Introduction
In the dynamic landscape of commercial disputes, a critical question often arises: Can a procedural deficiency, such as a company’s temporary failure to meet its internal quorum requirements, be used as a sword to completely dismantle a properly invoked legal process, declaring the entire action “void ab initio“? This highly contentious issue recently found its way before the Bombay High Court, which definitively held in Master Drilling India Private Limited Versus Sarel Drill & Engineering Equipment India Private Limited1 that a company’s invocation of arbitration is not rendered non est simply because it had one director, contrary to the quorum requirements of Section 174(2) of the Companies Act. The court was examining a challenge under Section 34 of the Arbitration and Conciliation Act2, 1996, directed against an Arbitral Tribunal’s decision that refused to terminate the ongoing proceedings at the threshold.
This dispute arose from a Business Agreement between Sarel Drill and Master Drilling, following which Sarel Drill invoked arbitration. Master Drilling sought to terminate the proceedings, arguing the arbitration was void ab initio because Sarel Drill had only one director when arbitration was invoked, violating the statutory quorum. The Tribunal dismissed the application, deeming it an issue requiring evidence, and the High Court subsequently dismissed the Section 34 petition. The key legal conundrum at the heart of the matter was the nature and challengeability of an Arbitral Tribunal’s interlocutory order refusing to terminate proceedings on such a technical, preliminary ground.
This article delves into the foundational legal principles—specifically concerning the scope of an ‘arbitral award’ under Section 34 and the corporate law concept of a ‘corporate mind’ versus mere internal procedural infirmity—that underpinned Justice Somasekhar Sundaresan’s crucial decision, offering clarity on the resilience of arbitration proceedings against premature termination.
The legislative scheme of the Arbitration Act, a framework built on the foundational principle of minimal judicial intervention. The gatekeeper of this principle is Section 5 of the Act, which explicitly states: “Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.” This is the legislative mandate for a ‘hands-off’ approach, ensuring the arbitral process runs its course with minimal disruption.
But if the Courts must step back, what then empowers the Arbitrator to effectively manage the dispute?
Central to the philosophy of party autonomy and efficient resolution is Section 19, titled ‘Determination of rules of procedure’. This Section is an “important and vital element in the legislative scheme of the Act,” confirming that the Arbitral Tribunal is the master of its own proceedings. . Section 19(1) unshackles the Tribunal, declaring it is not bound by the CPC3 or the IEA4. While Section 19(2) allows the parties to agree on a procedure, the default power in Section 19(3) empowers the Tribunal to “conduct the proceedings in the manner it considers appropriate.” Crucially, Section 19(4) grants the Tribunal the absolute authority to “determine the admissibility, relevance, materiality and weight of any evidence.” “This statutory protection, read with the “hands-off” policy of Section 5, solidifies the established principle that the Arbitral Tribunal is the best judge of the quality and quantity of evidence and the stage at which it must be considered.”
Given this robust protection of the arbitral process, when exactly can a judicial authority step in without violating the clear intent of the law?
Intervention is narrowly limited to the exceptions “provided in this Part,” primarily through a challenge to an arbitral award (either an interim award or a final award) under Section 34. The other avenue is a limited appellate jurisdiction under Section 37. However, this appellate power is restricted to specific situations only, mainly: a decision on an interlocutory arrangement (e.g., granting or refusing interim measures) or a ruling by the Arbitral Tribunal under Section 16 that it has no jurisdiction to conduct the arbitration. Significantly, the scheme is careful to prevent premature challenges to decisions that affirm jurisdiction: a Tribunal’s finding under Section 16 that it does have jurisdiction can only be challenged after the Arbitral Award has been made.
Furthermore, a decision under Section 32that it is possible to continue with the arbitration is not covered by the appellate jurisdiction under Section 37. Thus, for a party to successfully invoke a challenge before the final award, they must demonstrate that the impugned instrument is a final adjudication of at least a part of the cause of action, constituting a partial or interim award, as required by the precedent set in Palmview Investments Overseas Ltd. v. Ravi Arya5 This immediately begs the question: Can a preliminary, procedural objection be considered such a final adjudication?
This question was acutely tested when a party (Master Drilling) sought to terminate proceedings, arguing the arbitration was void ab initio because the counterparty (Sarel Drill) had only one director, contravening Section 174(2) of the Companies Act (dealing with quorum for a Board Meeting). While a reduced director strength can make a meeting non-quorate, does this procedural defect strip the company of its fundamental corporate mind and legal capacity to act altogether, rendering its invocation of arbitration “non est” (non-existent)?
