Article 227 Review of Arbitral Orders on Party Substitution and the Non‑Binding Effect of Conciliation Settlements on Non‑Party Assignees: Commentary on NATIONAL HIGHWAYS AUTHORITY OF INDIA v. CFM ASSET RECONSTRUCTION PVT LTD & ANR.

Article 227 Review of Arbitral Orders on Party Substitution and the Non‑Binding Effect of Conciliation Settlements on Non‑Party Assignees

1. Introduction

The Delhi High Court’s decision in National Highways Authority of India v. CFM Asset Reconstruction Pvt Ltd & Anr., 2025 DHC 10444 (CM(M) 2031/2025, decided on 26 November 2025), addresses a recurring intersection of arbitration law, project finance structures, and constitutional review:

  • How far can a respondent in arbitration use a subsequent settlement with a third party to extricate itself from pending arbitral proceedings?
  • To what extent can High Courts, under Article 227 of the Constitution, interfere with interlocutory orders of arbitral tribunals, particularly orders refusing substitution of parties?

The case arises out of a public–private partnership for a segment of National Highway 8B, involving a concessionaire special purpose vehicle (SPV), senior lenders, and subsequent assignment of lender rights to an asset reconstruction company (ARC). When disputes progressed to arbitration, the National Highways Authority of India (NHAI) sought to be substituted out of the arbitral proceedings on the strength of a Settlement Agreement with the concessionaire, arguing that its liabilities now rested solely with that SPV.

The arbitral tribunal rejected this attempt. NHAI invoked Article 227 of the Constitution to challenge that order before the High Court. Justice Girish Kathpalia’s judgment reaffirms and refines two core propositions:

  1. Exceptional narrowness of Article 227 review in arbitration matters, especially for orders refusing to terminate proceedings or to drop a party; and
  2. Inability of a settlement or conciliation arrangement between a respondent and a third party to bind a non‑party assignee-claimant in arbitration, or to compel substitution of the respondent.

These principles sit at the heart of the judgment and form the basis for its wider precedential value.

2. Summary of the Judgment

The Delhi High Court dismissed NHAI’s petition under Article 227, thereby affirming the arbitral tribunal’s refusal to substitute NHAI with the concessionaire (Respondent No. 2) in the arbitration initiated by CFM Asset Reconstruction Pvt Ltd (Respondent No. 1).

The key holdings may be summarised as follows:

  1. Article 227 jurisdiction over arbitral orders exists in theory but is extraordinarily narrow in practice.
    Interference is justified only in cases of:
    • patent lack of jurisdiction,
    • manifest miscarriage of justice,
    • orders that are “perverse” (so illogical that no reasonable person could have made them), or
    • proven “bad faith” in the arbitral process.
    The present case does not fall within these categories.
  2. Settlement/conciliation arrangements between NHAI and the concessionaire (Respondent No. 2) do not bind CFM (Respondent No. 1), which was never a party to such conciliation.
    The ARC, as assignee of the lenders, retains an independent claim against NHAI under the concession structure, notwithstanding the conciliation or settlement between NHAI and the SPV.
  3. NHAI cannot unilaterally exit the arbitration by relying on a bilateral settlement and seeking substitution under Order XXII Rule 10 CPC.
    Substitution would risk frustrating the claimant’s (CFM’s) claims and potentially broaden, rather than narrow, the disputes in arbitration.
  4. The “bad faith” exception (as referred to in Bhaven Construction) is inapplicable.
    It is meant to address conduct of parties to the arbitration itself, not the stance of a third party sought to be dragged in as a substitute respondent. There were no pleadings of bad faith in any event.
  5. NHAI is not remediless.
    If aggrieved by the final award, it can challenge it under Section 34 of the Arbitration and Conciliation Act, 1996 (the “Act”). The Arbitration Act is intended to be a near-complete code, leaving limited room for mid-stream court interference.

