Arbitral Proceedings Commence On Respondent Receiving Notice Invoking Arbitration Clause, Not On Arbitrator's Appointment : Supreme Court

The Supreme Court reaffirmed that the arbitral proceedings are set to commence on the date of receipt of notice invoking the arbitration clause by the respondent. “...the date on which the respondent receives a notice or request invoking arbitration is the moment at which the arbitral proceedings commence under Section 21 of the Act. It further clarified that a valid invocation requires the notice to articulate the dispute sought to be referred but once such notice is received, commencement is complete and effective for all legal purposes including limitation, maintainability of the Section 11 Petition and the legal efficacy of any pre-arbitral measures.”, observed a bench of Justices Dipankar Datta and Augustine George Masih, while setting aside the Karnataka High Court's order which considered the date of commencement of arbitration from the date of appointment of an arbitrator. The dispute arose out of a franchise agreement executed in March 2019 between Appellant and a partnership firm operating a hotel in Srinagar. Following internal disputes among the partners of the firm, one of the partners allegedly interfered with the hotel's operations, prompting Appellant to seek interim protection. On 16 February 2024, Appellant moved the trial court under Section 9 of the Arbitration Act and secured an ad-interim injunction the next day. Thereafter, on 11 April 2024, the appellant issued a notice invoking arbitration under the agreement. When one of the respondents refused to concur in the appointment of an arbitrator, a petition under Section 11 was filed on 28 June 2024. However, both the trial court and the High Court vacated the interim injunction, holding that arbitral proceedings had not “commenced” within 90 days from the date of the interim order as required under Section 9(2) of the Act. According to the courts below, arbitral proceedings commenced only when the Section 11 petition was filed, which was beyond the 90-day period, prompting the Appellant to appeal to the Supreme Court. Setting aside the impugned order, the judgment authored by Justice Masih observed that treating the filing of a Section 11 petition as the starting point would undermine the efficacy of interim relief under Section 9 and allow parties to defeat such relief through procedural delays. [Refer Geo Miller and Company Private Limited v. Chairman, Rajasthan Vidyut Utpadan Nigam Limited, (2020) 14 SCC 643] “If the commencement is to be construed from the date of filing of the petition under Section 11 of the Act, the statutory scheme insisting on expedition in commencing arbitration after the grant of interim protection under Section 9 would be rendered incoherent. The applicant could serve notice under Section 21 but still be held non-compliant until a Section 11 petition is filed, an interpretation which would be directly in contrast with the object and purpose of the Act.”, the court said. “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 added. Accordingly, the appeal was allowed, and the ad-interim injunction granted in favour of Regenta Hotels was restored.HeadnoteArbitration and Conciliation Act, 1996 – Section 9(2) and Section 21 – Commencement of Arbitral Proceedings – Automatic Vacation of Interim Relief – The Supreme Court held that for the purposes of Section 9(2), arbitral proceedings "commence" on the date the respondent receives a request for the dispute to be referred to arbitration, as defined under Section 21 - set aside the High Court's finding that proceedings only commence upon the filing of a Section 11 petition - If a notice invoking arbitration is received by the respondent within 90 days of an interim order, the mandate of Section 9(2) is satisfied, and the interim relief does not stand automatically vacated under Rule 9(4) of the Arbitration (Proceedings Before the Courts) Rules, 2001. [Paras 23, 24, 31]Arbitration and Conciliation Act, 1996 – Section 21 – Interpretation of "Commencement" – Supreme Court emphasized that the commencement of arbitral proceedings is a statutory event defined exclusively under Section 21 - This definition is not limited to calculating limitation under Section 43 but applies to all provisions of the Act unless specifically excluded - The legislature deliberately delinked commencement from judicial proceedings to ensure clarity and party autonomy. [Paras 24, 28, 29]Karnataka Arbitration (Proceedings Before the Courts) Rules, 2001 – Rule 9(4) – Harmonious Construction with Section 9(2) – Held that while Rule 9(4) uses the term "initiated" and Section 9(2) uses "commenced," the terms must be read harmoniously - "Initiated" in Rule 9(4) ...

Arbitral Proceedings Commence On Respondent Receiving Notice Invoking Arbitration Clause, Not On Arbitrator's Appointment : Supreme Court

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Arbitral Proceedings Commence On Respondent Receiving Notice Invoking Arbitration Clause, Not On Arbitrator's Appointment : Supreme Court

Yash Mittal

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