Introduction Arbitration is intended to provide parties with an efficient and consensual mechanism for resolving disputes. However, the existence of an arbitration agreement does not permit one party to constitute an arbitral tribunal arbitrarily, particularly when the appointment has been specifically objected to on grounds of alleged bias. In Arth Micro Finance Private Ltd. & Ors. v. Shivalik Small Finance Bank Ltd., the Supreme Court held that the appointment of an arbitral tribunal cannot be treated as valid merely by stating that it was made with the consent of the parties when there is no material showing that such consent was actually obtained. A Bench comprising Justice J.B. Pardiwala and Justice K. Vinod Chandran set aside the initiation of arbitration, the interim orders passed by the tribunal and the High Court order, while appointing a fresh arbitrator to resolve the underlying dispute. Background of the Case The dispute arose between the parties under an agreement containing an arbitration clause. The respondent proceeded to appoint an arbitral tribunal in May 2024, allegedly with the consent of the parties. The appellants, however, disputed the appointment. They specifically objected to the constitution of the tribunal and raised allegations that the appointed tribunal had close links with the respondent. Despite the objection, the arbitral tribunal proceeded with the matter and passed interim orders against the appellants. The appellants challenged the proceedings and questioned the validity of the tribunal's appointment. What Were the Interim Orders Passed by the Tribunal? The arbitral tribunal passed three interim orders under Section 17 of the Arbitration and Conciliation Act, 1996. The orders included directions concerning: freezing of the appellants' bank accounts; taking possession of movable and immovable properties; transfer of amounts lying in various bank accounts to the respondent's account; and other protective measures affecting the appellants' assets. The affected bank accounts included accounts maintained with IDBI Bank, Bank of Baroda, HDFC Bank and ICICI Bank. The appellants challenged these orders before the High Court under Section 37 of the Arbitration and Conciliation Act, 1996. What Did the High Court Hold? The High Court dismissed the appeal primarily on the ground of limitation. The appellants thereafter approached the Supreme Court. Before the Supreme Court, the appellants argued that the very constitution of the arbitral tribunal was defective because the alleged consent for its appointment had never actually been obtained from them. They also relied upon their earlier objection concerning the alleged bias of the tribunal. Supreme Court Examines the Validity of the Tribunal's Appointment The Supreme Court first considered whether the arbitral tribunal had actually been appointed with the consent of the appellants. The Court noted that although it was argued that the tribunal had been appointed by consent, there was nothing on record to establish that such consent had actually been obtained from the appellants. This became particularly significant because the appellants had expressly objected to the appointment and had raised allegations of bias. The Court therefore found that the initiation of arbitration itself could not be sustained. “Arbitration Cannot Result in an Arbitrary Measure” The Supreme Court made an important observation: “Arbitration, though rhymes with it, cannot result in an arbitrary measure, even in the appointment of an Arbitral Tribunal.” The observation highlights an important principle: although arbitration is intended to provide an alternative mechanism for dispute resolution, the procedure followed in constituting the tribunal must comply with the agreement between the parties and the applicable law. A party cannot simply assert that an appointment was made by consent when the record does not establish such consent. Allegation of Bias Was Also Relevant The Court also took note of the fact that the appellants had raised an objection regarding the tribunal's alleged links with the respondent. The objection was not raised after the tribunal had completed the proceedings. It had been raised in response to the communication concerning the appointment. The Supreme Court considered it significant that the tribunal proceeded to pass interim orders despite the existing objection to its appointment and the allegation of bias. The Court therefore found the circumstances surrounding the constitution of the tribunal and the subsequent interim orders to be arbitrary. Supreme Court Declares Initiation of Arbitration “Non Est in Law” After examining the record, the Supreme Court set aside the High Court's order and held that the very initiation of arbitration was non est in law. The expression non est in law essentially means that the action is treated as having no legal existence or effect. Since the tribunal itself had not been validly constituted in the circumstances of the case, the interim orders passed by that tribunal could not be allowed to stand. Interim Orders Passed by the Tribunal Set Aside The Supreme Court set aside all three interim orders passed by the arbitral tribunal. This had significant consequences because the orders had affected the appellants' bank accounts and properties. The Court directed that if any amount had already been transferred from the