Arbitration begins with notice, not filing of petition to appoint arbitrator: Supreme Court

The Supreme Court has clarified that arbitral proceedings commence the moment a party’s notice invoking arbitration is received by the opposite side, and not when a court petition for appointment of an arbitrator is filed [Regenta Hotels Vs Hotel Grand Central Point].

A Bench of Justices Dipankar Datta and Augustine George Masih made the observation while setting aside a Karnataka High Court ruling that had vacated interim protection under Section 9 of the Arbitration and Conciliation Act, 1996.

The Bench held that courts cannot treat the filing of a petition under Section 11 of the Act, which deals with the appointment of arbitrators, as the trigger for the commencement of arbitration.

The Court warned that such an approach would distort the statutory scheme and undermine Section 21 of the Act, which expressly provides that the arbitral process commences on the receipt of a request to refer disputes to arbitration.

"The settled position as emerged is that the commencement of arbitral proceedings is a statutory event defined exclusively under Section 21 of the Act, wherein the respondent's receipt of a request to refer the dispute to arbitration sets the arbitral proceedings in motion and no judicial application i.e. whether under Section 9 or Section 11 petition, constitutes commencement," the Court held.

The ruling was passed in a dispute that originated from a 2019 franchise agreement between Regenta Hotels Private Limited and M/s Hotel Grand Centre Point (firm) for the operation of a hotel in Srinagar.

Tensions arose when Regenta Hotels alleged that certain partners of the firm were interfering with hotel operations. Consequently, Regenta sought interim protection from a trial court in Bengaluru, which granted an ad-interim injunction on February 17, 2024, to ensure the smooth functioning of the hotel.

Following the grant of protection, Regenta Hotels issued an arbitration notice under Section 21 on April 11, 2024, which was received by the firm and its partners (respondents).

However, when the respondent refused to concur on an arbitrator, Regenta filed a Section 11 petition before the High Court on June 28, 2024. The trial court and later the High Court dismissed the interim applications filed by Regenta, ruling that because the Section 11 petition was filed more than 90 days after the initial interim order, the arbitration had failed to commence within the period mandated by Section 9(2) of the Act.

The Supreme Court disagreed with this view. It traced the statutory scheme governing the commencement of arbitration and examined Sections 9, 21 and 43(2) of the Act. It noted that Section 21 provides that arbitral proceedings commence “on the date on which a request for that dispute to be referred to arbitration is received by the respondent”, and that this definition applies across the Act unless expressly excluded.

After surveying its earlier decisions in Sundaram Finance, Milkfood, Geo Miller and Arif Azim, the Court held that the position of law is settled and leaves no scope for judicial improvisation. The judgment records:

“There is no doubt left with regard to the correct conceptualization of ‘commencement of arbitral proceedings’ under the Act. The settled position as emerged is that the commencement of arbitral proceedings is a statutory event defined exclusively under Section 21 of the Act.”

The Court expressly rejected the High Court’s reasoning that commencement could be linked to the filing of a Section 11 petition, holding that such an approach misconceived the statutory design.

“The very frame of Section 21 provides that the Legislature has consciously delinked the commencement of arbitral proceedings from any judicial proceedings," it noted.

Dealing with Rule 9(4) of the Karnataka Arbitration (Proceedings Before the Courts) Rules, 2001, which provides for automatic vacation of interim orders if arbitration is not initiated within three months, the Court held that the expression “initiated” cannot be read independently of Section 21.

“If ‘initiation’ in Rule 9(4) were to be understood as something short of ‘commencement’ as contemplated under Section 21 of the Act, the mandate under Section 9(2)… would be rendered otiose and susceptible to circumvention," it held.

Applying this to the facts of the present case, the Court noted that the ad-interim injunction had been granted on February 17, 2024, and that the appellant had issued a notice invoking arbitration on April 11, 2024, well within the 90-day period within which arbitration was to be commenced.

It held that the High Court was wrong in treating the filing date of the Section 11 petition as the date of commencement.

Accordingly, it allowed the appeal filed by Regenta Hotels against the Karnataka High Court's ruling.

Regental Hotels was represented by Senior Advocate Nikhil Goel with Advocates Madiya Mushtaq, Nagarjun Sahu and Pranjal Kishore.

Hotel Grand Centre Point and its partners were represented by Advocates Vivek Jain, Baani Khanna and Atul Shankar Vinod from Ahmadi Law Offices

[Read Judgment]