The Supreme Court has set aside arbitration proceedings initiated between Arth Micro Finance Private Limited and Shivalik Small Finance Bank Limited, holding that the very initiation of the arbitration was non est in law after finding that the appointment of the Arbitral Tribunal was made despite a clear objection alleging bias.
A Bench comprising Justice J.B. Pardiwala and Justice K. Vinod Chandran observed that while arbitration is intended to provide an alternative mechanism for dispute resolution, “arbitration, though rhymes with it, cannot result in an arbitrary measure, even in the appointment of an Arbitral Tribunal.”
The dispute arose between Arth Micro Finance and Shivalik Small Finance Bank under an agreement containing an arbitration clause. The respondent had appointed an Arbitral Tribunal, claiming that the appointment was made with the consent of the parties.
However, the Supreme Court noted that there was nothing on record to establish that the appellants had consented to the appointment. The appellants had specifically objected to the constitution of the Tribunal and alleged that the appointed arbitrator had close links with the respondent.
Despite the objection, the Arbitral Tribunal proceeded to pass three interim orders under Section 17 of the Arbitration and Conciliation Act, 1996.
The orders included directions to freeze the appellants’ bank accounts maintained with IDBI Bank, Bank of Baroda, HDFC Bank and ICICI Bank, linked to their specific PAN number. The Tribunal also permitted the respondent bank to take possession of the appellants’ movable and immovable properties and directed the transfer of amounts lying in the appellants’ various bank accounts to the respondent bank.
The appellants challenged these interim orders before the High Court under Section 37 of the Arbitration and Conciliation Act. However, the High Court dismissed the appeal on the ground of limitation, noting that no application seeking condonation of delay under Section 5 of the Limitation Act, 1963 had been filed.
The Supreme Court, however, took note of the appellants’ prior objection to the constitution of the Tribunal and the allegation of bias.
The Bench held that the interim orders passed by the Tribunal were also arbitrary in nature, particularly since they had been issued after the appellants had objected to the Tribunal’s appointment.
Accordingly, the Supreme Court set aside the High Court’s order and declared the initiation of the arbitration proceedings to be non est in law. It also quashed the three interim orders passed under Section 17.
The Court directed that if any amounts had already been transferred from the appellants’ bank accounts to the respondent, those amounts must be returned within one week.
The Court further directed that the question of interest on such amounts would be considered by the arbitrator subsequently appointed by the Supreme Court.
Importantly, the Court provided that if the amounts were not returned within the stipulated period, they would carry compound interest at 18% per annum with monthly rests, calculated from the date on which the amounts were debited from the appellants’ accounts. Such amount would be set off against any claim ultimately found in favour of the respondent in the arbitration.
The Court also directed that any attachment or takeover of the appellants’ movable or immovable properties pursuant to the impugned interim orders would stand set aside, with the properties restored to the appellants.
To facilitate resolution of the underlying disputes, the Supreme Court appointed Ms. Mayuri Raghuwanshi, Advocate, as the arbitrator.
The Registry was directed to intimate the arbitrator, who would thereafter issue notices to the parties and conduct the arbitral proceedings.
The Court clarified that it had not expressed any opinion on the merits of the underlying dispute, leaving all substantive issues open for determination by the newly appointed arbitrator.
The appeal was accordingly disposed of with these directions.
Case: Arth Micro Finance Private Ltd. & Ors. v. Shivalik Small Finance Bank Ltd.
Citation: 2026 INSC 1014
Civil Appeal No.: 13015 of 2026, arising out of SLP (C) No. 26596 of 2026
Date: September 17, 2026
Bench: Justice J.B. Pardiwala and Justice K. Vinod Chandran
Representation:-
For Appellant(s) : Mr. K. Parameshwar, Sr. Adv. Mr. Priyanshu Upadhyay, AOR Mr. Shivam Pandey, Adv. Mr. Abhishek Saxena, Adv. Mr. Ankit Ranjan Pandey, Adv. Mr. Srijan Kumar, Adv. Mr. N. Sai Kaushal, Adv. Mr. Adit Garg, Adv. Mr. Prasad Hegde, Adv. Mr. Vallari Kn, Adv.
For Respondent(s) : Mr. Bishwajit Bhattacharyya, Sr. Adv. Mr. Sahil Tagotra, AOR Ms. Shreya Kasera, Adv. Mr. Abhishek Pandey, Adv.
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