3. Factual and Procedural Background

3.1 Project Structure and Concession

  • NHAI invited bids for design, engineering, financing, construction, improvement, operation and maintenance of a section of National Highway 8B.
  • IL&FS was the successful bidder and received a Letter of Acceptance on 18.01.2005.
  • To implement the project, IL&FS incorporated Respondent No. 2 as a special purpose vehicle (SPV), which became the Concessionaire.
  • NHAI and the SPV (Respondent No. 2) entered into a Concession Agreement.
  • Senior lenders financed the SPV under a Common Loan Agreement dated 20.06.2005.
  • Construction started on 17.09.2005 and was completed by 14.08.2008, whereupon an operation and maintenance period commenced, scheduled to end on 17.09.2025.

3.2 Termination and NCLAT Proceedings

  • Disputes arose, leading NHAI to issue a Termination Notice dated 21.12.2021 to the Concessionaire, copying the senior lenders, in terms of Clause 32 of the Concession Agreement.
  • NHAI took possession of the entire project.
  • The SPV (Concessionaire) challenged this before the National Company Law Appellate Tribunal (NCLAT).
    • NCLAT granted an interim protection on 23.12.2021 restraining dispossession.
    • This interim order was vacated by final order dated 16.03.2022, after hearing all parties including senior lenders.

3.3 Section 9 Petitions and Direction for Conciliation/Arbitration

  • On 23.03.2022, the Concessionaire filed a Section 9 petition before the Delhi High Court seeking interim protection against the Termination Notice and dispossession by NHAI.
  • On 28.03.2022, the senior lenders filed a parallel Section 9 petition for similar reliefs against NHAI.
  • A coordinate bench, by order dated 30.03.2022, directed:
    • First, an attempt at conciliation within 12 weeks; and
    • If no settlement, reference of disputes to a three-member arbitral tribunal.

3.4 Conciliation before CCIE and Settlement with Concessionaire

  • In compliance, NHAI wrote on 07.04.2022 to the senior lenders and Concessionaire, inviting their claims for conciliation before the Conciliation and Settlement Committee of Independent Experts-II (CCIE).
  • NHAI and the Concessionaire both filed their respective Statements of Claims before CCIE.
  • Meanwhile, by way of an Assignment Agreement dated 30.09.2022, the senior lenders assigned their outstanding debt and underlying rights, title and interest to CFM Asset Reconstruction Pvt Ltd (Respondent No. 1).
  • NHAI’s case before the High Court was that:
    • After a series of meetings and with NCLT, Mumbai’s approval, all claims and counter-claims between NHAI and the Concessionaire (including, allegedly, any claims of senior lenders) were settled under a Settlement Agreement (date variously recorded as 01.07.2022 / 21.07.2025 in counsel’s submissions).
    • Settlement proceeds from amicable foreclosure of the Concession Agreement would ultimately be distributed to the SPV’s creditors/stakeholders.
  • Importantly, Respondent No. 1 (CFM) was not a party to the conciliation before CCIE and did not participate in the settlement process.

3.5 Arbitration and NHAI’s Substitution Application

  • CFM, as the assignee of senior lenders’ rights, initiated arbitration against NHAI, filing a Statement of Claim before the arbitral tribunal.
  • NHAI, as the non-claimant respondent, moved an application before the tribunal under Order XXII Rule 10 of the Code of Civil Procedure (CPC), seeking:
    • its discharge from the arbitral proceedings; and
    • its substitution by the Concessionaire (Respondent No. 2) as the proper party.
  • NHAI’s core contention: By virtue of the Settlement Agreement approved by NCLT, all liability stood transferred to the Concessionaire. Accordingly, NHAI was neither a necessary nor a proper party to the arbitration and the Concessionaire should step in its shoes.
  • CFM opposed, inter alia, on the grounds that:
    • Its claims were squarely against NHAI, who had issued the Termination Notice.
    • No notice had been given to senior lenders (whose rights CFM had acquired) before terminating the concession, depriving them of the right to step in and complete the project.
    • CCIE’s conciliation and the subsequent settlement did not involve senior lenders/CFM; CFM was not bound by that settlement.
    • An assignee can be joined only for benefits, not for burdens, i.e. liabilities cannot be transferred without the assignee’s consent.
  • The Concessionaire (Respondent No. 2) also opposed NHAI’s substitution plea, arguing that:
    • The Settlement Agreement did not contemplate that the SPV would shoulder NHAI’s liability for breaches committed by NHAI itself.
    • The Settlement Agreement expressly acknowledged pending arbitration but was silent on any intent to substitute NHAI with the SPV in those proceedings.
  • The arbitral tribunal dismissed NHAI’s substitution application, holding that:
    • CFM, the claimant, was not a party to the Settlement Agreement and thus not bound by it.
    • CFM’s primary grievance concerned NHAI’s failure to notify lenders before termination; this dispute could not be adjudicated without NHAI as a party.
    • Though assignees can, in principle, be added to arbitral proceedings, the Concessionaire was not itself an assignee under the Substitution Agreement (i.e. it had not taken a lender’s place).

