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Arth Micro Finance Private Ltd. v. Shivalik Small Finance Bank Ltd.

Civil Appeal · 2026 INSC 1014Decided 17 Sept 2026
Civil Appeal No. 13015 of 2026 (arising out of SLP(C) No. 26596 of 2026)
Justice J.B. Pardiwala · Justice K. Vinod Chandran

Background

A dispute arose between the parties under an agreement containing an arbitration clause. The respondent bank claimed an Arbitral Tribunal had been appointed "on consent," but the appellants objected, pointing out the tribunal appointed had close links with the respondent and that no genuine consent had been obtained from them. Despite this objection, the Arbitral Tribunal went on to pass interim orders freezing the appellants' bank accounts across multiple banks, allowing the respondent's bank to take over the appellants' movable and immovable properties, and directing transfer of the appellants' deposited funds to the respondent's bank. The appellants' appeal against these orders was dismissed by the High Court on the technical ground of limitation, since no separate delay-condonation application had been filed.

Decision Breakdown

The Supreme Court found there was nothing on record to show the appellants had actually consented to the Arbitral Tribunal's appointment, and held that the tribunal's interim orders, freezing accounts and enabling takeover of assets, were passed arbitrarily, especially given the live, unresolved bias objection against the tribunal. The Court set aside the High Court's order and declared the very initiation/appointment of the Arbitral Tribunal "non est in law" (legally non-existent), consequently quashing all three interim orders. It directed that any funds already transferred to the respondent be returned within one week (with 18% compound interest if not returned in time), and that any attached or taken-over properties be restored to the appellants. The Court then appointed an independent Arbitrator to hear the dispute afresh, expressing no opinion on the underlying merits.

Lesson Learnt

An arbitral tribunal appointed without genuine consent of all parties, particularly where a serious bias objection is raised and never resolved, has no legal standing, and any interim orders it passes (like freezing bank accounts or property takeovers) can be struck down as void, regardless of how the appeal against them was otherwise disposed of on procedural grounds.

Official source (sci.gov.in)View Judgment (PDF)

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