State of Goa Vs. Praveen
Enterprises
J U D G M E N T
R.V.RAVEENDRAN, J.
1.
Leave
granted.
2.
Under
an agreement dated 4.11.1992, the appellant (State of Goa) entrusted a
construction work (Farm Development Works in Command Area of Water Course No.3
and 3A of minor M-3 of SIP in Salcette Taluka) to the respondent. Clause 25 of
the agreement provided for settlement of disputes by arbitration, relevant
portions of which are extracted below:
"Except where otherwise
provided in the contract, all questions and disputes relating to the meaning of
the specifications, designs, drawings and instructions herein before mentioned and
as to the quality of workmanship or materials used on the work or as to any
other question, claim right matter or thing whatsoever, in any way arising out of
or relating to the contract, designs, drawings, specifications, estimates, instructions
orders or these conditions or otherwise concerning the works, or the execution
or failure to execute the same whether arising during the progress of the work
or after the completion or abandonment thereof shall be referred to the sole arbitration
of the person appointed by the Chief Engineer, Central Public Works Department
in charge of the work at the time of dispute.
It is a term of contract
that the party invoking arbitrations shall specify the dispute or disputes to
be referred to arbitration under this clause together with the amount or
amounts claimed in respect of each such disputes." As per the contract, the
work had to be commenced on 16.11.1992 and completed by 5.5.1994. On the ground
that the contractor did not complete the work even by the extended date of
completion (31.3.1995), the contract was terminated by the appellant.
3.
Respondent
raised certain claims and gave a notice to the appellant to appoint an
arbitrator in terms of the arbitration clause. As the appellant did not do so, the
respondent filed an application under section 11 of the Arbitration and Conciliation
Act, 1996 (`Act' of `new Act' for short) for appointment of an arbitrator. By
order dated 4.12.1998 the said application was allowed and Mr. S.V.Salilkar, retired
Adviser, Konkan Railway Corporation was appointed as the sole arbitrator. The
arbitrator entered upon the reference on 22.2.1999 and called upon the parties
to file their statement.
4.
The
respondent filed its claim statement before the arbitrator on 15.4.1999. The appellant
filed its Reply Statement with counter claim on 330.6.1999. The arbitrator considered
the fourteen claims of the contractor and four counter claims of the appellant.
The Arbitrator made an award dated 10.7.2000. He awarded to the respondent,
Rs.1,00,000/- towards claim No.2 with interest at 12% per annum from 26.8.1998 to
19.2.1999; Rs.3,63,416/- towards claim No.3 with interest at 12% per annum from
18.9.1995 to 22.2.1999; and Rs.59,075/- towards claim No. 14 (additional claim
No. ii) with interest at 12% per annum from 18.9.1995 to 22.2.1999. In regard
to the counter claims made by the appellant, the arbitrator awarded to the
appellant Rs.2,94,298/- without any interest in regard to counter claim No.3.
The arbitrator rejected the other claims of respondent and appellant. He
awarded simple interest at 18% per annum on the award amount from the expiry of
one month from the date of the award and directed both parties to bear their
respective costs.
5.
Feeling
aggrieved the respondent filed an application under section 34 of the Act,
challenging the award insofar as (i) rejection of its other claims; and (ii) award
made on counter claim No.3. The civil court (Adhoc Additional District Judge, Fast
Track Court No.1, South Goa) disposed of the matter upholding the award in
regard to the claims of the respondent but accepted the objection raised by the
respondent in regard to award made on the counter claim. The court held that the
arbitrator could not enlarge the scope of the reference and entertain either
fresh claims by the claimants or counter claims from the respondent.
6.
The
appellant challenged the said judgment by filing an arbitration appeal before the
High Court. The High Court of Bombay dismissed the appeal by judgment dated
31.8.2007. The High Court held that the counter claims were bad in law as they
were never placed before the court by the appellant (in the proceedings under
section 11 of the Act for appointment of arbitrator) and they were not referred
by the court to arbitration.