3.6 Article 227 Petition before the High Court

  • NHAI invoked the supervisory jurisdiction of the Delhi High Court under Article 227 of the Constitution to challenge the tribunal’s order rejecting substitution.
  • NHAI relied on Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd. and Shri Guru Gobind Singhji Institute of Engineering and Technology v. Kay Vee Enterprises to argue that Article 227 could be invoked where no other remedy was available.
  • CFM and the Concessionaire resisted both on maintainability and on merits, contending that:
    • NHAI had an eventual remedy under Section 34 of the Act after the award; and
    • Article 227 interference is restricted to extreme scenarios, which were not made out on these facts.

4. Key Legal Issues

  1. Maintainability and scope of Article 227 intervention in arbitral matters:
    Can the High Court, under Article 227, set aside an interlocutory order of an arbitral tribunal refusing to substitute a respondent, particularly where the effect of the order is to continue arbitral proceedings against that respondent?
  2. Effect of conciliation and settlement agreements on non-party assignees:
    Does a Settlement Agreement between NHAI and the Concessionaire, approved in insolvency proceedings, bind an assignee of lender rights who was not a party to that settlement, and can such an agreement serve as a basis for compelling substitution of parties in arbitration?
  3. Applicability of Order XXII Rule 10 CPC in arbitration:
    To what extent can the doctrine of assignment/devolution of interest under Order 22 Rule 10 be invoked to reconfigure the parties to an arbitral proceeding?
  4. “Bad faith” as an implied ground for Article 227 interference in arbitration:
    What is the scope of “bad faith” in the arbitral context as articulated in Bhaven Construction, and was it triggered here by the Concessionaire’s stance against substitution?

5. Precedents Cited and Their Influence

5.1 SBP & Company v. Patel Engineering Ltd., (2005) 8 SCC 618

A landmark seven-judge bench decision, SBP & Co. significantly influences the present case’s treatment of Article 226/227 challenges to arbitral orders.

The Supreme Court in SBP held, inter alia:

  • Not every order of an arbitral tribunal is open to correction by writ jurisdiction.
  • Section 37 of the Act provides an exhaustive list of appealable orders.
  • Other grievances against arbitral orders should be agitated via a challenge to the final award under Section 34, which can also encompass grievances about “in-between orders”.
  • High Courts should not encourage writ petitions against arbitral orders; this would defeat the legislative policy of minimal judicial interference.

Justice Kathpalia quotes SBP to emphasise that, once arbitration commences, parties are expected to await the award unless expressly granted a right to appeal earlier. This underpins the Court’s reluctance to use Article 227 to review the tribunal’s decision on substitution.

5.2 Deep Industries Ltd. v. ONGC Ltd., (2020) 15 SCC 706

In Deep Industries, the Supreme Court clarified that:

  • Article 227 is a constitutional remedy and is not directly curtailed by Section 5’s non obstante clause.
  • However, judicial self-restraint is mandated in arbitration matters: interference under Article 227 should be exceptionally rare and confined to cases of patent lack of jurisdiction by the court below (including appellate courts under Section 37).

The Delhi High Court in the present case invokes this principle to stress that Article 227 is not an appeal in disguise against arbitral orders; it is only a narrow supervisory tool to correct extreme jurisdictional or perversity errors.