The Court found this to be an extreme proposition that “does not appeal,” particularly as it involves mixed questions of fact and law which the Arbitral Tribunal is best suited to examine under its Section 19 powers. The counter-argument to the company being completely paralysed is the powerful Doctrine of Necessity, a common law doctrine applied by the Supreme Court in cases like Presidential Poll, In re and Lalit Kumar Modi v. Board of Control for Cricket in India6. This doctrine is applied “to tide over the situations where there are difficulties” because “Law does not contemplate a vacuum.” The Court found that accepting the proposition that a company must come to a “grinding halt”—unable to file tax returns, sign cheques for employees, or renew contracts—would result in “far-reaching and counterproductive consequences” and undermine the company’s welfare. This would compel an impossibility, violating the maxim “LEX NON COGIT AD IMPOSSIBILIA,” as noted in Raj Kumar Dey vs Tarapada Dey7.
Beyond the technicality of quorum, what protection does the law offer against using mere procedural lapses to defeat a just claim? The Court reinforced the view that procedural defects in corporate authorization are not fatal. Referring to the Division Bench ruling in Palmview Investments and the Supreme Court’s pronouncement in United Bank of India v. Naresh Kumar8, it was affirmed that:“Procedural defects which do not go to the root of the matter should not be permitted to defeat a just cause.”
The Supreme Court in United Bank of India held that even where a suit is filed with a defective or absent Board resolution, the defect is curable, and the Court has sufficient power to ensure injustice is not done. Actions taken by an otherwise authorised officer, even without a Board Resolution, could be ratified later by the company. The Court noted that even if the decision not to non-suit Sarel Drill were to be treated as a final adjudication on the issue, the view expressed in the impugned order, which preserved the proceedings, was “an eminently plausible view that calls for no intervention.”
Ultimately, how does the final judicial pronouncement reinforce the foundational principles of arbitration law? The Bombay High Court’s dismissal of the challenge reaffirmed the supremacy of the Arbitral Tribunal as the master of its procedure under Section 19, protected by the principle of minimal judicial intervention under Section 5. It decisively ruled that an Arbitral Tribunal’s preliminary, prima facie view on the continuation of proceedings is an interlocutory assessment, not an Arbitral Award, and therefore immune to challenge under Section 34. The judgement is a crucial reminder that technical corporate procedural defects will not be allowed to act as an easy trap to undermine the integrity of arbitration, especially when the powerful doctrine of necessity dictates that the corporate entity must be allowed to act to protect its own interests.
Conclusion
The Bombay High Court’s decisive ruling serves as a vital anchor in the turbulent waters of arbitration law, underscoring a commitment to the Act’s core philosophy. The judgment does more than just dismiss a procedural challenge; it solidifies the Arbitral Tribunal’s procedural sovereignty and limits the judicial role to what is expressly sanctioned. By refusing to elevate a preliminary finding—like the one concerning the company’s director quorum under Section 174 of the Companies Act—to the status of a final ‘interim award’ challengeable under Section 34, the Court prevents opportunistic litigants from weaponizing internal corporate defects to derail ongoing proceedings.
This judicial restraint, rooted in the spirit of Sections 5 and 19, ensures that the arbitration process remains resilient, preventing the Courts from becoming a forum for micromanaging the Tribunal’s decision-making timeline or its assessment of evidence. The reliance on the Doctrine of Necessity further highlights a pragmatic judicial approach, one that prioritizes commercial reality and the company’s ability to function over a rigid, paralyzing interpretation of technical corporate statutes.
Looking ahead, this verdict sets profound ramifications for the future conduct of arbitration and corporate governance. The immediate question for practitioners is: How far can the Doctrine of Necessity be stretched to cure other procedural infirmities within a company during litigation? Furthermore, the judgment necessitates a deeper conversation on the precise line separating a curable procedural defect (as seen in United Bank of India) from a substantive jurisdictional flaw that truly renders a contract or invocation void ab initio.
Going forward, Tribunals are now firmly emboldened to treat technical corporate objections as matters of evidence and procedure, to be addressed during the merits phase or in the final award, rather than as threshold barriers demanding immediate termination. This outcome ultimately strengthens the efficiency and credibility of institutional arbitration in India, ensuring that the legislative intent—to provide a swift, expert-driven alternative to court litigation—is not frustrated by the very corporate law complexities it was designed to circumvent.
Citations
- Master Drilling India Private Limited Versus Sarel Drill & Engineering Equipment India Private Limited Commercial Arbitration Petition No. 777 Of 2024
- Arbitration and Conciliation Act, 1996
- Code of Civil Procedure, 1908
- Indian Evidence Act, 1872
- Palmview Investments Overseas Ltd. v. Ravi Arya (2023)1HCC (Bom) 259
- Lalit Kumar Modi v. Board of Control for Cricket in India (2011) 10 SCC 106
- Raj Kumar Dey vs Tarapada Dey (1987) 4 SCC 398
- United Bank of India vs. Naresh Kumar(1996) 6 SCC 660
Expositor(s): Adv. Anuja Pandit
