![Arbitration Initiated by Tribunal Appointed Without Consent Is Non Est, Interim Orders Freezing Accounts Set Aside: Supreme Court in Arth Micro Finance v. Shivalik Small Finance Bank [2026 INSC 1014]](/assets/images/article-criminal.svg)
Quick Answer: A party cannot unilaterally appoint an arbitral tribunal with close links to itself, over the other side's objection, and then obtain sweeping interim orders. The Supreme Court held the very initiation of the arbitration non est, set aside the tribunal's three Section 17 orders freezing the appellants' bank accounts and taking over their properties, ordered refunds within a week and appointed a fresh arbitrator.
In Arth Micro Finance Pvt. Ltd. & Ors. v. Shivalik Small Finance Bank Ltd. (2026 INSC 1014), the Supreme Court held that the initiation of arbitration by a tribunal allegedly appointed "on consent", without any proof of the appellants' consent and despite their objection of bias, was non est in law (paras 4–6). A Bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran set aside the High Court's order dismissing the Section 37 appeal on limitation, quashed the interim orders, directed refunds with 18% compound interest in case of default, and appointed a new arbitrator (paras 6–7).
Status: High Court's order dismissing the appeal under Section 37 on limitation set aside; interim orders at Annexures P5, P6 and P7 set aside; fresh arbitrator appointed; appeal disposed of (paras 6–8).
Headnote: Unilateral Appointment of Biased Arbitral Tribunal
Arbitration and Conciliation Act, 1996 – Sections 17 and 37 – Limitation Act, 1963 – Section 5 – Appointment of Arbitral Tribunal without consent – Allegation of bias – Interim orders freezing bank accounts and taking over properties – Arbitration non est – Restitution – Appointment of arbitrator by Supreme Court.
Held: (i) "Arbitration, though rhymes with it, cannot result in an arbitrary measure, even in the appointment of an Arbitral Tribunal" (para 2).
(ii) Though the respondent claimed the tribunal was appointed on consent, there was nothing to show that consent had been obtained from the appellants (para 4).
(iii) Interim orders freezing the appellants' bank accounts, permitting takeover of their properties and transferring their deposits to the respondent bank, passed despite a clear objection of bias, were arbitrary (paras 4–5).
(iv) The very initiation of the arbitration was non est in law, and the High Court's dismissal of the Section 37 appeal on limitation was set aside (paras 3, 6).
(v) Amounts debited must be returned within one week, failing which they carry 18% compound interest at monthly rests, to be set off against any claim found in the respondent's favour; attached or taken-over properties must be restored (para 6).
(vi) A fresh arbitrator was appointed by the Court, with all merits left open (para 7).
(paras 2–7)
Case Details: Arth Micro Finance v. Shivalik Small Finance Bank (2026 INSC 1014)
Final Outcome: Appeal disposed of; arbitration initiated by the respondent held non est; interim orders set aside; refund and restoration directed; new arbitrator appointed.
Case: Arth Micro Finance Private Ltd. & Ors. v. Shivalik Small Finance Bank Ltd.
Neutral Citation: 2026 INSC 1014
Case No.: Civil Appeal No. 13015 of 2026 (arising out of SLP (C) No. 26596 of 2026)
Court: Supreme Court of India (Civil Appellate Jurisdiction) – Non-Reportable
Date of Decision: 17 September 2026
Bench: Justice J.B. Pardiwala and Justice K. Vinod Chandran (order; no author named)
Relevant Acts & Sections: Arbitration and Conciliation Act, 1996 – Sections 17 and 37; Limitation Act, 1963 – Section 5
Impugned Order: High Court order dismissing the appeal under Section 37 of the Arbitration and Conciliation Act against the interim orders, on the ground of limitation (para 3)
Counsel: Sri K. Parameshwar, Senior Counsel, for the appellants; Sri Bishwajit Bhattacharyya, Senior Counsel, for the respondent (para 4)
Source: Supreme Court of India (official website)
Key Holdings of the Supreme Court
- Arbitration cannot become an arbitrary measure, even in the appointment of the arbitral tribunal (para 2).
- A claim that the tribunal was appointed on consent fails when there is nothing to show the other party's consent (para 4).
- Interim orders passed by a tribunal facing a clear objection of bias, freezing accounts and taking over properties at the first instance, were arbitrary (para 5).
- The initiation of the arbitration was non est in law, and the interim orders fall with it (para 6).
- Amounts taken must be refunded within a week, and attached properties restored (para 6).
- The Supreme Court appointed a new arbitrator and left the merits open (para 7).
Brief Facts of the Case
Disputes arose between the appellants and the respondent bank under an agreement containing an arbitration clause. The respondent allegedly appointed an arbitral tribunal "on consent" by notice dated 02.05.2024 (Annexure P2) (para 3).
When the tribunal wrote to the appellants (Annexure P3), they replied (Annexure P4) objecting to the appointment and pointing out that the tribunal had close links with the respondent (para 3).
The tribunal nevertheless passed three interim orders under Section 17 (Annexures P5, P6 and P7). These froze the appellants' bank accounts at IDBI, Bank of Baroda, HDFC and ICICI linked to their PAN, permitted the respondent to take over their movable and immovable properties, and directed transfer of their deposits to the respondent bank (paras 3–4).
The appellants' appeal under Section 37 was dismissed by the High Court on limitation, as no application under Section 5 of the Limitation Act had been filed (para 3).