5.3 Surinder Kumar Singhal v. Arun Kumar Bhalotia, 2021 SCC OnLine Del 3708

This Delhi High Court judgment synthesises the principles from SBP, Deep Industries and others, and enumerates them in a structured form. The Court in the present case reproduces a key paragraph, which summarises the governing norms for Article 226/227 review of arbitral orders:

  • An arbitral tribunal is, in principle, amenable to Article 226/227 scrutiny.
  • Section 5’s non obstante clause does not oust constitutional jurisdiction.
  • Nevertheless, interference should occur only in “exceptional circumstances”.
  • The order must be so perverse that perversity “stares in the face” or reveal patent lack of jurisdiction.
  • Writ courts must avoid litigation that disrupts or delays the arbitral process; judicial interference in arbitral proceedings is strongly discouraged.
  • Jurisdiction should be exercised only in cases of “exceptional rarity” or where bad faith is shown.

Justice Kathpalia applies these principles directly, using them as the “anvil” on which the impugned arbitral order must be tested.

5.4 Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd., (2022) 1 SCC 75

Bhaven Construction deals squarely with whether and when Article 226/227 can be invoked despite the Arbitration Act’s self-contained challenge mechanisms.

The Supreme Court reaffirmed that:

  • A statutory enactment cannot curtail a constitutional right, so Article 226/227 remains theoretically available.
  • However, when a statutory forum exists (like Section 34/37 under the Arbitration Act), High Courts must ordinarily insist on exhaustion of that remedy, declining writs except in unusual circumstances.
  • Interference is warranted only where a party is “left remediless under the statute” or where “clear bad faith” is demonstrated.
  • The use of the term “only” in Section 34 underlines that the Arbitration Act is intended as a complete code for arbitral challenges.

NHAI relied on Bhaven to argue that it lacked any other remedy against the tribunal’s order, thus justifying Article 227 intervention. The Delhi High Court accepts the doctrinal framework from Bhaven, but concludes that:

  • NHAI is not remediless: it can challenge the final award under Section 34.
  • No bad faith is shown by any party to the arbitration that would justify extraordinary intervention.

The Court further clarifies that the “bad faith” contemplated in Bhaven pertains to conduct of parties to the arbitration, not a third party like the Concessionaire whom NHAI seeks to forcibly substitute into the proceedings.

6. Court’s Legal Reasoning

6.1 Statutory Framework: Sections 5, 16, 34, 37 and Article 227

The judgment first revisits the core architecture of the Arbitration and Conciliation Act, 1996:

  • Section 5:
    • Begins with a non obstante clause (“notwithstanding anything contained in any other law…”).
    • Declares that, in matters governed by Part I (domestic arbitration), “no judicial authority shall intervene except where so provided”.
    • This is the “crimson pulse” of the Act, intended to promote **arbitration over adjudication** by courts.
  • Section 37:
    • Provides an exhaustive list of appealable orders:
      • Refusal to refer parties to arbitration under Section 8;
      • Grant or refusal of interim measures under Section 9;
      • Setting aside or refusal to set aside an arbitral award under Section 34;
      • Arbitral tribunal’s orders that uphold a jurisdictional plea under Section 16(2)/(3);
      • Arbitral tribunal’s orders granting or refusing interim measures under Section 17.
    • Notably, an order rejecting a Section 16 plea (i.e. tribunal affirming its jurisdiction) is not appealable; the party must await the award.
  • Section 16:
    • Embodies the doctrine of kompetenz-kompetenz, allowing the tribunal to rule on its own jurisdiction.
    • Here, the High Court notes that NHAI’s substitution application is conceptually rooted in questions about the tribunal’s jurisdiction over NHAI, thus connecting it to Section 16 principles.
  • Section 34:
    • Provides the exclusive route for challenging an award; the term “only” in Section 34 is highlighted by the Supreme Court in Bhaven to confirm that the Act largely forms a complete code for challenges.
    • Intermediate orders can generally be revisited at the Section 34 stage.
  • Article 227 of the Constitution:
    • Confers on High Courts a broad supervisory jurisdiction over all tribunals within their territory.
    • This power is constitutional and thus not “ousted” by Section 5; however, as per SBP, Deep Industries, and Bhaven, it is to be used with great restraint in arbitration cases.

Justice Kathpalia emphasises that any interpretation which would dilute Section 5’s mandate of minimal judicial intervention must be eschewed. Thus, even where Article 227 is technically available, the court’s role is tightly constrained.

