NLA Arbitration Newsletter
Key arbitration rulings this month from the NCLT and the Supreme Court of India — covering the non-arbitrability of corporate oppression and mismanagement disputes, contractual limits on a tribunal’s power to award interest, the availability of Section 9 interim relief to unsuccessful parties, and the statutory timeframe for commencement of arbitral proceedings under Section 9(2).
The Tribunal underscores that disputes involving corporate governance and statutory compliance under Sections 241-242 of the Companies Act, 2013, cannot be referred to arbitration.
The dispute arose between USAR Commerce Technologies Private Limited (USAR) and Utsav Soi, concerning corporate governance, oppression, and mismanagement allegations under Sections 241-242 of the Companies Act, 2013. USAR, an entity founded by Soi and others, was engaged in an AI driven fashion technology platform. The disputes began following Soi’s termination as Chief Product and Technology Officer (CPTO) on 17th June, 2025. USAR alleged procedural compliance based on contractual agreements, whereas Soi claimed the termination and subsequent corporate actions were fundamentally oppressive and illegal.
Soi initiated proceedings before the National Company Law Tribunal, alleging several statutory violations, including wrongful termination of directorship without due process under Section 169 of the Companies Act, illegal exclusion from management, unauthorised Extraordinary General Meetings (EGMs), wrongful appointment of directors, dilution of shareholding, and non-disclosure of critical corporate information. Concurrently, Soi also pursued arbitration under the Employment Agreement (EA), Shareholders Agreement (SHA), and Share Subscription Agreement (SSA), which contained arbitration clauses.
USAR filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, seeking referral of disputes to arbitration based on the arbitration clauses in the EA and SHA. USAR argued that the disputes essentially arose from contractual agreements, and the previously invoked arbitration proceedings evidenced Soi’s acknowledgment of arbitrability. USAR further contended that since the arbitration agreements were comprehensive, the Tribunal was obligated to refer the disputes to arbitration, invoking the principle of kompetenz-kompetenz.
The Tribunal thoroughly examined the arbitration clauses, corporate governance norms, and statutory provisions. It observed that the arbitration clauses broadly covered disputes related to contractual agreements; however, the core grievances presented involved statutory rights and obligations relating to corporate governance, inherently public and statutory in nature. The Tribunal emphasised the landmark judgment in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. (2011) 5 SCC 532, which clearly demarcated arbitrable and non-arbitrable disputes, underscoring that disputes under Sections 241-242 involve rights in rem, affecting the company at large and not merely the parties involved.
The Tribunal decisively ruled that the grievances presented in Soi’s petition were not merely contractual but statutory in character, addressing issues of corporate governance, oppression, and mismanagement, which exclusively fall within the jurisdiction of the NCLT. It highlighted that statutory remedies provided by the Companies Act could not be waived or overridden by arbitration agreements, and thus, the disputes raised were non-arbitrable.
The Tribunal dismissed USAR’s contention that Soi had waived his right to object by previously invoking arbitration proceedings. It firmly established that statutory jurisdiction concerning corporate governance and related disputes is mandatory and non-derogable, and therefore, principles of waiver or estoppel cannot apply to matters inherently reserved for statutory adjudication.
Ultimately, the NCLT dismissed USAR’s Section 8 application, affirming its exclusive jurisdiction to adjudicate the disputes raised under Sections 241-242 of the Companies Act, 2013. This decision cements the clear legislative intent to reserve specific corporate governance disputes to statutory forums, maintaining the integrity and efficacy of corporate regulation mechanisms.
Key Takeaway
Under Sections 241-242 of the Companies Act, 2013, disputes concerning oppression and mismanagement involve rights in rem, directly affecting corporate governance and ownership structures, which are inherently non-arbitrable. These disputes are exclusively adjudicable by the National Company Law Tribunal (NCLT), and cannot be referred to arbitration, even if the parties have executed broad arbitration agreements. This principle ensures that public fora, rather than private arbitral tribunals, adjudicate critical matters of corporate governance, statutory compliance, and rights that impact the company as a whole.
