugned Judgment accordingly.

Conclusion

The Supreme Court has effectively reaffirmed the principles laid down in Hindustan Construction (supra) and Interplay (supra) and confined the scope of Section 15(2) of the Arbitration Act to substitution of an arbitrator. The judgment in Ankhim Holdings is a welcome reiteration that substitution of arbitrator preserves continuity, and prior proceedings remain valid unless otherwise agreed by the parties. It further reinforces that where the Arbitration Act itself provides for procedures for assailing orders, then no alternate procedure can be adopted by a court (which itself derives its jurisdiction from the Arbitration Act itself).

Footnotes

1. 2026 SCC OnLine SC 170 (decided on February 4, 2026)

2. Section 15(2) of the Arbitration Act deals with the appointment of a substitute arbitrator. It stipulates that when an arbitrator's mandate terminates, a substitute arbitrator must be appointed according to the same rules applicable to the original appointment. Upon substitution, previously held hearings may be repeated at the tribunal's discretion, unless the parties agree otherwise. Further, orders or rulings made prior to the replacement remain valid despite the change in the tribunal's composition, unless otherwise agreed by the parties.

3. Section 14 of the IBC, inter alia, imposes a complete bar on the institution or continuation of suits or any legal proceedings against a corporate debtor, as well as on transfer, alienation, or disposal of the corporate debtor's assets, upon declaration of moratorium by the NCLT. Moratorium comes into effect upon the admission of corporate insolvency resolution process and continues until its completion, i.e., approval of resolution plan, or passing of a liquidation order.

4. 2025 SCC OnLine SC 2578

5. (2024) 6 SCC 1