Isabella Mariam

The High Court of Delhi Single Bench of Justice Girish Kathpalia dismissed a petition under Article 227 of the Constitution filed by the statutory highway authority challenging an arbitral tribunal’s refusal to allow its replacement by a special purpose vehicle in an ongoing arbitration commenced by an asset reconstruction company. The Court affirmed the tribunal’s decision that such substitution, sought after a settlement between the authority and the concessionaire, could adversely affect the claimant’s ability to effectively pursue its claims arising from the termination of a highway concession agreement. It further stated that supervisory jurisdiction over orders of arbitral tribunals under Article 227 may be exercised only in narrowly confined, exceptional situations, which were not made out in the present case.

The petitioner invoked Article 227 of the Constitution challenging an order dated 01.10.2025 by the Arbitral Tribunal dismissing its application under Order XXII Rule 10 CPC. The petitioner was the sole non-claimant in arbitral proceedings initiated by the claimant, respondent no.1. Respondent no.2 was not a party to those proceedings.

The background shows that ILFS was issued a letter of acceptance on 18.01.2005 for execution of a highway project, after which respondent no.2 was incorporated as a special purpose vehicle and a Concession Agreement was executed between the petitioner and respondent no.2. Senior lenders funded the project under a Common Loan Agreement dated 20.06.2005. The project was completed on 14.08.2008 and the operation and maintenance period continued until 17.09.2025.

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Following disputes, the petitioner issued a Termination Notice dated 21.12.2021. The concessionaire approached NCLAT, which granted and later vacated interim protection. Later, Section 9 petitions were filed before the High Court by the concessionaire and senior lenders. By order dated 30.03.2022, parties were directed to attempt conciliation before CCIE, failing which disputes would go to arbitration.

During conciliation, senior lenders assigned their debt to respondent no.1 under an Assignment Agreement dated 30.09.2022. The petitioner contended before the Tribunal that a Settlement Agreement dated 01.07.2022 between it and the concessionaire, approved by NCLT, transferred its liabilities to respondent no.2, and therefore respondent no.2 should be substituted as the proper party. Respondent no.1 opposed this, asserting that its claims were entirely against the petitioner; that no notice was issued to senior lenders prior to termination; and that they were not bound by the conciliation process in which they were not participants.

The Arbitral Tribunal rejected substitution, stating that the claimant was not a party to the Settlement Agreement and the dispute could not be adjudicated without the petitioner. The present petition sought to overturn that rejection.

The Court recorded that the challenge was required to be evaluated within the restrictive framework applicable to supervisory jurisdiction over arbitral matters. It stated that “whenever faced with a challenge to any order passed during arbitration proceedings, the court must keep in backdrop the crimson pulse of the Arbitration and Conciliation Act.” It noted that Section 5 of the Act limits judicial intervention and that Section 37 allows appeals only from specified categories of orders.

The Court observed that “an order passed under Section 16 of the Act is appealable, if the plea raised is upheld and the arbitral proceedings are terminated,” whereas a rejection of such a plea is not appealable and the aggrieved party must wait until the final award under Section 34.

The Court referred to precedents and recorded that the jurisdiction under Article 227 could be exercised only in “exceptional circumstances”, such as “patent lack of jurisdiction, or a manifest miscarriage of justice, or where the order under scrutiny is completely perverse.” It stated that a perverse order is one “so illogical or contrary to evidence that no reasonable person would have arrived at the same.”

The Court stated that the claimant, respondent no.1, had not participated in the conciliation proceedings and therefore “cannot be bound by the outcome of those settlement proceedings.” It recorded that any agreement between the petitioner and respondent no.2 regarding transfer of liabilities “cannot bind the claimant… unless it is that stranger… who comes forward to be impleaded.” It further observed that the petitioner sought not mere impleadment of respondent no.2 but its own substitution, which required far greater justification.

The Bench noted substance in respondent no.1’s submission that substitution might cause “possibility of failure of claims… in case the present respondent no.2 does not have disclosure of all claims and liabilities,” thereby frustrating arbitral proceedings. It also recorded that if substitution were allowed, “it would widen the scope of the dispute… to cover not just the disputes… between the present petitioner and the present respondent no.1, but also between the present petitioner and the present respondent no.2.”

Regarding “bad faith,” the Court stated it was not persuaded, noting that the doctrine in Bhaven Construction applies to parties to the arbitral proceedings, “and not a stranger, who is sought to be brought in after dropping the non-claimant.” It further noted that there were “no pleadings in that regard at any stage between the parties.”

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The Court held that the matter did not fall into any category warranting supervisory interference. It stated: “In my considered opinion, the present case does not fall under any of the categories in which this court can justifiably interfere with the impugned order.” It recorded that the petition challenging the Arbitral Tribunal’s refusal to substitute the petitioner with respondent no.2 could not succeed. “Therefore, the petition and the accompanying application are dismissed.”

Advocates Representing The Parties

For the Petitioner:Mr. Tushar Mehta, Solicitor General of India with Mr. Nishant Awana, Ms. Rini Badoni, Ms. Rebecca Mishra and Ms. Ekta Kundu, Advocates.

For the Respondents:Mr. Saurabh Kirpal, Senior Advocate with Mr. Atul Shanker Mathur, Ms. Priya Singh, Mr. Shubhankar, Mr. Rajat Choudhary and Mr. Junaid, Advocates;
Mr. Raunak Dhillion, Mr. Nihaad Dewan, Mr. Akshay Gupta and Ms. Isha Malik, Advocates.

Case Title: National Highways Authority of India v. CFM Asset Reconstruction Pvt. Ltd. & Anr.
Neutral Citation: 2025: DHC:10444
Case Number: CM(M) 2031/2025 & CM APPL. 65908/2025
Bench: Justice Girish Kathpalia