appellants' bank accounts to the respondent pursuant to those orders, the amount had to be returned within one week. What Happened to the Interest on the Transferred Amount? The Supreme Court left the question of interest on the transferred amounts to be considered by the newly appointed arbitrator. However, the Court imposed a specific consequence for failure to comply with its direction to return the money within the stipulated period. If the amount was not returned within one week, it would carry compound interest at 18% per annum with monthly rests, calculated from the date on which the amount had been debited from the appellants' accounts. The Court further directed that such amount could be adjusted against any amount that might ultimately be found payable to the respondent in the arbitration. What Happened to the Properties? The tribunal had also passed directions concerning possession of the appellants' movable and immovable properties. The Supreme Court directed that any attachment or takeover of the appellants' properties pursuant to the interim orders would stand set aside. The properties were therefore required to be restored to the appellants. Supreme Court Appoints a Fresh Arbitrator The Supreme Court did not decide the underlying commercial dispute between the parties. Instead, to facilitate resolution of the dispute, the Court appointed Ms. Mayuri Raghuwanshi, Advocate, as the arbitrator. The newly appointed arbitrator was directed to issue notices to the parties and proceed with the arbitral proceedings. The Supreme Court also clarified that it had not expressed any opinion on the merits of the underlying dispute. The parties were therefore free to raise their respective claims and defences before the newly appointed arbitrator. Importance of Section 17 of the Arbitration Act Section 17 of the Arbitration and Conciliation Act, 1996 empowers an arbitral tribunal to grant certain interim measures during arbitral proceedings. These measures can include protection or preservation of property, securing the amount in dispute and other appropriate interim reliefs. Such orders can have immediate consequences for businesses because they may affect: bank accounts; movable assets; immovable properties; business operations; and financial resources. The present case demonstrates why the valid constitution of the arbitral tribunal is an important preliminary issue, particularly when substantial interim relief is sought. What Does Section 37 Provide? Section 37 of the Arbitration and Conciliation Act provides for appeals against certain specified orders under the Act. Orders passed under Section 17 are among the orders against which an appeal may be maintainable under the statutory framework. However, such proceedings are also subject to applicable limitation requirements. In the present case, the High Court had dismissed the appellants' challenge on limitation grounds. The Supreme Court, however, examined the more fundamental issue concerning the validity of the tribunal's constitution and initiation of arbitration. Can One Party Unilaterally Start Arbitration? The answer depends upon the arbitration agreement and the applicable statutory mechanism. An arbitration agreement itself represents the parties' agreement to resolve specified disputes through arbitration. Therefore, a fresh consent is not necessarily required every time a dispute arises where a valid arbitration agreement already exists. However, the appointment of the arbitral tribunal must follow the procedure agreed between the parties or the procedure prescribed by law. In the present case, the Supreme Court was concerned with the specific assertion that the tribunal had been appointed on consent, despite there being no material establishing that the appellants had actually provided such consent. Importance of Independence and Impartiality of Arbitrators Arbitrators are expected to act independently and impartially. Where a party raises a genuine objection concerning the independence or impartiality of an arbitrator, the objection should be addressed through the procedure provided under the Arbitration and Conciliation Act. Parties should therefore carefully examine: the identity and background of the proposed arbitrator; disclosures required under law; any relationship with the opposing party; circumstances that may create justifiable doubts regarding impartiality; and the statutory procedure for challenging the arbitrator. Practical Lessons for Parties Involved in Arbitration The judgment provides several practical lessons. 1. Verify the Appointment Procedure Parties should verify whether the arbitrator or arbitral tribunal has been appointed in accordance with the arbitration agreement and applicable law. 2. Keep Written Records of Consent Where an arbitrator is allegedly appointed by consent, the relevant written communication or document establishing such consent should be preserved. 3. Record Objections Promptly If a party objects to the constitution of the tribunal, the objection should be communicated at the earliest appropriate stage. 4. Raise Bias Concerns Through the Proper Procedure Any objection concerning independence or impartiality should be properly documented and pursued under the applicable statutory provisions. 