Recently, the Supreme Court examined whether arbitral proceedings were commenced within the statutory period prescribed under Section 9(2) of the Arbitration and Conciliation Act, 1996, while hearing an appeal arising from the dismissal of interim injunctive relief granted in a hotel franchise dispute between Regenta Hotels Private Limited and its franchise partners.
Brief Facts:
The dispute arose from a franchise arrangement for operating a hotel property, under which brand support, technical know-how, and operational expertise were provided for running the hotel. Differences later emerged among the partners managing the hotel, leading to allegations that one partner interfered with day-to-day operations, threatened staff, and attempted to disrupt bookings. In view of the alleged interference, an application was filed before the civil court under Section 9 of the Arbitration and Conciliation Act seeking interim protection. An ad-interim injunction was initially granted, restraining interference with hotel operations. However, the interim relief was subsequently vacated by the trial court and upheld by the High Court on the ground that arbitral proceedings were not commenced within the prescribed statutory period.
Contentions of the Appellant:
The counsel for the Appellant contended that arbitral proceedings commenced upon issuance and receipt of notice invoking arbitration under Section 21 of the Act. It was argued that the notice satisfied the statutory requirement, and filing of a Section 11 petition was not determinative of commencement. Reliance was placed on settled Supreme Court precedents holding that receipt of notice constitutes commencement of arbitration.
Contentions of the Respondents:
The counsel for the Respondent argued that arbitral proceedings had not commenced within the prescribed period since the Section 11 petition seeking appointment of an arbitrator was filed beyond 90 days. The counsel further contended that Respondent was not a signatory to the Franchise Agreement and that Section 21 applies only for limitation purposes under Section 43, not for compliance with Section 9(2).
Observation of the Court:
The Supreme Court observed that the commencement of arbitral proceedings is governed exclusively by Section 21 of the Arbitration and Conciliation Act, 1996, and cannot be linked to the filing of a petition under Section 11. Relying upon Sundaram Finance Ltd. v. NEPC India Ltd., the Court reiterated that “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.”
The Bench further held that the High Court erred in treating judicial intervention as the trigger for arbitration, contrary to the legislative scheme. Placing reliance on Milkfood Ltd. v. GMC Ice Cream (P) Ltd., the Court observed that “The Legislature has consciously delinked the commencement of arbitral proceedings from any judicial proceedings, modelling Section 21 on the UNCITRAL framework.”
Interpreting Section 9(2) of the Act along with Rule 9(4) of the 2001 Rules, the Court clarified that the expression “initiated” cannot be read in isolation and must align with the statutory meaning of “commenced” under Section 21. The Court stated that “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.”
On facts, the Court concluded that arbitration had commenced well within the statutory period since notice invoking arbitration was issued and received before expiry of 90 days, rendering the High Court’s approach legally unsustainable. The Bench held that “The arbitral proceedings, as commenced by the Appellant, is well within the statutory time frame provided under Section 9(2) of the Act.”
The decision of the Court:
The Supreme Court allowed the appeal and set aside the High Court’s judgment. The ad-interim injunction granted earlier was restored, holding that arbitration had commenced within the prescribed period. The High Court was directed to decide the Section 11 petition expeditiously.
Case Title: Regenta Hotels Private Limited Versus M/S Hotel Grand Centre Point And Others
Case No.: Arising Out Of Slp (Civil) No. 30212 Of 2024
Coram: Hon’ble Mr. Justice Dipankar Datta and Hon’ble Mr. Justice Augustine George Masih
Counsel for the Appellant: AOR Pranjal Kishore.
Counsel for the Respondent: AOR Ahmadi Law Offices, AOR Vivek Jain, Adv. Suchitra Kumbhat, Adv. Sadiq Noor, Adv. Benila B. M., Adv. Rohit H. Nair, AOR Baani Khanna, Adv. Robin Singh, Adv. Kapil Balwani, Adv. Shrikant Thokchom, AOR Atul Shankar Vinod.
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