CASE NAME:Arth Micro Finance Private Ltd. And Ors. v. Shivalik Small Finance Bank Ltd.
CASE NUMBER: Civil Appeal No. 13015 of 2026 (Arising out of SLP (C) No. 26596 of 2026)
COURT: Supreme Court of India
DATE: 17 September, 2026
QUORUM: Justice J.B Pardiwala and Justice K. Vinod Chandran
FACTS
The appellants and the respondent entered into an agreement which contained an arbitration clause. The respondent has appointed an Arbitral Tribunal considering the disputes and described it as an appointment that was made on consent with a notice issued on 02.05.2024. The Tribunal wrote to the appellants, who replied objecting to the appointment itself, pointing out that the Tribunal had close links with the respondent.
The objection did not halt the proceedings. The Tribunal passed three interim orders under Section 17 of the Arbitration and Conciliation Act, 1996, freezing bank accounts at IDBI, Bank of Baroda, HDFC and ICICI linked to the appellants’ PAN, allowing the respondent’s bank to take over the appellants’ properties, and directing transfer of the appellants’ deposited funds into the respondent’s bank. The appellants challenged these orders under Section 37 before the High Court, which dismissed the appeal on limitation alone, noting the absence of any application under Section 5 of the Limitation Act, 1963.
ISSUES
- Whether the appointment of the Arbitral Tribunal, in the absence of any material showing the appellants’ consent, could be treated as valid.
- Whether interim orders passed under Section 17 by a Tribunal whose impartiality had been questioned at the outset could be allowed to stand.
- Whether the High Court was right to shut out the Section 37 appeal purely on the ground of limitation without going into these questions.
- What relief the appellants were entitled to once the arbitration itself was found to be improperly initiated.
LEGAL PROVISIONS
- Section 17, Arbitration and Conciliation Act, 1996 – empowers an Arbitral Tribunal to grant interim measures of protection during the pendency of arbitral proceedings.
- Section 37, Arbitration and Conciliation Act, 1996 – provides an appeal against orders passed under Section 17, among others.
- Section 5, Limitation Act, 1963 – allows condonation of delay in filing an appeal on sufficient cause being shown.
ARGUMENTS
APPELLANTS: Senior Counsel Sri K. Parameshwar argued that nothing on record showed the appellants had consented to the Tribunal’s appointment. Their objection, raised promptly on the ground of the Tribunal’s proximity to the respondent, was never answered, yet the Tribunal went on to pass three interim orders with drastic consequences for their finances and property. The High Court, it was submitted, erred in dismissing the appeal on limitation alone, without weighing this challenge to the foundation of the arbitration.
RESPONDENT: Senior Counsel Sri Bishwajit Bhattacharyya maintained that the Tribunal had been appointed on consent, but placed nothing before the Court to show that such consent had actually been obtained from the appellants.
ANALYSIS
The Court found no material to support the claim that the appellants had consented to the Tribunal’s appointment. The appellants had objected at the threshold, flagging the Tribunal’s proximity to the respondent, and that objection was never answered. The Tribunal nonetheless passed three far-reaching interim orders, freezing accounts across four banks tied to the appellants’ PAN, letting the respondent’s bank take possession of their properties, and moving their own funds into the respondent’s account.
Orders of this kind, passed while a serious objection to the Tribunal’s impartiality remained unresolved, were held to be arbitrary. Since the appointment itself rested on an unproven claim of consent, the Court went to the root of the matter and declared the very initiation of the arbitration non est in law, rather than merely reviewing the individual interim orders.
JUDGMENT
Leave was granted and the appeal disposed of. The High Court’s order was set aside, and the initiation of the arbitration was held non est in law, taking the three interim orders down with it. Amounts already moved from the appellants’ accounts to the respondent were to be remitted back within one week, with interest left to the newly appointed Arbitrator. Default would result in a compound interest rate at 18% per annum with monthly rests from the date of debit, adjustable against any amount discovered later due to the respondent. Any attachment or seizure of the property of the appellants was to be reversed and possession restored.
The Court appointed Ms. Mayuri Raghuwanshi, Advocate, as the sole Arbitrator, with the Registry to intimate her. She was left free to issue notices and settle her fee with the parties. The Court expressed no view on the merits of the underlying dispute, leaving those questions open for the Arbitrator. Pending applications, if any, stood rejected.
CONCLUSION
This order is a reminder that consent is not a formality in arbitration but its starting point. An objection to a tribunal’s independence, raised early and on specific grounds, cannot be treated as background noise while the tribunal presses ahead with orders that freeze accounts, hand over property, and move money out of a party’s control. Once an appointment rests on unproven consent, the proceedings that follow cannot be salvaged merely because the tribunal has already acted. The firm one-week deadline for restitution, backed by a steep rate of compound interest for default, signals that interim measures found improperly issued must be undone promptly, not left to linger through a fresh arbitration. Read with the Court’s refusal to let limitation swallow a substantive challenge to fairness, the order makes clear that a tribunal’s neutrality deserves scrutiny on its merits, not dismissal on technical grounds.
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WRITTEN BY: HARSHMEET KAUR SUDAN
