The Supreme Court began with a play on words that carried the whole of its reasoning: arbitration, though it rhymes with the word, cannot result in an arbitrary measure. A party had, it was alleged, appointed a tribunal said to be closely linked to it, pressed on despite a written objection alleging bias, and obtained sweeping interim orders that froze the other side’s bank accounts and let its properties be taken over. The Court held the very appointment to be non est in law, set aside the orders as arbitrary, directed that the money and properties be restored, and appointed a fresh, independent arbitrator.
New Delhi: The Supreme Court has set aside, as non est in law, the appointment of an arbitral tribunal and the interim orders it had passed under Section 17 of the Arbitration and Conciliation Act, 1996, holding that the tribunal was appointed without the appellants’ consent and in the teeth of a clear objection that it had close links with the opposite party [Arth Micro Finance Private Ltd. and Others v. Shivalik Small Finance Bank Ltd.].
A Bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran allowed the appeal, opening its order with the observation that gave the case its theme:
“Arbitration, though rhymes with it, cannot result in an arbitrary measure, even in the appointment of an Arbitral Tribunal.”
The background
Disputes had arisen between the appellants and the respondent under an agreement that contained an arbitration clause. The respondent, purportedly on consent, appointed an arbitral tribunal by a notice of May 2024. The tribunal issued a communication to the appellants, who replied objecting to the appointment, specifically pointing out that the tribunal appointed had close links with the respondent. Undeterred by the objection, the tribunal proceeded to pass three interim orders under Section 17 of the Act.
Those orders, the Court recorded, directed the freezing of the appellants’ bank accounts at four banks linked to a specific PAN; permitted the respondent’s bank to take over possession of the appellants’ movable and immovable properties; and directed that the amounts deposited by the appellants in various banks be transferred to the respondent’s bank. The appellants’ appeal against those orders under Section 37 of the Act had been dismissed by the High Court on the ground of limitation, on the footing that no application had been filed to condone the delay under Section 5 of the Limitation Act.
No consent, and a live allegation of bias
The Court found the foundation of the arbitration to be missing. Although it was argued that the tribunal had been appointed on consent, there was, the Court held, nothing to show that the consent of the appellants had been obtained. The appointment had thus been made unilaterally, and, crucially, had been persisted with even after the appellants raised a specific and clear objection alleging that the tribunal was biased on account of its close links with the respondent.
Against that background, the Court held that the interim orders, freezing accounts, permitting takeover of properties, and directing transfer of the appellants’ money to the respondent, passed in the wake of an unmet objection to the tribunal’s very constitution, were themselves arbitrary. It set aside the High Court’s order and held the very initiation of the arbitration to be non est in law, with the consequence that the Section 17 interim orders could not stand.
Restitution, and a fresh arbitrator
Having found the appointment void, the Court directed that its consequences be undone. The interim orders were set aside; any amount that had been transferred from the appellants’ accounts to the respondent was to be remitted back within one week, with the question of interest on such amounts left to be decided by the fresh arbitrator. If the amounts were not returned as directed, the Court ordered, they would carry compound interest at 18% per annum, at monthly rests, from the date of debit, to be set off against any claim ultimately found in the respondent’s favour. Any attachment or takeover of the appellants’ movable or immovable properties was set at naught, and the properties restored to their possession.
To take the disputes forward, the Court appointed a named advocate as the sole arbitrator, directed the Registry to intimate her, and left her free to determine her fee in consultation with the parties. The Court made clear that it had expressed no opinion on the merits of the dispute, which were left open for the parties to urge before the arbitrator, and disposed of the appeal on those terms.
Why it matters
The order is a sharp reminder that the legitimacy of an arbitral award, and of the interim protection a tribunal grants along the way, depends first on the legitimacy of the tribunal itself. Independence and impartiality are the foundation of arbitration, and a tribunal appointed unilaterally by one party, over the other’s objection and amid an allegation of close links with the appointing party, lacks that foundation. Where the very constitution of the tribunal is void, what it does thereafter, however drastic, cannot acquire validity; the Court’s holding that the initiation of the arbitration was non est carries the interim orders down with it.
The severity of the interim orders sharpens the point. A Section 17 order can be as intrusive as a civil court’s interim relief, and here it reached the freezing of accounts, the takeover of properties and the transfer of the objecting party’s money to the party that had appointed the tribunal. That such orders were passed by a tribunal whose neutrality was under a live and unanswered challenge is what led the Court to describe them as arbitrary, the antithesis, in its play on words, of what arbitration is meant to be. The restitution the Court ordered, backed by a punitive 18% compound-interest default, is designed to restore the parties to the position they were in before the void process began.
Two features keep the decision measured. The Court did not decide the underlying commercial dispute; it expressed no opinion on the merits and left every substantive question, including the interest on the restored amounts, to a fresh, independent arbitrator of its own appointment. And by setting aside the High Court’s limitation-based dismissal in order to reach the root defect, the Court signalled that a challenge going to the very existence of a valid arbitration is not to be shut out on a technical bar where the appointment itself is shown to be void. The message for parties is plain: an arbitral tribunal must be constituted fairly, and a unilateral appointment pressed through over a bona fide objection of bias risks being undone in its entirety.
Case Title: Arth Micro Finance Private Ltd. and Others v. Shivalik Small Finance Bank Ltd. [Civil Appeal No. 13015 of 2026, arising out of SLP (C) No. 26596 of 2026]
Bench: Justice J.B. Pardiwala and Justice K. Vinod Chandran, Supreme Court of India
Date of Order: September 17, 2026 | Neutral Citation: 2026 INSC 1014
Appearances: Senior Advocate K. Parameshwar for the appellants; Senior Advocate Bishwajit Bhattacharyya for the respondent.
Status: Appeal disposed of. Appointment of the arbitral tribunal and its Section 17 interim orders set aside as non est in law; restitution of amounts and properties directed; a fresh arbitrator appointed. No opinion expressed on the merits.