Shivalik Small Finance Bank had constituted an arbitral tribunal against Arth Micro Finance and its guarantors, who objected that the tribunal had close links to the bank and that its appointment lacked their proven consent.
A Bench of Justices J.B. Pardiwala and K. Vinod Chandran held that an arbitral tribunal's appointment without proven consent of the opposite party, made in the face of a bias objection, is non est in law and renders the initiation of arbitration itself invalid. The Court set aside a High Court order that had dismissed the borrower's challenge on the technical ground of limitation, quashed three coercive interim orders passed by the tribunal, and directed immediate restoration of properties and restitution of funds.
The ruling gives parties facing a tribunal constituted without their proven consent, or amid unaddressed bias objections, a clear route to have the entire arbitration declared void even after interim orders have been passed, and warns institutional claimants against constituting panels unilaterally.