Arbitration Initiated Without Consent Held Non Est in Law: Supreme Court

Arth Micro Finance Private Ltd. And Ors. Vs Shivalik Small Finance Bank Ltd. (Supreme Court of India)

Arbitration May Rhyme with It, but Cannot Be Arbitrary: Supreme Court Sets Aside Biased Appointment and Freezing Orders | Arbitration Initiated Without Consent Held Non Est in Law

The Supreme Court has set aside the constitution of an Arbitral Tribunal and three drastic interim orders passed by it after finding that there was no material establishing the appellants’ consent to the appointment.

The Court observed that although the contract contained an arbitration clause, the respondent could not unilaterally constitute an Arbitral Tribunal and describe the appointment as consensual without evidence of actual consent.

The appellants had specifically objected to the appointment and alleged that the Tribunal had close links with the respondent. Despite this objection, the Tribunal proceeded to freeze several bank accounts, permit the respondent bank to take possession of the appellants’ movable and immovable properties, and direct the transfer of funds from the appellants’ accounts to the respondent.

The Supreme Court declared that the very initiation of the arbitration was non est in law and consequently set aside all the interim orders.

Dispute and Appointment of Arbitral Tribunal

Disputes arose between Arth Micro Finance Private Ltd. and Shivalik Small Finance Bank Ltd. The agreement governing the parties contained an arbitration clause.