Arbitral Proceedings Commence On Invocation Notice, Not Arbitrator Appointment: Supreme Court

Bengaluru, Jan 8 (KNN) The Supreme Court has reaffirmed that arbitral proceedings commence on the date the respondent receives a notice invoking the arbitration clause, and not from the date of appointment of an arbitrator or the filing of a petition before the court.

A bench comprising Justices Dipankar Datta and Augustine George Masih set aside an order of the Karnataka High Court, which had held that arbitration commenced only upon the filing of a petition under Section 11 of the Arbitration and Conciliation Act, 1996.

Interpretation of Section 21 of the Arbitration Act

Clarifying the legal position, the court held that under Section 21 of the Act, arbitral proceedings are deemed to commence when the respondent receives a notice or request seeking reference of disputes to arbitration. 

The bench observed that such commencement is effective for all legal purposes, including limitation, maintainability of a Section 11 petition, and compliance with pre-arbitral requirements.

The court further noted that a valid invocation notice must identify the dispute sought to be referred to arbitration. However, once such a notice is received, the arbitral proceedings stand duly commenced, irrespective of subsequent procedural steps.

Background of the Dispute

The dispute arose from a franchise agreement executed in March 2019 between the appellant and a partnership firm operating a hotel in Srinagar. Following internal disputes among the partners, one partner allegedly interfered with the hotel’s operations, prompting the appellant to seek interim protection.

On February 16, 2024, the appellant approached the trial court under Section 9 of the Arbitration Act and obtained an ad-interim injunction the following day. 

The appellant subsequently issued a notice invoking arbitration on April 11, 2024. After one of the respondents declined to agree to the appointment of an arbitrator, a petition under Section 11 was filed on June 28, 2024.

High Court’s View and Supreme Court’s Intervention

Both the trial court and the Karnataka High Court vacated the interim injunction, holding that arbitral proceedings had not commenced within 90 days of the interim order as mandated under Section 9(2) of the Act. 

According to the lower courts, commencement occurred only when the Section 11 petition was filed, which was beyond the prescribed period.

Allowing the appeal, the Supreme Court held that such an interpretation would defeat the purpose of Section 9 by enabling parties to frustrate interim relief through procedural delays. 

The bench relied on its earlier decision in 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 court observed.

Interim Relief Restored

The court emphasised that commencement of arbitral proceedings is a statutory event exclusively governed by Section 21, and no judicial application, whether under Section 9 or Section 11, can be treated as the starting point of arbitration.

Accordingly, the Supreme Court allowed the appeal and restored the ad-interim injunction granted in favour of the appellant.

(KNN Bureau)