Accounts Frozen by a Contested Tribunal: Supreme Court Sets Aside Section 17 Orders and Appoints a New Arbitrator

Case at a glance: In a short order, the Supreme Court has set aside three Section 17 interim orders by which an arbitral tribunal, despite an objection to its appointment and an allegation of bias, froze the appellants' bank accounts, permitted their properties to be taken over and directed transfer of their deposits to the respondent bank. It ordered the money returned within one week, restored the property and appointed a new sole arbitrator.

Disputes arose between the appellants and Shivalik Small Finance Bank under an agreement containing an arbitration clause. The respondent said the arbitral tribunal was appointed on consent; the appellants objected to the appointment and alleged that the tribunal had close links with the respondent. Nothing before the Court showed the appellants' consent.

Despite the objection, the tribunal passed three interim orders under Section 17 of the Arbitration and Conciliation Act, 1996, freezing accounts linked to the appellants' PAN at four banks, allowing the respondent to take over their movable and immovable properties and directing that their deposits be transferred to the respondent bank. The High Court dismissed the appellants' Section 37 appeal on limitation, as no application for condonation of delay had been filed.

The Key Question Before the Court

Can interim orders of a tribunal whose appointment was objected to as non-consensual and biased be allowed to stand?

Arbitration Cannot Be Arbitrary

The Court opened with the principle that arbitration “cannot result in an arbitrary measure, even in the appointment of an Arbitral Tribunal.” It noted that the interim orders were passed in the wake of a clear objection to the tribunal's appointment and an allegation of bias, and described them as arbitrary in nature.

The order is brief and cites no precedent. It does not set out the amounts involved or the date of the High Court's order, and it expresses no opinion on the merits of the dispute, which now goes to the newly appointed arbitrator.

What the Court Actually Held

• The High Court's order was set aside.
• The three Section 17 interim orders were set aside; attachments and takeovers of property were lifted and the property is to be restored.
• Amounts transferred from the appellants' accounts must be returned within one week, failing which compound interest at 18% with monthly rests runs from the date of debit, which may be set off against any award in the respondent's favour; interest otherwise is for the arbitrator.
• Ms. Mayuri Raghuwanshi, Advocate, was appointed sole arbitrator, with no opinion expressed on the merits.

Why This Judgment Matters

• It signals that the Court will intervene when coercive interim measures flow from a contested, allegedly biased tribunal.
• It shows the Court looking past a limitation dismissal where the underlying orders are arbitrary.
• It underscores that consent to the tribunal's appointment must be shown, not assumed.

What Should Advocates Take Away From the Judgment?

For Parties Facing Interim Orders

• Record objections to the tribunal's appointment and any bias at the earliest stage.
• Watch limitation for Section 37 appeals and file a condonation application where needed.

For Lenders

• Ensure the arbitrator is appointed with documented consent or through the court.
• Avoid seeking sweeping coercive interim measures from a tribunal whose appointment is under challenge.

Key Takeaways

Frequently Asked Questions

They were passed despite a clear objection to the tribunal's appointment and an allegation of bias, and the Court found them arbitrary.

Compound interest at 18% with monthly rests runs from the date of debit, which may be set off against any award in the bank's favour.

No. It expressed no opinion on the merits and appointed a new sole arbitrator.

Conclusion