The Court underscores that arbitral tribunals cannot award pre-award or pendente lite interest if explicitly prohibited by contractual terms.
The dispute originated from a turnkey modernization contract dated January 27, 2011, between Larsen & Toubro Limited (Respondent) and the Union of India and North Central Railway Administration (Appellants). The original completion date was 18th July, 2012; however, repeated extensions resulted in a total delay of approximately 40 months. Due to disagreements over payments and delays, the Respondent invoked arbitration under the General Conditions of Contract (GCC), leading to an Arbitral Tribunal (AT) being constituted.
The Respondent filed claims, notably for financing charges due to delayed payments, variations in foreign exchange components, non-payment of Price Variation Component (PVC), indirect costs incurred due to extended project duration, and interest on delayed payments. The AT awarded specific sums against various claims, notably granting financing charges (Claim No. 1), compensation for non-payment of PVC (Claim No. 3), and payments due against the final bill (Claim No. 6), along with post-award interest at 12% per annum if payments were delayed beyond 60 days.
Dissatisfied, the Appellants challenged the Arbitral Award under Section 34 of the Arbitration and Conciliation Act, 1996, primarily contending violations of specific contractual clauses (16(3) and 64(5)) prohibiting the grant of pre-award or pendente lite interest. The Commercial Court dismissed their application, holding limited interference permissible under Section 34. Subsequently, the Appellants’ appeal under Section 37 was also dismissed by the Allahabad High Court, reinforcing the Arbitral Tribunal’s findings.
In their appeal before the Supreme Court, the Appellants argued that Clauses 16(3) and 64(5) of the GCC categorically barred any award of interest, making the AT’s award of interest beyond its jurisdiction. They highlighted that the contractual scheme expressly prohibited interest payments on earnest money, security deposits, and “amounts payable to the contractor under the contract,” asserting this comprehensive prohibition included pre-award interest on contractual amounts.
Conversely, the Respondent argued that Clause 16(3) should be interpreted narrowly, applying the ejusdem generis principle, and limited to earnest money or security deposits. They also contended that post-award interest is permissible and distinct under Section 31(7)(b) of the Act, as it is not explicitly barred by contractual provisions.
The Supreme Court critically examined the clauses in the context of statutory provisions and judicial precedents. It categorically rejected the Respondent’s reliance on ejusdem generis, emphasizing the broad and clear wording of Clause 16(3). The Court reinforced earlier judgments, notably Union of India v. Bright Power Projects (India) Pvt. Ltd. (2015) 9 SCC 695, highlighting that contractual stipulations explicitly restricting pre-award interest bind the Arbitral Tribunal.
Further, the Court differentiated between pre-award interest and post-award interest, reiterating the decision in RP Garg v. Chief General Manager, Telecom Department 2024 SCC OnLine SC 2928, which clarified that post-award interest under Section 31(7)(b) is distinct, statutorily mandated, and not subject to the same contractual limitations as pre-award interest. The Court thus upheld the AT’s decision to award post-award interest but found the rate of 12% excessive and reduced it to 8% per annum to align with contemporary economic realities.
In conclusion, the Supreme Court partially allowed the appeal, setting aside the award of pre-award/pendente lite interest while upholding the post-award interest at a modified rate. This judgment clarifies critical aspects regarding contractual limitations on arbitral powers to award interest, emphasising adherence to explicit contractual clauses and statutory mandates.
Key Takeaway
Under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, an arbitral tribunal’s authority to award pre-award or pendente lite interest is explicitly constrained by the terms of the arbitration agreement. If the contract specifically bars payment of such interest, the tribunal has no discretion to grant it. However, Section 31(7)(b) distinctly permits the award of post-award interest unless expressly excluded by contract, highlighting the legislative intent to differentiate clearly between pre-award and post-award interest regimes within arbitration proceedings.
The Court rules that interim relief under Section 9 of the Act is maintainable by any party to an arbitration agreement, including a party unsuccessful in arbitration, to ensure the protection of rights pending adjudication under Section 34.
