Limits on substitute arbitrator powers under the Arbitration Act: prior arbitral proceedings cannot be nullified and completed transactions were protected.

In substitution proceedings under Section 15(2) of the Arbitration and Conciliation Act, the High Court's role is confined to appointing a substitute arbitrator in accordance with the original appointment rules; it cannot declare prior arbitral proceedings or orders a nullity on the ground that they were conducted during an IBC moratorium. Sections 15(3) and 15(4) preserve continuity of the arbitration and protect prior hearings and orders, subject to party agreement. The Supreme Court also protected transactions undertaken on the strength of the arbitral orders, noting the lapse of time and third-party rights, including home buyers. The arbitration was directed to continue from the existing stage with substitution of the arbitrator.

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Issues: (i) Whether, in proceedings under Section 15(2) of the Arbitration and Conciliation Act, 1996, the High Court could declare prior arbitral proceedings as a nullity on the ground that they were conducted during a moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016; (ii) Whether transactions undertaken pursuant to the arbitral orders during the relevant period should be protected.

Issue (i): Whether, in proceedings under Section 15(2) of the Arbitration and Conciliation Act, 1996, the High Court could declare prior arbitral proceedings as a nullity on the ground that they were conducted during a moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016.

Analysis: Section 15(2) contemplates only substitution of the arbitrator according to the rules applicable to the original appointment. Section 15(3) and Section 15(4) preserve the continuity of the arbitration and protect prior hearings and orders, unless the parties agree otherwise. The Court held that the High Court, while exercising jurisdiction under Section 15(2), could not travel beyond the limited statutory remit and could not set aside or nullify arbitral orders which the Arbitration and Conciliation Act, 1996 does not permit to be challenged in that manner. The Arbitration and Conciliation Act, 1996 is a self-contained code and the course prescribed by statute cannot be displaced by an alternate procedure.

Conclusion: The High Court lacked jurisdiction to declare the proceedings held between 17.03.2022 and 25.08.2022 a nullity, and that part of the impugned order was set aside.

Issue (ii): Whether transactions undertaken pursuant to the arbitral orders during the relevant period should be protected.

Analysis: The Court took note of the long lapse of time and the creation of third-party rights, including home buyers' interests, and exercised its constitutional power to avoid undoing completed commercial arrangements that had proceeded on the strength of the arbitral orders.

Conclusion: The transactions entered into pursuant to the arbitral orders were declared legally valid.

Final Conclusion: The appeal was partly allowed by removing the declaration of nullity, while preserving the transactions carried out in the interregnum and substituting the arbitrator for continuation of the arbitration from the existing stage.

Ratio Decidendi: In proceedings for substitution of an arbitrator, the court must confine itself to the limited power of appointing a substitute under the Arbitration and Conciliation Act, 1996, and cannot nullify prior arbitral proceedings or orders, which remain protected by the statutory scheme of continuity.

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