The Supreme Court ruled that arbitral proceedings begin when an arbitration notice is received under Section 21, not when a Section 11 petition is filed. Setting aside the Karnataka High Court order, the Court restored the interim injunction granted to Regenta Hotels.
New Delhi: The Supreme Court of India has set aside a judgment passed by the Karnataka High Court, which had earlier vacated an ad-interim injunction on the ground that the appellant failed to “initiate” arbitral proceedings within 90 days.
The Apex Court clarified that under the Arbitration and Conciliation Act, 1996, arbitral proceedings are considered to have commenced only when a notice invoking arbitration is received by the other party under Section 21 of the Act, and not when a petition for appointment of an arbitrator is filed before the court under Section 11.
A Bench comprising Justice Dipankar Datta and Justice Augustine George Masih allowed the appeal filed by Regenta Hotels Private Limited, holding that the High Court had committed a serious legal error by mixing up the concept of “commencement” of arbitration proceedings with the filing of a Section 11 petition.
The Supreme Court examined the interpretation of Section 9(2) of the Arbitration and Conciliation Act, 1996 along with Rule 9(4) of the Arbitration (Proceedings Before the Courts) Rules, 2001.
The main question before the Court was whether sending and receiving a notice invoking arbitration is enough to show that arbitral proceedings have started, or whether a party must compulsorily file a Section 11 petition within 90 days if the appointment of an arbitrator does not take place.
The Court clearly ruled that arbitration proceedings begin the moment the notice under Section 21 is received by the opposite party. Therefore, an interim order passed under Section 9 does not automatically lapse if such notice is served within the 90-day period.
The dispute arose between Regenta Hotels Private Limited and M/s Hotel Grand Centre Point, a partnership firm.
The parties had entered into a Franchise Agreement dated March 23, 2019, under which the appellant was responsible for supporting and facilitating the business operations of the respondent’s hotel in Srinagar.
Problems began when Respondent No. 2, who is a partner in the firm, allegedly started interfering with the functioning and management of the hotel.
Due to this interference, Regenta Hotels filed an application under Section 9 of the Act before the IXth Additional City Civil and Sessions Judge, Bengaluru, seeking interim protection.
On February 17, 2024, the Trial Court granted an ad-interim injunction restraining Respondent No. 2 from interfering in the hotel’s operations. On April 11, 2024, the appellant issued a formal arbitration notice invoking Clause 19.1 of the Franchise Agreement.
This notice was replied to on April 23, 2024, when Respondent No. 2 refused to agree to the appointment of an arbitrator and even denied the existence of the agreement. Thereafter, on June 28, 2024, the appellant approached the High Court by filing a petition under Section 11(6) of the Act seeking appointment of an arbitrator.
However, on October 1, 2024, the Trial Court dismissed the Section 9 application and vacated the interim injunction. The Trial Court held that the appellant had failed to show consent of Respondent No. 2 to the agreement and had also failed to initiate arbitral proceedings within the time period prescribed under law.
This order was challenged before the Karnataka High Court, which on November 14, 2024, dismissed the appeal.
The High Court held that under Section 9(2) of the Act read with Rule 9(4) of the 2001 Rules, arbitration proceedings must be “initiated” within 90 days, and since the Section 11 petition was filed after the expiry of this period, the interim protection stood automatically vacated.
Before the Supreme Court, the appellant argued that arbitral proceedings legally commence on the date when the notice invoking arbitration is received by the respondent, as clearly provided under Section 21 of the Act.
The appellant relied on earlier judgments of the Supreme Court including Sundaram Finance Ltd. v. NEPC India Ltd. and Arif Azim Company Limited v. Aptech Limited, and submitted that filing of a Section 11 petition is only a later procedural step and cannot decide the date of commencement of arbitration.
On the other hand, Respondent No. 2 argued that Section 21 is only a deeming provision meant for limitation purposes under Section 43(2) of the Act. It was contended that “commencement” under Section 21 cannot be applied to Section 9(2).
According to the respondent, since the arbitrator was not appointed by mutual consent, arbitration could be said to have been initiated only when the Section 11 petition was filed.
After carefully examining the law, the Supreme Court rejected the reasoning of the High Court. The Bench relied on settled principles laid down in earlier judgments such as Milkfood Ltd. v. GMC Ice Cream (P) Ltd. and Geo Miller and Company Private Limited v. Rajasthan Vidyut Utpadan Nigam Limited.
The Court clearly stated:
“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 Supreme Court also clarified the correct interpretation of Rule 9(4) of the 2001 Rules, which was heavily relied upon by the High Court. Explaining that the rule cannot be read in isolation, the Court observed:
“Rule 9 has been framed in aid of, and to give procedural effect to, Section 9 of the Act, and therefore the terminology employed therein must be construed harmoniously with the parent provision… Consequently, for the purposes of Rule 9(4), the expression ‘initiated’ has necessarily to be read as ‘commenced’ within the meaning of Section 21 of the Act.”
The Bench further made it clear that treating the filing of a Section 11 petition as the date of commencement would defeat the very scheme of the Arbitration Act. In this regard, the Court held:
“If the date of filing of the Section 11 petition is to be treated as the date of commencement of arbitral proceedings, as has been observed by the High Court in the Impugned Judgment, that would result into the displacement of commencement of arbitral proceedings as provided under Section 21 and would be contrary to the text and purpose of the Act.”
Applying this legal position to the facts of the case, the Supreme Court noted that the arbitration notice was issued on April 11, 2024, and the respondent replied on April 23, 2024.
Since the 90-day period under Section 9(2) expired on May 17, 2024, and the notice had already been received much before this date, the arbitral proceedings had validly commenced within time.
Accordingly, the Supreme Court allowed the appeal and set aside the judgment of the Karnataka High Court dated November 14, 2024. The Trial Court’s order dated October 1, 2024, vacating the ad-interim injunction was also quashed.
The earlier order dated February 17, 2024, granting interim protection was restored. The Supreme Court further requested the High Court to decide the pending Section 11 petition at the earliest.
Concluding the judgment, Justice Masih, speaking for the Bench, observed:
“The arbitral proceedings, as commenced by the Appellant, is well within the statutory time frame provided under Section 9(2) of the Act and the rigor of Rule 9(4) of the 2001 Rules cannot be attracted to the Appellant.”
Case Title:
Regenta Hotels Private Limited v. M/s Hotel Grand Centre Point and Others
SLP (Civil) No. 30212 of 2024, registered as Civil Appeal No. of 2026
Read Judgement:
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