The dispute arose from an arbitral award wherein Home Care Retail Marts Pvt. Ltd. (the appellant) was unsuccessful, leading it to file a petition under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim relief during the pendency of its challenge under Section 34 of the Act. The High Courts presented conflicting views regarding the maintainability of Section 9 petitions by unsuccessful parties in arbitration, prompting a thorough examination by the Supreme Court to provide clarity.
The appellant contended that Section 9 does not differentiate between successful and unsuccessful parties. They argued that denying interim relief under Section 9 to an unsuccessful party would result in irreparable harm if the arbitral award is subsequently set aside or modified under Section 34. The appellant emphasised that the scope of Section 9 includes measures necessary to safeguard the subject matter of arbitration and the amount in dispute until the judicial process is fully concluded. They relied upon the principle of kompetenz-kompetenz, affirming that courts should allow interim measures broadly to ensure parties’ rights remain protected throughout the judicial review process.
On the other hand, the respondent argued that the purpose of post-award interim relief under Section 9 is limited exclusively to preserving the enforceable fruits of arbitration. They strongly relied on earlier judgments, particularly Dirk India Pvt. Ltd. v. Maharashtra State Electricity Generation Co. Ltd. 2013 SCC OnLine Bom 481, which restricted the scope of Section 9 interim relief to successful parties only. The respondent argued that permitting unsuccessful parties to seek interim relief would undermine the finality of arbitral awards and lead to unwarranted judicial interference.
Upon careful deliberation, the Supreme Court clarified that Section 9 is explicit and unambiguous, conferring the right to seek interim measures upon any party to the arbitration agreement, irrespective of their success or failure in arbitral proceedings. The Court highlighted that statutory interpretation mandates adherence to the plain and grammatical meaning of legislative language. It ruled that the term ‘a party’ in Section 9 cannot be contextually modulated to imply only successful parties, emphasising legislative intent to allow all parties access to interim measures.
The Court also underscored that recent judicial developments, notably the Constitution Bench’s judgment in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (2025) 7 SCC 1, have affirmed the power of courts under Section 34 of the Act to modify arbitral awards. It observed that the fundamental premise underlying Dirk India, limiting the relief under Section 9 solely to preserving fruits of a successful award, is no longer tenable, given courts’ authority to modify or set aside awards, thereby altering parties’ rights.
Further, the Court reasoned that interim relief under Section 9 serves a broader purpose than Section 36, which specifically addresses the enforceability of arbitral awards. The distinct operational spheres of Sections 9 and 36 ensure that interim measures can secure the rights and interests of parties pending adjudication, including the rights of an unsuccessful party whose challenge to the award may result in modification or reversal.
Finally, the Court concluded that the threshold for granting interim relief to an unsuccessful party under Section 9 would necessarily be high, emphasising cautious and judicious use of such powers. However, it unequivocally stated that denying the availability of interim relief altogether to unsuccessful parties would render statutory protections illusory and ineffective, contrary to legislative intent.
Accordingly, the Supreme Court overturned the restrictive interpretation adopted by certain High Courts and affirmed the entitlement of unsuccessful parties to seek interim relief under Section 9 post-award, subject to the satisfaction of established principles governing interim relief, such as prima facie case, balance of convenience, and the likelihood of irreparable injury. This landmark decision reinforces the comprehensiveness and effectiveness of interim measures under Indian arbitration law, thereby preserving parties’ rights until all judicial remedies are conclusively exhausted.
Key Takeaway
Under Section 9 of the Arbitration and Conciliation Act, 1996, interim relief is available to any party to an arbitration agreement at three distinct stages: before arbitration commences, during arbitral proceedings, and post-award but before its enforcement under Section 36. The provision does not distinguish between successful and unsuccessful parties. Therefore, even a party unsuccessful in arbitration may invoke Section 9 at the post-award stage, provided it can establish a prima facie case, balance of convenience, and potential for irreparable harm, to protect the subject matter or disputed assets pending the adjudication of its challenge under Section 34.
The Court affirms that arbitral proceedings commence upon receipt of a notice invoking arbitration, not upon filing a Section 11 petition, thereby upholding the validity of interim relief granted within the statutory time frame.
