Issuance Of Notice Itself Is Not Commencement Of Arbitration Proceedings; It’s Only For Steps Taken For Its Initiation: Karnataka HC

The Karnataka High Court enunciated that the issuance of notice itself is not commencement of proceedings and the same is only for steps taken for initiation of proceedings.

The Court enunciated thus in a Miscellaneous First Appeal challenging the Order of the Trial Court by which it dismissed the Applications under Order 39 Rules 1 and 2 read with Section 151 of the Civil Procedure Code (CPC) and Section 9 of the Arbitration and Conciliation Act, 1996 (A&C Act) read with Rule 9 of the Arbitration (Proceedings Before the Courts) Rules, 2001.

A Single Bench of Justice H.P. Sandesh observed, “When the arbitration proceedings has not been initiated within time and Section 9(2) proviso of the Act is clear that it has to be initiated within 90 days and the same has not been initiated within 90 days and issuance of notice itself is initiation of the arbitration proceedings and it has to be construed as commencement of arbitration proceedings cannot be accepted and issuance of notice itself is not commencement of proceedings and the same is only for steps taken for initiation of proceedings.”

Senior Advocate Arun Kumar represented the Appellant while Advocate Sheethal Soni represented the Respondents.

Facts of the Case -

An Application was filed praying to grant an Order of temporary injunction restraining the Respondent, his representatives, successors in interest, and anyone claiming under through him from obstructing or impeding the smooth functioning and operations of the hotel premises/schedule property in any manner, pending disposals of the Suit. A Franchise Agreement was entered between the parties for operating the hotel premises on the schedule property. It was contended that the Petitioner being of the India’s finest and fastest growing hotel chain and being one of the most sought-after hospitality brands in the industry, entered into hotel operation agreement with the owner of the properties and lending them goodwill associated with the internationally renowned “Royal Orchid” “Regenta” and “Regenta Central” brand name amongst others.

Subsequent to execution of the agreement, the management and operations of the Respondent hotel were smoothly being carried out, however, the partners started unnecessarily interfering in the functioning of the hotel premises. One of the partners was shouting at staff in the reception and threatening to cancel bookings, take away records if he is not paid exorbitant sums separately over and above what is agreed under the agreement. Therefore, the operations of the hotel under the Petitioner’s name and guests, was under serious jeopardy. Hence, the Petitioners was constrained to approach the Court for protection and also sought for appropriate directions against the Respondents. Hence, Applications were filed seeking for the interim Order of temporary injunction.

The High Court in view of the facts and circumstances of the case, said, “This Court also in the judgment referred supra by the respondent No.2 in M/S. PATON CONSTRUCTIONS PRIVATE LTD. v. M/S. LORVEN PROJECTS LTD. reported in AIR 2017 KAR 135 invoked Rule 9(4) and extracted the same, comes to the conclusion that in case of an application for any interim measure made before initiating arbitral proceedings, if the arbitral proceedings in respect of the dispute are not initiated within three months from the date of presentation of the application under Section 9 of the Act, any interim order granted shall stand vacated without any specific order to that effect by the Court which passed the order.”

The Court noted that, when such being the case, the contention of the counsel for the Appellant that issuance of notice is within time cannot be accepted. It reiterated that an arbitration shall be deemed to have commenced on the date on which a request for reference to arbitration is received by the Respondent, however, if the parties agree under the agreement to some other event for commencement of arbitration that would have effect.

“But, in the case on hand, no such agreement and the same was refused while giving reply and mere initiation of notice itself cannot be construed as commencement of proceedings. Hence, the contention of the learned counsel of the appellant cannot be accepted”, it added.

The Court further observed that, since there was an agreement in the year 2019 itself and the partners have also kept quite from 2019 to 2023 i.e., till filing of the Petition under A&C Act and if any dispute arises between the partners that cannot be a ground to come to a conclusion that there was no consent.

“The Trial Court has given reasoning that there is no prima facie case, since respondent No.2 was not party to the said agreement and the same cannot be accepted as there was a franchisee agreement to run the hotel. … the very approach with regard to the other partners have not given authorization cannot be a ground and the same is an inter se dispute between them”, it also noted.

Accordingly, the High Court dismissed the Miscellaneous First Appeal.

Cause Title- Royal Orchid Associated Hotels Private Limited v. M/s. Hotel Grand Centre Point & Ors. (Neutral Citation: 2024:KHC:46323)

Appearance:

Appellant: Senior Advocate Arun Kumar and Advocate Pradhyuman Singh.

Respondents: Advocate Sheethal Soni

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