The High Court held that
in such circumstances arbitrator had no jurisdiction to entertain a counter claim.
The High Court followed its earlier decision in Charuvil Koshy Verghese v.
State of Goa - 1998 (2) SCC 21. In that case, an application was made by a contractor
under Section 20 of the Arbitration Act, 1940 (`old Act' for short), for filing
the arbitration agreement and referring the disputes to the arbitrator. In its reply
statement to the said application, the respondent did not assert its counter claim.
The court allowed the application under section 20 and appointed an arbitrator to
decide the disputes raised by the contractor. However when the matter went before
the arbitrator, the respondent therein made a counter claim, which was allowed by
the arbitrator.
The Bombay High Court
held that the 5arbitrator had no jurisdiction to entertain or allow such a
counter claim as the same had neither been placed before the court in the proceedings
under section 20 nor the court had referred it to the arbitrator. The said
judgment of the High Court is challenged in this appeal by special leave.
7.
The
appellant contends as a respondent in arbitration proceedings, in the absence
of a bar in the arbitration agreement, it was entitled to raise its counter
claims before the arbitrator, even though it had not raised them in its statement
of objections to the proceedings under section 11 of the Act. It further
contends that section 11 of the Act does not contemplate `reference of disputes'
by the Chief Justice or his designate; and the High Court committed a serious
error in holding that in the absence of a reference by the court, the arbitrator
had no jurisdiction to entertain a counter claim, by following its earlier
decision in Charuvil Koshy Verghese (supra), rendered with reference to section
20 of the old Act, which is materially different from section 11 of the new
Act. The respondent supported the decision of the High Court, contending that
having regard to the provisions of section 21 of the Act, an arbitrator will
have jurisdiction to decide only those disputes which were raised and referred
to him by the court.
8.
Therefore
the question that arises for our consideration is as under: Whether the respondent
in an arbitration proceedings is precluded from making a counter-claim, unless a)
it had served a notice upon the claimant requesting that the disputes relating
to that counter-claim be referred to arbitration and the claimant had concurred
in referring the counter claim to the same arbitrator; and/or b) it had set out
the said counter claim in its reply statement to the application under section
11 of the Act and the Chief Justice or his designate refers such counter claim
also to arbitration. What is `Reference to arbitration'
9.
`Reference
to arbitration' describes various acts. Reference to arbitration can be by
parties themselves or by an appointing authority named in the arbitration
agreement or by a court on an application by a party to the arbitration
agreement. We may elaborate. (a) If an arbitration agreement provides that all disputes
between the parties relating to the contract (some agreements may refer to some
exceptions) shall be referred to arbitration and that the decision of the arbitrator
shall be final and binding, the `reference' contemplated is the act of parties
to the arbitration agreement, referring their disputes to an agreed arbitrator
to settle the disputes. 7(b)
If an arbitration agreement
provides that in the event of any dispute between the parties, an authority
named therein shall nominate the arbitrator and refer the disputes which required
to be settled by arbitration, the `reference' contemplated is an act of the
appointing authority referring the disputes to the arbitrator appointed by him.(c)
Where the parties fail to concur in the appointment of arbitrator/s as required
by the arbitration agreement, or the authority named in the arbitration
agreement failing to nominate the arbitrator and refer the disputes raised to arbitration
as required by the arbitration agreement, on an application by an aggrieved
party, the court can appoint the arbitrator and on such appointment, the disputes
between the parties stand referred to such arbitrator in terms of the
arbitration agreement.
10.
Reference
to arbitration can be in respect of all disputes between the parties or all disputes
regarding a contract or in respect of specific enumerated disputes. Where `all
disputes' are referred, the arbitrator has the jurisdiction to decide all disputes
raised in the pleadings (both claims and counter claims) subject to any limitations
placed by the arbitration agreement. Where the arbitration agreement provides
that all disputes shall be settled by arbitration but excludes certain matters
from arbitration, then, the arbitrator will exclude the excepted matter and decide
only those disputes which are arbitrable. But where the reference to the
arbitrator is to 8decide specific disputes enumerated by the parties/court/appointing
authority, the arbitrator's jurisdiction is circumscribed by the specific reference
and the arbitrator can decide only those specific disputes.
