Arbitration begins with notice, not court filing, says Supreme Court

The Supreme Court has reaffirmed that arbitration legally begins when the notice invoking arbitration is received by the opposing party, and not when a court is approached for the appointment of an arbitrator. Setting aside a contrary view taken by the Karnataka High Court, the court held that linking the start of arbitral proceedings to a judicial filing would run counter to the structure and intent of the Arbitration and Conciliation Act, 1996.

 

A Bench comprising Justice Dipankar Datta and Justice Augustine George Masih ruled that the High Court had erred in vacating interim relief granted under Section 9 of the Act on the ground that arbitration had not commenced within the prescribed period. The court clarified that Section 21 of the Act exhaustively defines the commencement of arbitration as the date on which a request to refer disputes to arbitration is received by the respondent, and this definition cannot be displaced by reference to proceedings under Sections 9 or 11.

   

The Bench cautioned that treating a Section 11 petition, filed for the appointment of an arbitrator, as the trigger for commencement would distort the statutory framework and dilute the role assigned to Section 21.

 

Emphasising the settled position of law, the court observed that the start of arbitral proceedings is a statutory event and does not depend on the initiation of any court process.

 

The ruling arose from a dispute stemming from a 2019 franchise agreement for the operation of a hotel in Srinagar between Regenta Hotels Private Limited and Hotel Grand Centre Point. After alleging interference in hotel operations by certain partners of the firm, Regenta obtained ad interim protection from a Bengaluru trial court on February 17, 2024.

 

It subsequently issued a notice invoking arbitration on April 11, 2024, which was duly received by the respondents. When consensus on the appointment of an arbitrator could not be reached, Regenta moved the High Court under Section 11 on June 28, 2024.

 

Both the trial court and the High Court later declined to continue interim protection, holding that arbitration had not commenced within 90 days of the interim order, as required under Section 9(2), since the Section 11 petition was filed beyond that period. The Supreme Court rejected this reasoning, holding that the issuance and receipt of the arbitration notice within the 90-day window satisfied the statutory requirement.

 

Examining the scheme of the Act, particularly Sections 9, 21 and 43(2), the court noted that Section 21 applies across the statute unless expressly excluded.