The objective of the statutory scheme under the Arbitration Act, 1996, would become obsolete if the date of commencement of the arbitration proceeding under Section 21 of the Act is allowed to be substituted by the date of filing of a Section 11 petition. The Supreme Court recently, in a Special Leave Petition, challenging the decision passed by the Karnataka HC, clarified that for the mandate mentioned under Section 9(2) concerning interim order limitation, the commencement of the arbitral proceeding is to be construed in consonance with the date on which the Section 21 notice invoking arbitration is received by the opposite party.
The factual matrix of the dispute involved an ad-interim injunction in favour of the Appellant (Claimant in “Arbitral Proceeding”) by the Trial Court vide order dated 17.02.2024 against Respondent No. 2 (Respondent in “Arbitral Proceeding”). As per Section 9(2) of the Act, the 90-day window for commencing arbitral proceedings was to expire on 17 May 2024. Within this period, the Appellant issued a notice invoking arbitration on 11 April 2024. Respondent No. 2 replied on 23 April 2024, expressly declining to participate in the appointment of an arbitrator, a response that clearly acknowledged receipt of the Section 21 notice and reflected an understanding that arbitral proceedings had been initiated.
However, the Karnataka HC, in its impugned judgment, considered the date of commencement of the arbitral proceedings in consonance with the date of filing the Section 11 petition, i.e., in the present case, 28 June 2024. This interpretation led the said HC to set aside the ad-interim stay granted by the Trial Court, considering the ninety days under Section 9(2) of the Act had expired. The Bench, Comprising Justice Augustine George Masin and Justice Dipankar Datta, held that this finding of the HC cannot be sustained as it is contrary to the objective and purpose of the Act. While reaffirming the principles of Milkfood Ltd. v. GMC Ice Cream (P) Ltd. (2004) 7 SCC 288, the Court elucidated that once the Section 21 notice has been served, the procedural route adopted thereafter would be irrelevant to the date of commencement, which remains tethered exclusively to Section 21 of the Act.
The Bench further clarified that the consequences of non-compliance with Section 9(2) are addressed through Rule 9(4) of the Arbitration Rules, 2001, which provides that where interim relief is granted under Section 9 but arbitral proceedings are not commenced within three months, the interim order automatically stands vacated.
Accordingly, the Court, while allowing the appeal, sets aside the impugned judgment of the Karnataka HC for being erroneous in law. As a consequence, the Court restored the ad-interim injunction granted by the Trial Court vide order dated 17.02.2024.
Appearances:
For Appellant: Mr. Nikhil Goel, Sr. Adv., Ms. Madiya Mushtaq, Adv., Mr. Nagarjun Sahu, Adv., Mr. Pranjal Kishore, AOR
For Respondent(s): M/S. Ahmadi Law Offices, AOR, Mr. Vivek Jain, AOR, Ms. Baani Khanna, AOR, Mr. Atul Shankar Vinod, AOR
