Contractual dispute and arbitration clause
The dispute arose from a Distribution Franchisee Agreement dated 31 December 2013 involving South Bihar Power Distribution Company Ltd., India Power Corporation Ltd. and its special-purpose vehicle, India Power Corporation (Bodhgaya) Ltd. The agreement provided for disputes to be referred to a three-member arbitral tribunal.
Following disputes between the parties, arbitration was invoked. On 4 April 2018, the Patna High Court appointed a sole arbitrator with the consent of the parties. When that arbitrator could not continue, the High Court appointed another sole arbitrator on 10 March 2021, again with the parties’ consent. The proceedings continued before the replacement arbitrator.
Participation before the sole arbitrator
The appellant participated in the arbitral proceedings and filed a counter-claim as well as a supplementary counter-claim. A procedural order passed by the new arbitrator recorded that the parties had no objection to the composition of the tribunal. The parties also consented to an extension of time for completing the arbitration.
However, when a further extension was sought, the appellant objected that the agreement required a three-member tribunal. It sought the appointment of an arbitral tribunal constituted in accordance with the contractual clause. The appellant also questioned whether the special-purpose vehicle could continue the arbitration while undergoing corporate insolvency resolution proceedings and challenged the High Court’s authority to extend the arbitrator’s mandate.
Patna High Court’s decision
By its judgment dated 15 September 2023, the Patna High Court held that the appellant had consented to the appointment of a sole arbitrator and had subsequently acquiesced in the proceedings through its conduct.
The High Court rejected the objection concerning the special-purpose vehicle’s standing to pursue arbitration. It also held that it had jurisdiction to extend the arbitrator’s mandate under Section 29A of the Arbitration and Conciliation Act, 1996, and granted a further extension.
The appellant challenged these findings before the Supreme Court. During the pendency of the proceedings, the Supreme Court permitted the arbitration to continue but directed that the award should not be pronounced. Subsequently, the Principal District Judge-cum-Commercial Court, Patna, extended the arbitrator’s mandate for a further six months by an order dated 23 March 2026.
Waiver of the right to object to the tribunal’s composition
The Supreme Court examined Section 4 of the Arbitration and Conciliation Act, 1996, which deals with waiver of the right to object. Under this provision, a party that knows of non-compliance with a derogable statutory provision or a requirement of the arbitration agreement, but proceeds with arbitration without raising an objection within the prescribed time or without undue delay, may be deemed to have waived its right to object.
The Court also considered Section 16(2), which provides that a plea challenging the arbitral tribunal’s jurisdiction must ordinarily be raised no later than the submission of the statement of defence. The provision also makes clear that merely appointing or participating in the appointment of an arbitrator does not, by itself, prevent a party from raising a jurisdictional objection.
Applying these provisions, the Supreme Court noted that the appellant had consented to the appointment of a sole arbitrator on two occasions. It had not challenged either appointment order, had continued participating in the proceedings, had agreed to an extension of time and had filed counter-claims before the sole arbitrator.
The Court concluded that this conduct demonstrated acquiescence in the arbitral proceedings. The appellant could not wait until the respondents sought a further extension before raising an objection that the agreement contemplated a three-member tribunal. The earlier appointment orders had attained finality and remained binding on the parties.
Relevant extract from the judgment
Supreme Court of India, South Bihar Power Distribution Company Ltd. v. India Power Corporation Ltd. & Anr., 2026 INSC 1165, paragraph 25:
“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.”
The passage highlights the importance of raising objections to the composition of an arbitral tribunal at the appropriate stage. The Court treated the appellant’s consent, continued participation and filing of counter-claims as conduct inconsistent with its subsequent attempt to insist on a three-member tribunal.
A corporate debtor may pursue its own arbitral claim
The Supreme Court also considered whether the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016, prevented the special-purpose vehicle from pursuing the arbitration.
The Court agreed with the High Court that the moratorium does not necessarily prevent a corporate debtor from initiating or continuing proceedings to recover its own dues. The purpose of the moratorium is to restrain debt-recovery action against the corporate debtor and protect the insolvency resolution process. It does not automatically prohibit the corporate debtor from pursuing an affirmative claim that may improve its financial position.
The Court also took note of the fact that the resolution professional had authorised the relevant signatories to pursue the arbitration with the necessary approval. Accordingly, the insolvency proceedings did not, by themselves, deprive the special-purpose vehicle of the ability to continue its own arbitral claim.
Who can extend an arbitral mandate under Section 29A?
On the question of extension of the arbitrator’s mandate, the Supreme Court disagreed with the High Court’s view that a High Court exercising appointment jurisdiction under Section 11 of the Arbitration and Conciliation Act, 1996, could extend the mandate under Section 29A(4).
Section 2(1)(e) of the 1996 Act defines the term “Court”. Depending on the applicable jurisdiction, it refers to the principal civil court of original jurisdiction in a district or a High Court exercising ordinary original civil jurisdiction.
The Supreme Court clarified that the power to extend an arbitral mandate under Section 29A belongs to the court falling within this statutory definition. A High Court’s authority to appoint an arbitrator under Section 11 does not, merely because it appointed the arbitrator, confer continuing jurisdiction to extend the mandate under Section 29A.
Consequently, the Court set aside the High Court’s finding that it could exercise the power under Section 29A while acting in its capacity under Section 11.
However, this clarification did not materially affect the outcome of the proceedings because the Principal District Judge-cum-Commercial Court, Patna, had already extended the arbitrator’s mandate for a further six months. The Supreme Court therefore held that setting aside the High Court’s finding on this issue would have no practical impact on the result.
Final decision
The Supreme Court upheld the High Court’s findings on waiver and acquiescence and on the special-purpose vehicle’s ability to pursue its own arbitral claim despite the insolvency moratorium.
It set aside the High Court’s finding that it could extend the arbitral mandate while exercising jurisdiction under Section 11. The Court also lifted its earlier restriction on pronouncing the award and directed the arbitrator to conclude the proceedings and deliver the award within six weeks.
The civil appeals were dismissed, with no order as to costs.
Practical significance
The judgment emphasises that parties to arbitration should raise objections concerning the tribunal’s composition promptly and in accordance with the Arbitration and Conciliation Act, 1996. A party that consents to the appointment of a sole arbitrator, participates in the proceedings, files counter-claims and raises an objection only at a much later stage risks being held to have waived that objection.
The decision also distinguishes the High Court’s role in appointing arbitrators under Section 11 from the statutory court’s power to extend the arbitral mandate under Section 29A. Further, it clarifies that an insolvency moratorium does not necessarily prevent a corporate debtor from pursuing an arbitral claim for recovery of its own dues.
