The Bombay High Court refused to stall an ongoing arbitration between Master Drilling India Pvt Ltd and Sarel Drill & Engineering Equipment India Pvt Ltd. The petition before the court sought to overturn an arbitral tribunal’s interim order-an order that simply refused to terminate the arbitration. Justice Somasekhar Sundaresan declined to intervene, noting that courts must follow a "hands-off approach" unless the law explicitly permits interference.
Background of the Dispute
The controversy stems from a 2018 Business Transfer Agreement under which Master Drilling purchased Sarel Drill's business and assets. Things didn’t go smoothly afterwards. Sarel Drill alleged that Master Drilling failed to meet certain conditions, causing financial loss and prompting claims for damages, return of machinery, and unpaid rentals.
But Master Drilling argued that the arbitration itself was defective from the very beginning. It said Sarel Drill didn't even have a properly constituted Board of Directors when arbitration was invoked-because at that time, the company allegedly had only one surviving director. Under the Companies Act, a company normally needs at least two directors. So Master Drilling insisted that Sarel Drill could not have taken any corporate decision, including authorising arbitration.
"The very initiation of arbitration is non est," senior counsel Sharan Jagtiani asserted, meaning the proceedings were void from inception.
The arbitral tribunal, however, had declined to terminate the case, calling the issue "a mixed question of fact and law" requiring fuller evidence. Master Drilling then tried to treat that refusal as an "interim award" so it could challenge it under Section 34 of the Arbitration and Conciliation Act.
Arguments in Court
Representing Master Drilling, Mr. Jagtiani argued that without a proper quorum, Sarel Drill essentially had "no corporate mind" and could not have engaged lawyers, invoked arbitration, or filed anything at all. He said the tribunal’s refusal to stop proceedings was effectively an adjudication and therefore challengeable.
Sarel Drill's counsel, Mr. Rashmin Khandekar, hit back strongly. He maintained that the tribunal's order was plainly not an award; it merely kept the arbitration alive until a fuller examination could happen. He added, "The tribunal has only taken a prima facie view. Everything remains open."
At several points, the judge asked pointed questions about why the tribunal's interim order should be treated as final. Master Drilling struggled to offer a convincing answer.
Court’s Observations
Justice Sundaresan reiterated the principle that courts can intervene in arbitration matters only where the statute expressly allows it. Section 34 applies only to arbitral awards—final decisions or interim awards that finally decide some aspect of the dispute.
Here, the judge said, the tribunal had not decided anything conclusively. Instead, it merely said it was too early to declare the arbitration invalid.
"The tribunal has repeatedly emphasized that its observations are prima facie," the judge noted. "This alone is enough to show it is not an arbitral award."
He also pointed to Section 19 of the Arbitration Act, which gives tribunals wide discretion to determine procedure and evidence. The court should not micromanage that process.
In a remark that drew murmurs in the courtroom, the judge observed:
Clever drafting of a purported challenge under Section 34 cannot convert what is not an arbitral award into an arbitral award.
The court even touched upon a doctrine not often heard in commercial hearings: the "doctrine of necessity." Justice Sundaresan explained that even if a company temporarily had fewer directors than required, it would be absurd to suggest the company must stop functioning entirely—unable to sign cheques, file taxes, or renew contracts. That extreme interpretation, the court implied, could not be accepted lightly.
Decision
Ultimately, the High Court dismissed the Section 34 petition in its entirety, holding that:
- the arbitral tribunal’s order was not an arbitral award,
- the tribunal was fully entitled to examine the board-composition issue later, and
- there was no reason for the High Court to interfere at this stage.
Additionally, the court imposed ₹2 lakh in costs on Master Drilling, noting that the challenge had unnecessarily disrupted the smooth progress of the arbitration.
Case Title:- Master Drilling India Private Limited vs. Sarel Drill & Engineering Equipment India Private Limited
Case Number:- Commercial Arbitration Petition No. 777 of 2024 Along with Interim Application No. 3682 of 2024