Party Participating Before Sole Arbitrator Without Objection Waives Right To Insist On Three-Member Tribunal Under Agreement: Supreme Court
The Court held that participation before a sole arbitrator, including filing a counter-claim, amounts to acquiescence, and that the Section 14 IBC moratorium does not bar a corporate debtor’s arbitral claim.
The Supreme Court has held that a party which participates in arbitration before a sole arbitrator, consents to extensions of time and files a counter-claim is deemed to have waived its objection that the agreement required a three-member tribunal. It also held that the power to extend an arbitrator’s mandate under Section 29A(4) of the Arbitration and Conciliation Act, 1996 vests in the “court” defined in Section 2(1)(e), not in a High Court acting under Section 11.
The Court upheld the Patna High Court on waiver and on the standing of a corporate debtor to pursue arbitration. It held that the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 does not impair a corporate debtor’s own claim. It set aside the High Court’s finding on Section 29A, lifted its earlier embargo on the award and directed that the award be passed within six weeks.
A Bench of Justice Ujjal Bhuyan and Justice Atul S. Chandurkar observed, “…the appellant had clearly waived its right to object to the composition of the arbitral tribunal within the time limit provided by the statute. As the appellant had continued to participate in the arbitral proceedings before the sole arbitrator, including consenting for the extended period of arbitration, it amounts to acquiescence. That apart, appellant had filed counter claim and supplementary counter claim before the sole arbitrator. Such conduct amounts to clear acquiescence on the part of the appellant to the arbitral proceedings conducted by the sole arbitrator. This being the position, it was not open to the appellant to have questioned the appointment of the sole arbitrator as opposed to a three-member arbitral tribunal provided for in the agreement at the very belated stage of the respondents seeking further extension of the arbitral proceedings under Section 29A(4) of the 1996 Act”.
Senior Advocate Raju Ramachandran appeared for the appellant and Senior Advocate Atmaram Nadkarni appeared for the respondent.
“…we hold that the view taken by the High Court in so far the third question is concerned i.e. the Chief Justice of the High Court or his designate empowered under Section 11 of the 1996 Act can grant extension of time under Section 29A(4) is clearly unsustainable in law. The conclusion reached by the High Court that the jurisdiction to extend the period of time has to be exercised by the High Court under Section 29A of the 1996 Act is not correct and is accordingly set aside”, the Bench noted further.
South Bihar Power Distribution Company Ltd., a distribution licensee, entered a Distribution Franchisee Agreement on December 31, 2013 with India Power Corporation Ltd. and its special purpose vehicle. Clause 17.2.5 provided for arbitration by three arbitrators. After disputes arose, the High Court appointed a sole arbitrator with the parties’ consent on April 4, 2018. A new sole arbitrator was appointed, again with consent, on March 10, 2021, after insolvency proceedings had begun against the special purpose vehicle.
The statutory year and a consensual six-month extension expired without an award. The respondents sought four more months from the High Court, while the appellant sought a three-member tribunal. By judgment dated September 15, 2023, the High Court found waiver and acquiescence, upheld the vehicle’s standing and extended the mandate under Section 29A. On February 12, 2024, the Supreme Court allowed the arbitration to continue but barred the award. On March 23, 2026, the Commercial Court at Patna extended the mandate by six months.
On waiver, the Court relied on Sections 4 and 16(2) and Union of India v. Pam Development Private Limited (2014) 11 SCC 366. It noted that the appellant never challenged the two appointment orders, which attained finality, and that it filed a counter-claim and supplementary counter-claim. Objecting at a “very belated stage” was not open to it. On the IBC, the Court held that Section 14 bars recovery action against the corporate debtor, not claims by it. The resolution professional had authorised the signatories, with the committee of creditors’ approval. On Section 29A, the Court followed Associated Contractors, Jagdeep Chowgule and C. Velusamy. It held that a High Court’s Section 11 role ends once the tribunal is constituted. Since the Commercial Court had already extended the mandate, setting aside the High Court’s finding did not affect the outcome.
The Court affirmed the High Court on the first two questions and set aside its decision on the third. It lifted the embargo of February 12, 2024, directed the arbitrator to pass the award within six weeks, dismissed the appeals and made no order as to costs.
Cause Title: South Bihar Power Distribution Company Ltd. v. India Power Corporation Ltd. & Anr. (Neutral Citation: 2026 INSC 1165)
Appearances:
Appellant: C. Aryama Sundaram, Senior Counsel, Raju Ramachandran, Senior Counsel.
Respondent: Atmaram Nadkarni, Senior Counsel.