Supreme Court of India Says Arbitration Cannot Be Conducted Based on Unilateral Appointment

The Supreme Court has recently set aside an arbitral proceeding which was initiated without the consent of one party, while holding that an arbitral tribunal cannot be appointed in a manner which is arbitrary or indicates any kind of bias.

This was ruled in the case of Arth Micro Finance Private Ltd v Shivalik Small Finance Bank Ltd, where a Bench of Justices JB Pardiwala and K Vinod Chandran dealt with a dispute between two financial institutions. 

Shivalik initiated the arbitration proceedings and obtained interim orders under Section 17 of the Arbitration and Conciliation Act 1996. These directions included freezing of bank accounts, transferring funds which were deposited and taking control of properties. 

The tribunal’s appointment was challenged by Arth which alleged that it was made unilaterally despite objections being made as to the relation of the arbitrator with Shivalik. 

The Supreme Court found no material to prove that Arth consented to the appointment. The Court therefore held that initiating the arbitration was non est in law and quashed the interim orders.

The Court also appointed Mayuri Raghuvanshi as sole arbitrator to decide the dispute afresh, in this case, without expressing any view on the merits.