6.2 Threshold for Article 227 Interference in Arbitration

Drawing upon the precedents, the Court reiterates the threshold conditions:

  • The impugned order must reveal:
    • Patent lack of jurisdiction; or
    • Manifest miscarriage of justice; or
    • Be so perverse that no reasonable person could have reached such a decision.
  • Simple errors of law or fact, or even arguable errors, are not grounds for Article 227 interference.
  • In arbitration-linked matters, interference must be reserved for “exceptional rarity” or clear bad faith.

Against that backdrop, the High Court asks: Does the arbitral tribunal’s refusal to substitute NHAI meet any of these high thresholds? The answer is an emphatic no.

6.3 Non-Binding Effect of Conciliation Settlement on Non-Party Assignee (CFM)

A central plank of NHAI’s argument was that the Settlement Agreement with the Concessionaire, as endorsed by NCLT, transferred all liabilities to the SPV, thereby rendering NHAI an unnecessary party in the arbitration.

The Court rejects this argument on several grounds:

  1. CFM never participated in conciliation before CCIE.
    The Court underscores that:
    • CFM was a stranger to the conciliation process and the resulting Settlement Agreement.
    • Consequently, CFM cannot be bound by the outcome of those proceedings. Conciliation is fundamentally consensual: it binds only those who participate or accept the resulting agreement.
  2. Substitution vs impleadment.
    The Court draws a crucial distinction:
    • NHAI was not merely seeking to implead the Concessionaire as an additional respondent; it sought to be substituted out, leaving only the Concessionaire on the respondent side.
    • Any purported transfer of liability in a separate agreement between NHAI and the SPV cannot unilaterally extinguish CFM’s right to proceed against NHAI in arbitration, unless CFM consents.
  3. Risk of frustrating the claimant’s rights.
    Justice Kathpalia notes that:
    • CFM’s grievances – especially NHAI’s alleged failure to notify lenders before terminating the concession – are directly attributable to NHAI’s conduct.
    • If NHAI is dropped and the Concessionaire substituted, and if the SPV lacks full disclosure or understanding of all claims and liabilities, there is a genuine risk that CFM’s claims will fail for want of proper respondent or evidence.
    • Such an outcome would frustrate the arbitral proceedings and defeat CFM’s substantive rights.
  4. Expansion rather than narrowing of disputes.
    The Concessionaire has explicitly opposed substitution. The Court observes that:
    • If substitution were ordered, the arbitral reference would not remain limited to disputes between NHAI and CFM; it would likely expand to cover inter se disputes between NHAI and the Concessionaire (e.g., over the proper construction of the Settlement Agreement).
    • This would complicate and broaden the arbitral dispute, contrary to the goal of efficient resolution.

Collectively, these considerations lead the High Court to affirm the arbitral tribunal’s refusal to permit substitution; the tribunal’s order is neither perverse nor jurisdictionally flawed.

6.4 The “Bad Faith” Argument and Its Rejection

In rebuttal, NHAI attempted to classify the Concessionaire’s stance against substitution as evidence of “bad faith,” arguing that such conduct – allegedly undermining settlement – itself justified Article 227 intervention under Bhaven.

The Court decisively rejects this:

  • The “bad faith” doctrine in Bhaven is contextual – it concerns bad faith within the arbitral process by parties to the arbitration.
  • The Concessionaire (Respondent No. 2) is presently a stranger to the arbitration initiated by CFM; it is not a party to those proceedings.
  • NHAI is seeking to bring the Concessionaire into the arbitration after dropping itself – the Concessionaire’s refusal to assume such liability cannot be labelled “bad faith” in the sense used by the Supreme Court.
  • Moreover, there are no pleadings alleging bad faith at any stage between the parties. The High Court thus declines to entertain an argument of such gravity raised in this manner.

6.5 Remedy Under Section 34 and the “Complete Code” Concept

Finally, the Court addresses the contention that NHAI had “no remedy” against the tribunal’s order and thus had to resort to Article 227.

Relying on SBP and Bhaven, the Court holds:

  • Even if the tribunal’s order cannot be appealed under Section 37, NHAI is not remediless; it can:
    • Participate in the arbitration;
    • If aggrieved by the final award, challenge it under Section 34, raising all necessary grounds, including objections flowing from interlocutory orders.
  • Arbitration law, through Sections 34 and 37, is designed as a self-contained code for challenges, and mid-course judicial interference should remain the exception, not the rule.

