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Case Snapshot
Case Name: Arth Micro Finance Private Ltd. & Ors. v. Shivalik Small Finance Bank Ltd.
Citation: 2026 INSC 1014
Bench: Justice J.B. Pardiwala and Justice K. Vinod Chandran
Date of Judgment: September 17, 2026
Area of Law: Arbitration and Conciliation Act, 1996; Appointment of Arbitrator; Interim Measures
The Judgment in One Line
Supreme Court sets aside arbitration initiated without appellant's consent, holds unilateral appointment of arbitrator with close links to respondent renders proceedings non est in law.
Why this Judgement Matters
This judgment reinforces that arbitration, though a consensual process, cannot result in arbitrary measures—even in the appointment of an Arbitral Tribunal. It establishes that unilateral appointment of an arbitrator with close links to one party, without the other party's consent, renders the entire arbitration non est in law. The ruling protects parties from being subjected to arbitral proceedings initiated without their consent and from interim orders passed by a tribunal whose appointment they have objected to on grounds of bias. It also provides guidance on consequences when interim orders are set aside.
Background
Disputes arose between the appellants and the respondent under an agreement containing an arbitration clause. The respondent allegedly appointed an Arbitral Tribunal on consent, though the appellants denied giving consent. The appellants objected to the appointment, pointing out that the appointed Arbitral Tribunal had close links with the respondent. Despite the objection, the Arbitral Tribunal passed three interim orders under Section 17 of the Arbitration Act, directing freezing of the appellants' bank accounts, permitting the respondent to take possession of movable and immovable properties, and directing transfer of amounts deposited by the appellants. The appellants appealed under Section 37 before the High Court, which dismissed the appeal on limitation grounds as no application under Section 5 of the Limitation Act was filed. The appellants approached the Supreme Court.
Issues Before the Court
Whether the arbitration was initiated with the consent of the appellants.
Whether the appointment of an Arbitral Tribunal with close links to the respondent was valid.
Whether the interim orders passed under Section 17 were arbitrary.
Whether the High Court erred in dismissing the appeal on limitation grounds.
What Did the Supreme Court Hold?
No Consent for Appointment
The respondent claimed the Arbitral Tribunal was appointed on consent.
However, there was nothing to show consent was obtained from the appellants.
The appellants had clearly objected to the appointment.
The Court held the very initiation of arbitration to be non est in law.
Arbitrator Had Close Links with Respondent
The appellants objected to the appointment, pointing out the arbitrator's close links with the respondent.
Despite this objection, the Arbitral Tribunal proceeded to pass interim orders.
This raised serious concerns about bias and impartiality.
Interim Orders Were Arbitrary
The interim orders directed freezing of bank accounts at IDBI, Bank of Baroda, HDFC, and ICICI linked to the appellants' PAN.
The orders permitted the respondent's bank to take over possession of movable and immovable properties of the appellants.
The orders directed transfer of amounts deposited by the appellants.
The Court held these orders were arbitrary in nature, especially when passed in the wake of clear objection to the appointment and allegation of bias.
High Court Erred on Limitation
The High Court dismissed the appeal on limitation grounds, noting no Section 5 application was filed.
The Supreme Court set aside the High Court order, finding the very initiation of arbitration non est in law.
Consequences of Setting Aside
Any amount deposited from the appellants' accounts to the respondent's account shall be remitted back within one week.
Interest due on such amounts shall be an issue for the newly appointed Arbitrator.
If amounts are not remitted, they shall carry compound interest at 18% from the date of debit, at monthly rests, to be set off against any claim found in favour of the respondent.
Any attachment or takeover of movable or immovable properties shall be set at naught and restored to the appellants.
New Arbitrator Appointed
The Court appointed Ms. Mayuri Raghuwanshi, Advocate, as the Arbitrator.
The Arbitrator is free to determine her fee in consultation with the parties.
No opinion expressed on the merits of the case.
Key Legal Principles
Arbitration cannot result in arbitrary measures, even in the appointment of an Arbitral Tribunal.
Unilateral appointment of an arbitrator with close links to one party, without the other party's consent, renders the arbitration non est in law.
Interim orders passed under Section 17 by a tribunal whose appointment is objected to on grounds of bias are arbitrary.
Consent for appointment of arbitrator must be clearly established; mere allegation of consent is insufficient.
Setting aside of arbitration initiation renders all interim orders void.
Amounts transferred pursuant to void interim orders must be remitted back with interest.