This dispute arose from a Franchise Agreement between Regenta Hotels Private Limited (Appellant) and Hotel Grand Centre Point (Respondent No. 1), wherein Regenta Hotels provided business facilitation and operational support to Hotel Grand Centre Point. Following interference by Respondent No. 2 in the management and functioning of the hotel, Regenta Hotels filed an application under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim injunctive relief to restrain interference. Initially, the Trial Court granted an ad-interim injunction; however, subsequently, it dismissed the application citing the Appellant’s alleged failure to demonstrate prima facie consent from Respondent No. 2 for the Franchise Agreement and compliance with procedural requirements regarding initiation of arbitration.
Regenta Hotels challenged this decision before the Karnataka High Court, which upheld the Trial Court’s dismissal. The High Court ruled that the arbitral proceedings had not commenced within the ninety-day period stipulated under Section 9(2) of the Arbitration Act, thereby causing the automatic vacation of the interim injunction as per Rule 9(4) of the Arbitration Rules, 2001. It considered the date of filing of the Section 11 petition for the appointment of an arbitrator as the commencement date for arbitration, concluding that the statutory timeframe had been exceeded.
On appeal, the Supreme Court clarified the precise moment arbitral proceedings are considered to have commenced under the Arbitration Act. It emphasised that Section 21 explicitly defines the date of commencement as the date the arbitration notice invoking arbitration is received by the respondent. This position is consistent with precedent set forth in decisions such as Sundaram Finance Ltd. v. NEPC India Ltd. (1992) 2 SCC 479, Milkfood Ltd. v. GMC Ice Cream (P) Ltd. (2004) 7 SCC 288, Geo Miller and Company Private Limited v. Chairman, Rajasthan Vidyut Utpadan Nigam Limited 2019 SCC OnLine SC 1137, and Arif Azim Company Limited v. Aptech Limited 2024 SCC OnLine SC 215, which underline that the issuance and receipt of the arbitration notice determine the legal commencement of arbitral proceedings.
The Court rejected the High Court’s approach, holding that using the date of filing a Section 11 petition to measure compliance with the ninety-day requirement under Section 9(2) was incorrect and contrary to legislative intent. The Supreme Court highlighted that the Act’s framework is designed to promote arbitration by ensuring interim measures are closely linked to arbitration commencement, independent of judicial processes. Any deviation from the statutory definition would undermine the Act’s objectives.
Furthermore, the Supreme Court highlighted that Rule 9(4) of the 2001 Rules mandates automatic vacation of interim orders if arbitral proceedings are not initiated within three months of granting interim relief. It clarified that the term “initiated” under this rule must be interpreted harmoniously with the statutory language of Section 21 of the Act, thereby equating “initiated” with the “commencement” of arbitral proceedings, aligning with the legislative intent.
Conclusively, the Supreme Court set aside the Karnataka High Court’s judgment, affirming that Regenta Hotels had initiated arbitral proceedings within the statutory period as defined by receipt of the arbitration notice under Section 21 of the Act. The Court restored the interim injunction granted by the Trial Court, reinforcing the procedural integrity and effectiveness of the statutory arbitration framework and ensuring that interim measures effectively protect parties’ rights pending arbitration.
This decision unequivocally reiterates the importance of statutory compliance and underscores the principle that the commencement of arbitral proceedings under the Arbitration Act is fundamentally linked to the receipt of arbitration notice, thereby fortifying the arbitration process as a viable alternative dispute resolution mechanism.
Key Takeaway
Under Section 21 of the Arbitration and Conciliation Act, 1996, arbitral proceedings officially commence on the date when the respondent receives a notice or request invoking arbitration. This date is critical as it determines compliance with statutory timelines, such as the ninety-day period mandated by Section 9(2) for initiating arbitration following interim relief orders. Consequently, the filing of petitions under Section 11 to appoint arbitrators does not determine the commencement date of arbitration proceedings, ensuring that procedural compliance aligns strictly with statutory provisions, independent of judicial processes.
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