On these foundations, the High Court concludes that the case does not warrant Article 227 intervention and dismisses NHAI’s petition.

7. Complex Concepts Simplified

7.1 Article 227 of the Constitution

Article 227 gives High Courts a power of superintendence over all courts and tribunals in their territory. It allows the High Court to:

  • Ensure that lower tribunals act within their jurisdiction, and
  • Correct serious procedural irregularities or perversities.

It is not meant to function as a regular appeal; it is invoked only in exceptional cases to prevent grave injustice or jurisdictional overreach.

7.2 Section 5 of the Arbitration Act – “Minimal Intervention”

Section 5 says that, for matters covered by Part I of the Act, no court shall intervene except where the Act itself permits. This is the legislative expression of a policy: arbitration should proceed with minimal court interference, to keep it efficient and final.

7.3 Sections 16, 34, and 37 – Jurisdiction and Challenges

  • Section 16 – the arbitral tribunal’s power to rule on its own jurisdiction. For example, if a party claims, “I should not be a respondent here,” that is often treated as a jurisdictional objection under Section 16.
  • Section 34 – the main provision to set aside an award. It is the usual route to challenge not just the final decision but also serious errors in the process, including earlier orders.
  • Section 37 – provides a limited list of orders that can be appealed even before the award (e.g. certain orders under Sections 8, 9, 16(2)/(3), and 17).

7.4 Order XXII Rule 10 CPC – Transfer of Interest During Proceedings

Order 22 Rule 10 CPC deals with situations where, during a pending suit, a party’s interest is assigned or devolves (for example, if the plaintiff sells the disputed property). The court may, in its discretion, allow the person in whom the interest is now vested to be substituted or added.

In arbitration, tribunals sometimes apply the principle of this rule: if a claim or debt is assigned, the assignee may be joined as a party. However, this does not automatically remove the original party, especially where the other side does not consent.

7.5 “Perverse Order”

A decision is called perverse if:

  • It defies logic and common sense,
  • Is contrary to all evidence on record, and
  • No reasonable person, acting judicially, could have reached such a conclusion.

Article 227 intervention is justified only when the arbitral order is perverse in this strong sense, not merely because another view is possible.

7.6 “Bad Faith” in the Arbitral Context

“Bad faith” generally denotes dishonest intent, misuse of process, or conduct designed to defeat justice. In Bhaven Construction, the Supreme Court referred to bad faith as one exceptional ground justifying writ interference with arbitration.

The present judgment clarifies that this “bad faith” must emanate from parties to the arbitration and manifest in the arbitral process itself. It cannot be loosely invoked against a third party who is being dragged into arbitration against its will (as NHAI sought to do with the Concessionaire).

7.7 Assignment vs Novation

  • Assignment – transfer of rights/benefits (e.g. a lender transferring its loan receivables to an ARC). The debtor (here, NHAI) remains the same; only the creditor changes.
  • Novation – substitution of a new contract or party, with mutual consent, extinguishing the old contract (Section 62 of the Contract Act).

NHAI’s attempt was closer to asserting a unilateral novation of its liabilities to the Concessionaire via the Settlement Agreement. The Court implicitly rejects this, holding that such a step cannot bind a non-consenting creditor/assignee (CFM).

8. Impact and Future Implications

8.1 Reinforcement of Arbitration’s Autonomy and Finality

The judgment strongly reinforces the principle that:

  • Interlocutory orders of arbitral tribunals are generally insulated from mid-stream judicial review.
  • Parties, including powerful public bodies like NHAI, must ordinarily exhaust arbitral remedies and then resort to a Section 34 challenge rather than seek piecemeal corrections through Article 227.

This promotes expedition, reduces strategic litigation, and enhances arbitral finality – core policy goals underlying the Arbitration Act.

8.2 Consequences for Project Finance and PPP Structures

The decision carries significant implications for infrastructure and PPP projects, where:

  • Concessionaires (SPVs), senior lenders, and government agencies (like NHAI) interact under layered contractual frameworks (concession agreements, financing documents, substitution agreements, etc.).
  • Disputes often involve lenders’ step-in rights, termination notices, and rival claims by concessionaires and lenders/assignees.