11.
Though
an arbitration agreement generally provides for settlement of future disputes
by reference to arbitration, there can be `ad-hoc' arbitrations relating to existing
disputes. In such cases, there is no prior arbitration agreement to refer future
disputes to arbitration. After a dispute arises between the parties, they enter
into an arbitration agreement to refer that specific dispute to arbitration. In
such an arbitration, the arbitrator cannot enlarge the scope of arbitration by
permitting either the claimant to modify or add to the claim or the respondent
to make a counter claim. The arbitrator can only decide the dispute referred to
him, unless the parties again agree to refer the additional disputes/counter
claims to arbitration and authorize the arbitrator to decide them.
12.
`Reference
to arbitration' can be in respect of reference of disputes between the parties
to arbitration, or may simply mean referring the parties to arbitration.
Section 8 of the Act is an example of referring the parties to arbitration. While
section 11 contemplates appointment of arbitrator [vide 9sub-sections (4), (5) and
(9)] or taking necessary measure as per the appointment procedure under the arbitration
agreement [vide sub-section (6)], section 8 of the Act does not provide for
appointment of an arbitrator, nor referring of any disputes to arbitration, but
merely requires the judicial authority before whom an action is brought in a
matter in regard to which there is an arbitration agreement, to refer the
parties to arbitration. When the judicial authority finds that the subject matter
of the suit is covered by a valid arbitration agreement between the parties to
the suit,
it will refer the parties
to arbitration, by refusing to decide the action brought before it and leaving it
to the parties to have recourse to their remedies by arbitration. When such an
order is made, parties may either agree upon an arbitrator and refer their disputes
to him, or failing agreement, file an application under section 11 of the Act
for appointment of an arbitrator. The judicial authority `referring the parties
to arbitration' under section 8 of the Act, has no power to appoint an arbitrator.
It may however record the consent of parties to appoint an agreed arbitrator. Sections
21 and 43 of the Act
13.
Section
21 provides that unless otherwise agreed by the parties, the arbitral
proceedings in respect of a particular dispute commences on the date 10on which
a request for that dispute to be referred to arbitration is received by the
respondent. Taking a cue from the said section, the respondent submitted that
arbitral proceedings can commence only in regard to a dispute in respect of which
notice has been served by a claimant upon the other party, requesting such
dispute to be referred to arbitration; and therefore, a counter claim can be
entertained by the arbitrator only if it has been referred to him, after a notice
seeking arbitration in regard to such counter claim. On a careful consideration
we find no basis for such a contention.
The purpose of section
21 is to specify, in the absence of a provision in the arbitration agreement in
that behalf, as to when an arbitral proceedings in regard to a dispute
commences. This becomes relevant for the purpose of section 43 of the Act.
Sub-section (1) of section 43 provides that the Limitation Act 1963 shall apply
to arbitrations as it applies to proceedings in courts. Sub-section (2) of section
43 provides that for the purposes of section 43 and the Limitation Act, 1963,
an arbitration shall be deemed to have commenced on the date referred to in
section 21 of the Act. Having regard to section 43 of the Act, any claim made
beyond the period of limitation prescribed by the Limitation Act, 1963 will be barred
by limitation and the arbitral tribunal will have to reject such claims as
barred by limitation.
14.
Section
3 of the Limitation Act, 1963 provides for bar of limitation and is extracted
below: "3. Bar of Limitation. (1) Subject to the provisions contained in
sections 4 to 24 (inclusive), every suit instituted, appeal preferred, and
application made after the prescribed period shall be dismissed although limitation
has not been set up as a defence. (2) For the purposes of this Act,- (a) a suit
is instituted,- (i) in an ordinary case, when the plaint is presented to the proper
officer; (ii) in the case of a pauper, when his application for leave to sue as
a pauper is made; and (iii) in the case of a claim against a company which is
being wound up by the court, when the claimant first sends in his claim to the
official liquidator; (b) any claim by way of a set off or a counter claim,
shall be treated as a separate suit and shall be deemed to have been
instituted- (i) in the case of a set off, on the same date as the suit in which
the set off is pleaded; (ii) in the case of a counter claim, on the date on
which the counter claim is made in court; (c) an application by notice of
motion in a High Court is made when the application is presented to the proper
officer of that court." (emphasis supplied)
15.
