Supreme Court: Statutory Consequences Tied To Commencement U/S 9 A&C Act Must Be Assessed Solely With Reference To Date Of Receipt Of Request U/S 21

The Supreme Court held that the statutory consequences tied to commencement, including the mandate under Section 9(2) of the Arbitration and Conciliation Act, 1996 (A&C Act) must be assessed solely with reference to the date of receipt of request invoking arbitration under Section 21 of the Act.

The Court held thus in a Civil Appeal challenging the Judgment of the Karnataka High Court, by which it dismissed an Appeal against the Order of the Additional City Civil and Sessions Judge.

The two-Judge Bench comprising Justice Dipankar Datta and Justice Augustine George Masih observed, “Upon perusal of the binding decisions of this Court and provisions of the Act, 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, 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. Therefore, the statutory consequences tied to commencement, including the mandate under Section 9(2) of the Act, must be assessed solely with reference to the date of receipt of request invoking arbitration under Section 21 of the Act.”

The Bench said that Section 9 of A&C Act does not provide for the consequences of non-compliance with its mandate of commencing arbitral proceedings within ninety days, however, the said vacuum stands statutorily filled through Rule 9(4) of the Arbitration (Proceedings Before the Courts) Rules, 2001.

Senior Advocate Nikhil Goel represented the Appellant, while AOR Vivek Jain represented the Respondents.

Brief Facts

The Appellant company was engaged in carrying business, inter alia, of operating hotels and providing hospitality services in India and abroad. The Respondent was a partnership firm having hotel premises in Jammu and Kashmir. The said parties entered into a Franchise Agreement wherein it was agreed that the Appellant would aid and facilitate the business of Respondent. However, the Respondents No. 2 to 5 were involved in a family dispute over rights on properties resulting into a settlement deed, providing that Respondent No. 5 will be responsible for operations of the Hotel for a period of two years and after the expiry of said period, the Hotel operation shall be conducted by such party who shall be nominated by the parties by voting. Profits of the Hotel were decided to be shared by Respondent No. 2 in the ratio of 25% and Respondent No. 5 in the ratio of 33.50% as also to include every month consideration for his responsibility to operate the Hotel. The remaining share was to be divided among Respondent No. 3 and 4 in the ratio of 21.50% and 20% respectively.

It was alleged that the Respondent No.2 started to interfere in the functioning of the Hotel by shouting at staff and threatening to cancel bookings and taking away the records if not paid exorbitant sums separately over and above the agreed amount under the Franchise Agreement. Consequently, the Appellant approached the Trial Court by way of an application under Section 9 of the A&C Act. The Trial Court granted ad-interim injunction and issued notice to the Respondents. Thereafter, the Appellant invoked arbitration and sought appointment of Sole Arbitrator before the High Court. Meanwhile, the Trial Court dismissed the application of Appellant. This was challenged and the High Court dismissed the Appeal, holding that Section 9(2) of the Act read with Rule 9(4) of the 2001 Rules mandate that arbitral proceedings must commence within 90 days or three months from the date of an interim order or presentation of the Section 9 application, failing which any interim relief granted stands vacated automatically. Being aggrieved, the Appellant approached the Apex Court.

Reasoning

The Supreme Court in the above context of the case, noted, “… where an interim order has been granted on an application made under Section 9 of the Act but no arbitral proceedings are initiated within three months from the date of presentation of the application, the interim order shall stand vacated automatically.”

The Court explained that 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) prescribing a strict timeline for commencement of arbitral proceedings would be rendered otiose and susceptible to circumvention.

“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. It follows that upon failure to commence arbitral proceedings within three months, the period stipulated under Rule 9(4) of 2001 Rules attracts the consequence as provided therein, namely, the interim order shall stand vacated automatically”, it added.

The Court said that the rationale underlying Section 9(2) of the Act is that the arbitral proceedings shall be commenced within ninety days from the grant of interim protection and this prevents a party from abusing Section 9 to obtain interim protection without submitting to the arbitral forum and it also ensures that interim measures remain tied to the arbitration they are meant to support.

“If this safeguard is interpreted in a manner that contradicts the statutory definition of the commencement, to do so would allow courts to rewrite Section 21 sub silentio. 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”, it further remarked.

The Court also observed that 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.

“Permitting such an interpretation would mean that the parties would paradoxically be required to file the Section 11 petition to prevent the lapse of interim measures granted under Section 9 of the Act even when the respondent is cooperating, the contractual appointment procedure is underway, or even when the Section 21 notice has only recently been served. This is antithetical to the flexibility and autonomy provided in the Act”, it added.

Conclusion

Moreover, the Court noted that 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.

“Before parting, it is essential that we request the High Court to expeditiously decide the Section 11 petition filed by the Appellant for appointment of the arbitrator on its own merits and in accordance with law, if already not decided. Nothing stated in this judgment will influence or prejudice the arbitral process in any manner”, it concluded.

Accordingly, the Apex Court allowed the Appeal and set aside the impugned Judgment.

Cause Title- Regenta Hotels Private Limited v. M/s Hotel Grand Centre Point and Others (Neutral Citation: 2026 INSC 32)

Appearance:

Appellant: Senior Advocate Nikhil Goel, AOR Pranjal Kishore, Advocates Madiya Mushtaq, and Nagarjun Sahu.

Respondents: AORs Vivek Jain, Baani Khanna, and Atul Shankar Vinod.

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