Order Refusing To Terminate Proceedings Is Not An Interim Award; Bombay High Court Dismisses Challenge Under Section 34 Of The Arbitration And Conciliation Act
Safiya Malik
The High Court of Bombay Single Bench of Justice Somasekhar Sundaresan dismissed a challenge under Section 34 of the Arbitration and Conciliation Act to an order in which the arbitral tribunal had declined to halt the ongoing proceedings, holding that the tribunal’s view was only preliminary and not an award amenable to judicial review. The dispute arises from claims under a business transfer arrangement, with one side seeking to invalidate the arbitration on the ground that the opposing company lacked authority to commence it. The Court held that the initiation of arbitration cannot be treated as void solely because the company had a single director at the time, and that the absence of quorum did not extinguish its capacity to act.
The dispute arises from a Business Transfer Agreement executed between two companies, under which the business and assets of one entity were to be transferred to the other. The transferor alleged that the agreement had lapsed due to unmet conditions precedent and claimed losses arising from the alleged breach. It initiated arbitration seeking damages, return of machinery, and rental payments. The opposing party contended that the arbitration itself was invalid because, at the time of invocation, the initiating company had only one director on its board. It argued that without the minimum board strength required under company law, no corporate decision—including instructing counsel, issuing a notice of dispute, filing a Section 11 application, or submitting a claim—could have been validly taken.
During the arbitration, an application was filed seeking termination of the proceedings under Section 32(2)(c) of the Arbitration and Conciliation Act, asserting that continuation was legally impossible due to the alleged lack of corporate capacity. The arbitral tribunal rejected the request, taking the view that issues concerning board composition, director appointments, and the validity or ratification of resolutions raised mixed questions of fact and law requiring evidence. Both sides referred to provisions of the Arbitration Act, the Companies Act—including Section 174(2)—and corporate records such as board resolutions, director identification details, and subsequent steps taken to induct an additional director and ratify earlier actions.
The Court examined the maintainability of the petition and recorded that “the question to be considered is whether the Impugned Order could at all be regarded as an Arbitral Award.” It noted the significance of Section 5 and stated that “no judicial authority shall intervene except where so provided in this Part.” Referring to Section 19, the Court observed that “the arbitral tribunal may, subject to this Part, conduct the proceedings in the manner it considers appropriate.”
The Court stated that “it is not for this Court to direct, monitor or oversee such exercise of power by the Learned Arbitral Tribunal in conducting arbitration.” It observed that the Tribunal has the power to determine “the admissibility, relevance, materiality and weight of any evidence.”
On the petitioner’s reliance on Section 174 of the Companies Act, the Court recorded that “evidently, the provision deals with quorum for a meeting,” and that such issues involve “mixed questions of fact and law.” It stated that the Tribunal must determine “whether the absence of a DIN for Ms. Louisa Smit is a process irregularity or if it means she could never have been a director.” It also noted that the Tribunal may examine “whether a Board Meeting was at all necessary in the first place to initiate arbitration” and whether actions taken without quorum could later be “validated with retrospective effect.”
Addressing the argument that a company without a quorate board is incapacitated, the Court recorded that this was an “extreme proposition” and stated that “the doctrine of necessity would answer such a proposition.” It referenced examples where a company would be unable to act and quoted Supreme Court judgements stating that “the law does not compel one to do that which one cannot possibly perform.”
The Court observed that the Tribunal had “wisely refused to non-suit Sarel Drill outright” and repeatedly stated that its views were “prima facie in nature.” It stated that “clever drafting of a purported challenge under Section 34 cannot convert what is not an Arbitral Award into an arbitral award.”
Regarding Palmview Investments, the Court recorded that “there was no doubt that the instrument impugned was an interim award” in that case, unlike here. It noted that the Tribunal’s prima facie view that defects may be ratifiable “cannot be faulted.”
The Court concluded that the impugned order “is in any case, not an arbitral award inasmuch as it is not a final adjudication of any issue.” It stated that “the invocation of Section 34 of the Act is misconceived.”
The Court directed that “this Petition is dismissed. Consequently, Interim Application No. 3682 of 2024 is also disposed of. Considering that this is a commercial dispute and taking into account the nature of the Petition and the intervention sought, which has impeded the smooth flow of arbitration, costs must follow the event. Costs in the sum of Rs. 2 Lakhs shall be just and appropriate considering the incidence of costs that would have been incurred because of the detour effected, entailing significant length of time and resources which could have been better deployed in furthering the arbitration. Such costs shall be paid by Master Drilling to Sarel Drill within a period of three weeks from the upload of this judgement on this Court’s website.”
Advocates Representing the Parties
For the Petitioner: Mr. Sharan Jagtiani, Senior Advocate along with Ms. Anirudha Mukherjee, Mr. Aviral Sahai, Ms. Shreya Som, Mr. Sushil Jethmalani, Ms. Soumya Dasgupta, Mr. Shivam Tiwari, Ms. Aanya Anvesha instructed by Cyril Amarchand Mangaldas.
For the Respondent: Mr. Rashmin Khandekar along with Mr. Chirag M. Bhatia and Mr. Rakesh K. Taneja instructed by Mr. A.R. Shaikh.
Case Title: Master Drilling India Private Limited v. Sarel Drill & Engineering Equipment India Private Limited
Neutral Citation: 2025: BHC-OS:20729
Case Number: CARBP-777-2024 with IA-3682-2024
Bench: Justice Somasekhar Sundaresan
