In a significant ruling on arbitration and insolvency interplay, the Allahabad High Court has clarified that even when a Commercial Court returns an application citing lack of jurisdiction, the "effect" of such an order may amount to refusal to set aside an arbitral award, thereby making an appeal maintainable under Section 37 of the Arbitration and Conciliation Act, 1996.
The bench of Chief Justice Arun Bhansali and Justice Kshitij Shailendra delivered the order on September 17, 2025, dismissing preliminary objections raised by the respondents and listing the appeal for further hearing.
Background
The matter traces back to an arbitral award dated 4 October 2017 passed by the U.P. State Micro & Small Enterprises Facilitation Council, Kanpur. Jaiprakash Associates Ltd. had filed objections under Section 34 of the Arbitration Act before the Commercial Court at Kanpur Nagar.
While those objections were pending, ICICI Bank initiated insolvency proceedings against the company before the National Company Law Tribunal (NCLT). On 3 June 2024, the NCLT admitted the case and imposed a moratorium under the Insolvency and Bankruptcy Code (IBC).
This development triggered a procedural tussle. The Commercial Court, citing Sections 13, 14, and 63 of the IBC, held it had no jurisdiction to continue and ordered the Section 34 application to be returned. Later, upon the respondents plea, a bank guarantee furnished by Jaiprakash Associates was also released.
When the company sought correction of this order, its request was dismissed.
Court's Observations
At the outset in the High Court, counsel for the respondents argued that the appeal was not maintainable. They relied on the Supreme Court’s ruling in BGS SGS SOMA JV v. NHPC Limited (2020), asserting that an order merely returning a petition is not equivalent to refusing to set aside an arbitral award.
But the appellant’s lawyers countered that the "substance" of the Commercial Court's action mattered more than its form. They invoked the "effect doctrine," citing Essar Constructions v. N.P. Rama Krishna Reddy (2000) and Chintels India Ltd. v. Bhayana Builders Pvt. Ltd. (2021), where the Supreme Court held that orders that effectively terminate a challenge to an award should be treated as refusals to set aside under Section 34.
Chief Justice Bhansali agreed with this reasoning. Referring to precedent, he remarked:
"The effect of the order passed by the Court under Section 34 of the Act is required to be seen… If the order closes all doors to challenge the award, it amounts to refusing to set aside the award."
The bench noted that the Commercial Court had returned the application without pointing to any alternative forum under the IBC that could hear the matter. This, in effect, shut down the challenge altogether.
Decision
The High Court concluded that the Commercial Court's order had indeed sealed the fate of the appellant’s challenge to the arbitral award. Applying the effect doctrine, the bench held that such an order amounted to refusal to set aside the award, making the appeal under Section 37 maintainable.
"The preliminary objection raised by counsel for the respondents has no substance," the bench declared, formally overruling it.
The appeal has now been listed for further proceedings on 23 September 2025.
Case Title: Jaiprakash Associates Ltd. v. High Tech Tyre Retreaders Pvt. Ltd. and Another