Every arbitration begins with a simple requirement: both parties must agree to have their dispute decided by arbitration, and that agreement must extend to who decides it. A clause on paper is not the same as a functioning tribunal. The Supreme Court’s ruling, in Arth Micro Finance Private Ltd. v. Shivalik Small Finance Bank Ltd. (2026 INSC 1014), addresses exactly this gap, holding that a tribunal appointed without proven consent does not merely suffer from a defect; it never legally existed at all.
The dispute began when Shivalik Small Finance Bank informed Arth Micro Finance, that an arbitral tribunal had been appointed with its consent. Arth Micro Finance denied this immediately and alleged that the tribunal had close ties to the bank, raising a direct question over its independence. The tribunal did not pause to resolve this dispute over its own legitimacy. It proceeded to exercise its powers, freezing the appellants’ accounts across four banks, authorising the takeover of their property, and directing that deposited funds be handed to the respondent.
Under the Arbitration and Conciliation Act, 1996, a tribunal’s authority is not self-generating. Section 16 allows a tribunal to rule on its own jurisdiction, but that power only has meaning once the tribunal has been validly constituted. An unproven claim of consent, contested from the outset by the party against whom it is asserted, cannot supply that foundation. When Arth Micro Finance’s Section 37 appeal against the interim orders reached the Allahabad High Court, the appeal was dismissed on limitation grounds without the High Court engaging with this threshold question, which is what ultimately brought the matter before the Supreme Court.
The bench of Justices JB Pardiwala and K Vinod Chandran observed that “arbitration, though rhymes with it, cannot result in an arbitrary measure, even in the appointment of an Arbitral Tribunal.” Finding that Shivalik Small Finance Bank had produced no evidence of Arth Micro Finance’s consent, and that the bias objection had gone unaddressed, the Court declared the entire arbitral process non est in law. This is a stronger conclusion than calling the appointment irregular: something non est was never valid to begin with, so every order issued under its supposed authority falls with it. The High Court’s order was set aside, the three Section 17 orders were quashed, and the limitation ground on which the appeal had been dismissed could not stand once this foundational defect was apparent.
Section 17 of the Arbitration and Conciliation Act, 1996 gives a tribunal the power to grant interim measures of protection, including orders for preserving property and securing the amount in dispute. These powers are substantial, capable of reshaping a party’s financial position long before the dispute is decided on merits, as seen in the freezing of accounts at IDBI Bank, Bank of Baroda, HDFC Bank, and ICICI Bank here. The ruling makes clear that the reach of Section 17 cannot be treated as a reason to defer questions about a tribunal’s legitimacy; if anything, the more coercive a tribunal’s orders, the more urgent it becomes to resolve, at the earliest stage, whether the tribunal had authority to issue them at all.
This decision extends a line of reasoning the Supreme Court has developed in cases concerning the validity of arbitral appointments. In TRF Ltd. v. Energo Engineering Projects Ltd. (2017), the arbitration clause authorised the Managing Director of one party to act as the sole arbitrator or nominate another. After the 2015 amendments, the Managing Director became ineligible under Section 12(5) read with the Seventh Schedule, and the Supreme Court held that his ineligibility also extinguished his power to nominate another arbitrator.
In Perkins Eastman Architects DPC v. HSCC (India) Ltd. (2019), the Court further held that a party interested in the outcome of a dispute cannot have unilateral power to appoint the sole arbitrator, as the appointment process must preserve the independence and impartiality of the tribunal.
The distinction between these decisions and Arth Micro Finance is important. While TRF concerned the appointment power of a statutorily ineligible person and Perkins concerned unilateral appointment by an interested party, Arth Micro Finance addresses a more fundamental question: whether consent to the constitution of the tribunal existed at all. Here, the respondent claimed that the tribunal had been appointed with the appellants’ consent, but the Supreme Court found no material establishing such consent, despite the appellants’ express objection to the appointment.
Taken together, the three decisions address different forms of defective arbitral appointments while reinforcing the same principle: a tribunal’s authority must rest on a legally valid appointment process and cannot be founded on statutory ineligibility, unilateral control by an interested party, or unsupported assertions of consent.
The Allahabad High Court’s dismissal of the Section 37 appeal had rested on limitation, invoking the framework for condonation of delay under Section 5 of the Limitation Act, 1963. The Supreme Court’s willingness to set that dismissal aside once the deeper defect came into view reflects an important principle: limitation exists to bring finality to valid proceedings, and it cannot be allowed to insulate a fundamentally void process from challenge, particularly where the consequences include frozen accounts and seized property.
Arth Micro Finance v. Shivalik Small Finance Bank reinforces that the Arbitration and Conciliation Act, 1996, for all the procedural freedom it gives tribunals once properly constituted, remains built on the single non-negotiable requirement of genuine party consent. Businesses relying on arbitration clauses should treat proof of consent to a specific tribunal as essential documentation, not a formality, and should recognise that an unaddressed bias objection at the appointment stage can later unravel every order a tribunal issues, however urgent or far-reaching.
Read together with TRF Ltd. and Perkins Eastman, this ruling confirms that Indian courts are increasingly willing to look past the formal existence of an arbitration clause and ask whether both parties genuinely agreed to the tribunal deciding their dispute. Where that consent cannot be established, the Supreme Court has now made clear, the arbitration never began in the eyes of the law, regardless of how far it appeared to progress before the defect was uncovered.
About the authors: Meghna Mishra is a Senior Partner at Bahuguna Law Associates.
Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.
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