Issues Before the Supreme Court
- Whether the arbitral tribunal was validly constituted when there was no proof of the appellants' consent and a clear objection of bias (paras 4–5).
- Whether the interim orders passed by such a tribunal could stand, and what relief should follow (paras 5–7).
Court's Findings and Reasoning
No proof of consent (para 4): Though it was argued that the tribunal was appointed on consent, nothing showed that the appellants had consented.
Arbitrary interim orders (paras 4–5): The tribunal froze accounts, permitted takeover of properties and transferred deposits to the respondent bank in the wake of a clear objection to its appointment and an allegation of bias. The orders passed at the first instance were themselves arbitrary.
Arbitration non est (para 6): The Court set aside the High Court's order, finding the very initiation of the arbitration non est in law, and quashed the three interim orders.
Restitution (para 6): Any amount moved from the appellants' accounts to the respondent must be returned within one week. Interest on such amounts is to be decided by the new arbitrator; if not returned in time, the amounts carry compound interest at 18% from the date of debit at monthly rests, to be set off against any claim found in the respondent's favour. Attached or taken-over properties must be restored to the appellants.
Fresh arbitrator (para 7): To resolve the disputes, the Court appointed Ms. Mayuri Raghuwanshi, Advocate, as arbitrator, free to fix her fee in consultation with the parties, and expressed no opinion on the merits.
Final Outcome and Directions
- The High Court's order is set aside and the initiation of arbitration is held non est in law (para 6).
- The interim orders at Annexures P5, P6 and P7 are set aside (para 6).
- Amounts debited from the appellants' accounts must be remitted back within one week; default attracts 18% compound interest at monthly rests from the date of debit, to be set off against any award in the respondent's favour (para 6).
- Any attachment or takeover of the appellants' properties is set at naught and possession restored (para 6).
- Ms. Mayuri Raghuwanshi, Advocate, is appointed arbitrator; the Registry will intimate her, and merits are left open (para 7).
- Appeal disposed of; pending applications rejected (paras 8–9).
Legal Principle Laid Down
An arbitral tribunal cannot be constituted by one party on a claimed "consent" that is not proved, particularly when the other party has objected and alleged bias. Arbitration initiated in this manner is non est in law, and coercive interim orders passed by such a tribunal, such as freezing bank accounts or taking over properties, cannot survive. The Supreme Court can undo such orders, direct restitution and appoint a fresh arbitrator.
Precedents Relied Upon
- No precedent is cited in the order.
Important Paragraphs of the Judgment
Verbatim extracts from the judgment. For the full text, refer to the judgment PDF below.
Para 2: "Arbitration, though rhymes with it, cannot result in an arbitrary measure, even in the appointment of an Arbitral Tribunal."
Para 4: "Though it was argued that, it is on consent that the Arbitral Tribunal was appointed, there is nothing to show the consent having been obtained from the appellants herein."
Para 5: "We have to remind ourselves that this was done in the wake of the clear objection to the appointment of the Arbitral Tribunal and the allegation of bias raised against the said Arbitral Tribunal. The orders passed at the first instance, are also arbitrary in nature."
Para 6: "We, hence, set aside the impugned order of the High Court finding the very initiation of arbitration to be non est in law."
Para 6: "Any attachment or takeovers of movable or immovable properties of the appellants shall also be set at naught and the same restored to the possession of the appellants."
Practical Impact of the Ruling
- For lenders and financial institutions: Appointing an arbitrator with close links to the lender, without the borrower's consent, risks the entire arbitration being declared non est (paras 4–6).
- For borrowers: An objection of bias raised at the outset, as in Annexure P4, is important; coercive interim orders passed despite it can be undone with restitution (paras 3, 5–6).
- For arbitral tribunals: Sweeping interim orders at the first instance, in the face of a bias objection, will be viewed as arbitrary (para 5).
- For litigants facing limitation hurdles: The Supreme Court looked past the High Court's limitation ground where the arbitration itself was non est (paras 3, 6).
FAQs on Unilateral Appointment of an Arbitral Tribunal
1. What did the Supreme Court decide in Arth Micro Finance v. Shivalik Small Finance Bank?
It held that the arbitration initiated by the respondent bank was non est in law, set aside the tribunal's interim orders, ordered refund and restoration, and appointed a new arbitrator (paras 6–7).
2. Why was the arbitral tribunal's appointment rejected?
Because there was nothing to show that the appellants had consented, and they had objected that the tribunal had close links with the respondent (paras 3–4).
3. What interim orders were set aside?
Three Section 17 orders freezing the appellants' bank accounts, permitting takeover of their properties and transferring their deposits to the respondent bank (paras 4, 6).
4. What happens if the bank does not return the money?
If not returned within one week, the amounts carry compound interest at 18% from the date of debit at monthly rests, to be set off against any claim found in the respondent's favour (para 6).
5. Did the Court decide the merits of the dispute?
No. It appointed a new arbitrator and expressly left the merits open for the parties to argue before her (para 7).
Keywords: 2026 INSC 1014, Arth Micro Finance v. Shivalik Small Finance Bank, unilateral appointment of arbitrator, arbitral tribunal bias, Section 17 interim orders, Section 37 Arbitration Act, arbitration non est, freezing of bank accounts, restitution, Justice J.B. Pardiwala, Justice K. Vinod Chandran, Supreme Court non-reportable judgment
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Download Judgment PDF – Arth Micro Finance v. Shivalik Small Finance Bank
Source: Supreme Court of India (official website).