5. Act Quickly Against Interim Orders Where an arbitral tribunal passes orders affecting bank accounts or properties, the affected party should immediately examine the available remedies and applicable limitation periods. Key Takeaways The Supreme Court's decision establishes several important practical points: Arbitration is intended to operate within an agreed and legally recognised framework. The appointment of an arbitral tribunal cannot be arbitrary. A claimed appointment by consent should be supported by evidence of actual consent. Objections concerning the constitution of a tribunal and alleged bias can become significant. Interim orders passed by an improperly constituted tribunal may be set aside. Amounts transferred pursuant to invalid interim orders may be directed to be restored. Property attached or taken over pursuant to such orders may also be restored. The underlying commercial dispute may still proceed before a properly appointed arbitrator. Courts can appoint a fresh arbitrator to facilitate resolution of the substantive dispute. Frequently Asked Questions 1. Can an arbitral tribunal be appointed without the consent of both parties? The appointment procedure depends upon the arbitration agreement and the applicable provisions of the Arbitration and Conciliation Act. However, if an appointment is specifically claimed to have been made with the consent of a party, the existence of that consent should be supported by the record. 2. What happens if a party objects to the appointment of an arbitrator? The party should raise the objection through the applicable procedure under the Arbitration and Conciliation Act. The nature and timing of the objection can be important. 3. Can an arbitral tribunal freeze a party's bank account? An arbitral tribunal may grant appropriate interim measures under Section 17, subject to the requirements of the Arbitration and Conciliation Act. The validity of any particular order depends upon the circumstances and jurisdiction of the tribunal. 4. What happened to the money transferred under the interim orders in this case? The Supreme Court directed that amounts transferred from the appellants' accounts to the respondent pursuant to the interim orders be returned within one week. 5. What happened to the properties affected by the tribunal's orders? The Supreme Court set aside the attachment or takeover of the appellants' movable and immovable properties pursuant to the impugned interim orders and directed restoration. 6. Did the Supreme Court decide who was right in the underlying dispute? No. The Supreme Court expressly left the merits of the underlying dispute open for consideration by the newly appointed arbitrator. 7. Who was appointed as the new arbitrator? The Supreme Court appointed Ms. Mayuri Raghuwanshi, Advocate, as the arbitrator to facilitate resolution of the dispute. Conclusion The Supreme Court's decision in Arth Micro Finance Private Ltd. & Ors. v. Shivalik Small Finance Bank Ltd. highlights the importance of following a lawful and transparent procedure while constituting an arbitral tribunal. The Court found that although the appointment was claimed to have been made with the appellants' consent, there was no material demonstrating that such consent had actually been obtained. This was particularly significant because the appellants had already objected to the appointment and raised allegations of bias. The Supreme Court consequently held that the initiation of arbitration was non est in law, set aside the interim orders passed by the tribunal, directed restoration of affected amounts and properties, and appointed a fresh arbitrator to resolve the underlying dispute. The judgment reinforces an important principle of arbitration law: while arbitration is intended to provide an efficient alternative to court litigation, the process of constituting and conducting the arbitral tribunal must itself remain within the framework of the parties' agreement and the law. Case Details Case: Arth Micro Finance Private Ltd. & Ors. v. Shivalik Small Finance Bank Ltd. Court: Supreme Court of India Date of Order: 17 September 2026 Bench: Justice J.B. Pardiwala and Justice K. Vinod Chandran Civil Appeal: No. 13015 of 2026 Arising out of: SLP (C) No. 26596 of 2026 Citation: 2026 INSC 1014 / 2026 LiveLaw (SC) 963 Area of Law: Arbitration and Conciliation Act, 1996 SEO Keywords arbitration cannot be arbitrary, Supreme Court arbitration judgment 2026, appointment of arbitrator without consent, unilateral appointment of arbitrator, arbitral tribunal appointment, arbitration and bias, Section 17 Arbitration Act, Section 37 Arbitration Act, challenge to arbitral tribunal, arbitration legal remedy India, arbitration dispute, interim measures in arbitration, bank account freezing arbitration, arbitrator appointment India Meta Title Arbitration Cannot Be Arbitrary: Supreme Court on Arbitrator Appointment Meta Description Supreme Court holds that arbitral tribunal appointment cannot be arbitrary and sets aside arbitration initiated without demonstrated consent of the parties. Suggested URL Slug /supreme-court-arbitration-cannot-be-arbitrary-arbitrator-appointment Disclaimer This article is intended for general legal awareness and informational purposes only. It does not constitute legal advice. The outcome of an arbitration dispute depends upon the arbitration agreement, applicable statutory provisions, facts and procedural history of the matter. A qualified legal professional should be consulted for advice concerning a specific dispute.