The Court clarifies that:

  • A conciliation-based settlement or restructuring between the government authority and the SPV, even if approved by NCLT, does not extinguish or override lenders’ or assignees’ arbitral claims if they were not parties to the settlement.
  • Public authorities cannot rely on post-dispute bilateral settlements to unilaterally escape arbitral liability towards lender-assignees.

Lenders, ARCs, and other creditors can thus take some comfort that their arbitration rights will not lightly be undercut by side arrangements between concessionaires and authorities.

8.3 Guidance for Joinder and Substitution in Arbitration

The judgment sends an important message on party configuration in arbitration:

  • Tribunals enjoy a measure of discretion (under principles akin to Order 22 Rule 10 and general procedural powers) to allow assignees to join proceedings.
  • However, substitution that removes an original respondent is qualitatively different from mere joinder. It cannot be compelled on the basis of a private settlement to which the claimant is not a party.
  • Parties seeking to bring in additional respondents would be well-advised to seek impleadment (addition) rather than substitution, especially where the claimant objects.

8.4 Public Bodies and Strategic Use of Article 227

Given the number of arbitrations involving public bodies like NHAI, DMRC, etc., this decision serves as a cautionary note:

  • Attempts to use Article 227 to “correct” every unfavorable procedural ruling of an arbitral tribunal are unlikely to succeed.
  • Courts will look for clear perversity, patent lack of jurisdiction, or bad faith before intervening.
  • The mere fact that no intermediate statutory appeal is available (e.g. under Section 37) does not automatically open the doors of the High Court under Article 227.

This should curb unnecessary satellite litigation and reinforce discipline in public sector arbitration strategy.

9. Critical Observations

While the judgment is firmly rooted in existing precedent, a few nuanced observations may be made:

  1. Substitution vs Joinder Strategy
    NHAI’s choice to seek substitution rather than simple joinder of the Concessionaire arguably weakened its position. Had NHAI sought only to add the SPV as a co-respondent, the tribunal and the Court might have viewed the request more sympathetically, as it would not have prejudiced CFM’s right to proceed against NHAI.
  2. Open Question on Direct Application of Order 22 Rule 10 to Arbitration
    The Delhi High Court does not expressly decide to what extent Order 22 Rule 10 CPC is directly applicable to arbitral proceedings (as opposed to being used by analogy). It instead resolves the case on Article 227 grounds and the effect of the settlement. This leaves some doctrinal space for further development by tribunals and courts on the precise mechanics of party substitution and devolution of interest in arbitration.
  3. Interplay with Insolvency/Restructuring Processes
    NHAI emphasised that the Settlement Agreement was NCLT-approved and addressed all claims, including those of lenders. The High Court implicitly signals that:
    • Orders in insolvency or restructuring proceedings do not automatically extinguish third-party arbitration rights against non-insolvent counterparties, especially where such creditors are not participants in the settlement.
    This reinforces the need for creditors and ARCs to vigilantly protect their arbitration rights even in the presence of parallel insolvency frameworks.

10. Conclusion

The Delhi High Court’s ruling in National Highways Authority of India v. CFM Asset Reconstruction Pvt Ltd & Anr. stands as a robust reaffirmation of:

  • The limited and exceptional nature of Article 227 interference in arbitral proceedings, and
  • The principle that conciliation or settlement between some actors in a project finance structure cannot bind non-party assignees or deprive them of their chosen arbitral respondent.

By refusing to allow NHAI to exit the arbitration through a post-dispute settlement with the Concessionaire, the Court protects the integrity of the arbitral process and the substantive rights of lender–assignees like CFM. Simultaneously, it reinforces a key systemic message: arbitral tribunals must be allowed to function with minimal mid-course judicial disruption, and parties dissatisfied with interlocutory orders must, in most cases, await the award and then invoke Section 34.

In the broader legal landscape, this judgment fortifies the pro-arbitration ethos of Indian jurisprudence, offering clear guidance on party substitution, the reach of conciliation settlements, and the disciplined exercise of constitutional supervision over arbitration.

Case Details

Year: 2025
Court: Delhi High Court

Judge(s)

Justice Girish Kathpalia

Advocates

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