2025 Supreme(Online)(Del) 9551

IN THE HIGH COURT OF DELHI AT NEW DELHI
Girish Kathpalia, J
NATIONAL HIGHWAYS AUTHORITY OF INDIA – Appellant
Versus
CFM ASSET RECONSTRUCTION PVT LTD & ANR. – Respondent
CM(M)-2031/2025

Headnote:(A) Arbitration and Conciliation Act, 1996 - Sections 5, 16, 37 - Code of Civil Procedure, 1908 - Order XXII Rule 10 - Constitution of India - Article 227 - Scope of judicial interference under Article 227 against orders of an Arbitral Tribunal - The High Court will not interfere with an order rejecting an application under Order XXII Rule 10 CPC unless there is a patent lack of jurisdiction, manifest miscarriage of justice, or the order is completely perverse or illegal - The power under Article 227 must be exercised with extreme circumspection to avoid undermining the statutory policy of minimal judicial intervention under Section 5 of the Act - A party aggrieved by an interim order of the Arbitral Tribunal must wait until the final award is passed and then challenge it under Section 34, unless a right of appeal under Section 37 exists - The doctrine of 'bad faith' as a ground for interference applies only to parties to the arbitration, not to a stranger sought to be brought in. (Paras 4.1-4.5, 5.1-5.5, 6-9)

(B) Substitution of parties in arbitration - An assignee can be joined as a party to arbitral proceedings, but a substitution that would drop the original non-claimant and replace it with a stranger to the claim cannot be ordered if the claimant is not bound by any settlement between the non-claimant and the stranger - The claimant's consent and the stranger's willingness to take on liability are essential - An agreement between the non-claimant and a third party as to transfer of liabilities does not bind the claimant unless the third party comes forward to accept the claim. (Paras 6-8)

Facts of the case:
The petitioner (non-claimant in arbitration) issued a termination notice to the concessionaire (respondent no.2) under a Concession Agreement. Disputes arose; the concessionaire and senior lenders filed Section 9 petitions. The High Court directed conciliation. During conciliation, the senior lenders assigned their debt to respondent no.1 (claimant in arbitration). A Settlement Agreement was reached between the petitioner and the concessionaire, approved by NCLT, which the petitioner claimed transferred its liabilities to the concessionaire. The petitioner then filed an application under Order XXII Rule 10 CPC before the Arbitral Tribunal seeking its discharge and substitution by the concessionaire. The Tribunal dismissed the application, holding that the claimant (respondent no.1) was not a party to the settlement and was not bound by it; that the claimant's main grievance was lack of notice before termination; and that the dispute could not be adjudicated without the petitioner. The petitioner challenged this order under Article 227.

Findings of Court:
The High Court held that the impugned order of the Arbitral Tribunal did not suffer from any patent lack of jurisdiction, perversity, or bad faith. The claimant was not a party to the conciliation or settlement, and therefore could not be bound by it. Substituting the petitioner with the concessionaire would potentially frustrate the claimant's claims if the concessionaire did not accept all liabilities. Further, the concessionaire opposed the substitution, which would widen the dispute. The 'bad faith' argument was rejected because it was not directed at a party to the arbitration. The petition was dismissed.

Issues: (i) Whether the order of the Arbitral Tribunal dismissing the substitution application under Order XXII Rule 10 CPC is amenable to interference under Article 227 of the Constitution. (ii) Whether the petitioner had made out a case of exceptional circumstances, patent lack of jurisdiction, or bad faith warranting such interference.

Ratio Decidendi: The High Court's supervisory jurisdiction under Article 227 over arbitral proceedings is extremely limited and must be exercised only in cases of patent lack of jurisdiction, manifest miscarriage of justice, or complete perversity. The policy of minimal judicial intervention under the Arbitration Act requires parties to wait until the final award before challenging interim orders. In this case, the Tribunal's decision was neither perverse nor lacking jurisdiction; it correctly held that a claimant cannot be forced to accept a substitution of the opposing party based on a settlement to which it was not a party. Result : Petition dismissed.