Attachment or takeover of properties pursuant to void interim orders must be set at naught.
Courts can appoint a new arbitrator to facilitate resolution of disputes when the original appointment is invalid.
Important Precedents
No specific precedents cited – The Court proceeded on general principles of arbitration law, consent, bias, and arbitrariness.
Practical Impact
For Advocates: This judgment provides a strong precedent to challenge arbitration initiated without consent and appointment of biased arbitrators. Advocates should object to such appointments at the earliest and challenge interim orders.
For Future Litigation: The ruling will be cited in cases where parties challenge unilateral appointment of arbitrators and interim orders passed by such tribunals.
For Arbitrators: The judgment serves as a reminder that arbitrators must be impartial and free from close links with any party. Appointment without consent of all parties is invalid.
Lawcurb Quick Insight
The Court noted that arbitration rhymes with arbitrary but cannot result in arbitrary measures. This poetic observation underscores the principle that arbitral proceedings must be fair, consensual, and free from bias.
Lawcurb Practice Note
Advocates should: (i) immediately object to appointment of arbitrators with close links to the opposing party; (ii) challenge interim orders passed by such tribunals; (iii) invoke Section 5 of the Limitation Act when filing appeals under Section 37; and (iv) seek appointment of a neutral arbitrator by the Court.
Remember this Ratio
Unilateral appointment of an arbitrator with close links to one party, without the other party's consent, renders the arbitration non est in law.
Final Outcome
Civil Appeal disposed of; impugned High Court order set aside.
Very initiation of arbitration held non est in law.
Interim orders at Annexures P5, P6, and P7 set aside.
Amounts deposited from appellants' accounts to be remitted back within one week with interest.
If not remitted, compound interest at 18% from date of debit at monthly rests.
Any attachment or takeover of properties set at naught; properties restored to appellants.
Ms. Mayuri Raghuwanshi, Advocate, appointed as Arbitrator.
No opinion expressed on merits; parties free to urge before Arbitrator.
Pending applications rejected.
Lawcurb Verdict
This judgment is a significant affirmation that arbitration must be consensual and fair. By setting aside arbitration initiated without consent and appointment of an arbitrator with close links to one party, the Court protects the integrity of the arbitral process. The ruling serves as a caution that arbitral appointments cannot be arbitrary, and interim orders passed by a biased tribunal will not be tolerated. A well-reasoned judgment that upholds the principles of natural justice in arbitration.
Exam Lens
Question 1: Can an Arbitral Tribunal be appointed unilaterally without the consent of the other party? What is the consequence of such appointment?
Answer: No. Arbitration is a consensual process. Unilateral appointment of an arbitrator without the consent of the other party is invalid. In Arth Micro Finance v. Shivalik Small Finance Bank, the Supreme Court held that the respondent allegedly appointed an Arbitral Tribunal on consent, but there was nothing to show consent was obtained from the appellants. The appellants had clearly objected to the appointment, pointing out the arbitrator's close links with the respondent. The Court held the very initiation of arbitration to be non est in law. The interim orders passed by such a tribunal were set aside as arbitrary.
Question 2: What is the effect of setting aside the initiation of arbitration on interim orders passed by the tribunal?
Answer: When the initiation of arbitration is set aside as non est in law, all interim orders passed by the tribunal are rendered void. In Arth Micro Finance, the Supreme Court set aside the interim orders passed under Section 17, which had directed freezing of bank accounts, takeover of properties, and transfer of amounts. The Court directed remittance of amounts back to the appellants with interest. Any attachment or takeover of properties was set at naught. If amounts were not remitted, they would carry compound interest at 18% from the date of debit.
Question 3: Can the High Court dismiss an appeal under Section 37 on limitation grounds without considering the merits of the challenge to the arbitrator's appointment?
Answer: Yes, but such dismissal may be set aside if the very initiation of arbitration is found to be non est in law. In Arth Micro Finance, the High Court dismissed the appeal on limitation grounds as no Section 5 application was filed. The Supreme Court set aside the High Court order, finding the very initiation of arbitration non est in law. The Court emphasized that when the foundation of arbitration is invalid, the limitation issue becomes secondary. The Court appointed a new arbitrator to facilitate resolution of disputes.
This report is prepared by Lawcurb for educational and informational purposes only. It is a concise summary of the judgment and should not be construed as legal advice. Readers are encouraged to refer to the original judgment before relying on any legal proposition.