In
regard to a claim which is sought to be enforced by filing a civil suit, the question
whether the suit is within the period of limitation is decided with reference
to the date of institution of the suit, that is, the date of 12presentation of a
plaint. As Limitation Act, 1963 is made applicable to arbitrations, there is a
need to specify the date on which the arbitration is deemed to be instituted or
commenced as that will decide whether the proceedings are barred by limitation or
not. Section 3 of Limitation Act, 1963 specifies the date of institution for
suit, but does not specify the date of `institution' for arbitration proceedings.
Section 21 of the Act supplies the omission. But for section 21, there would be
considerable confusion as to what would be the date of `institution' in regard to
the arbitration proceedings.
It will be possible
for the respondent in an arbitration to argue that the limitation has to be
calculated as on the date on which statement of claim was filed, or the date on
which the arbitrator entered upon the reference, or the date on which the
arbitrator was appointed by the court, or the date on which the application was
filed under section 11 of the Act. In view of section 21 of the Act providing
that the arbitration proceedings shall be deemed to commence on the date on
which "the request for that dispute to be referred to arbitration is
received by the respondent" the said confusion is cleared. Therefore the
purpose of section 21 of the Act is to determine the date of commencement of the
arbitration proceedings, relevant mainly for deciding whether the claims of the
claimant are barred by limitation or not.
16.
There
can be claims by a claimant even without a notice seeking reference. Let us take
an example where a notice is issued by a claimant raising disputes regarding
claims `A' and `B' and seeking reference thereof to arbitration. On appointment
of the arbitrator, the claimant files a claim statement in regard to the said claims
`A' and `B'. Subsequently if the claimant amends the claim statement by adding claim
`C' [which is permitted under section 23(3) of the Act] the additional claim
`C' would not be preceded by a notice seeking arbitration. The date of amendment
by which the claim `C' was introduced, will become the relevant date for determining
the limitation in regard to the said claim `C', whereas the date on which the
notice seeking arbitration was served on the other party, will be the relevant
date for deciding the limitation in regard to Claims `A' and `B'. Be that as it
may.
17.
As
far as counter claims are concerned, there is no room for ambiguity in regard
to the relevant date for determining the limitation. Section 3(2)(b) of
Limitation Act, 1963 provides that in regard to a counter claim in suits, the
date on which the counter claim is made in court shall be deemed to be the date
of institution of the counter claim. As Limitation Act, 1963 is made applicable
to arbitrations, in the case of a counter claim by a respondent in an arbitral
proceedings, the date on which the counter claim is made before the arbitrator
will be the date of "institution" in so far as counter claim is concerned.
There is, therefore, no
need to provide a date of `commencement' as in the case of claims of a
claimant. Section 21 of the Act is therefore not relevant for counter claims. There
is however one exception. Where the respondent against whom a claim is made, had
also made a claim against the claimant and sought arbitration by serving a
notice to the claimant but subsequently raises that claim as a counter claim in
the arbitration proceedings initiated by the claimant, instead of filing a
separate application under section 11 of the Act, the limitation for such
counter claim should be computed, as on the date of service of notice of such
claim on the claimant and not on the date of filing of the counter claim. Scope
of sections 11 and 23 of the Act
18.
Section
11 refers to appointment of arbitrators. Sub-sections (4), (5), (6) and (9) of
section 11 relevant for our purpose are extracted below: "(4) If the
appointment procedure in sub-section (3) applies and- (a) a party fails to
appoint an arbitrator within thirty days from the receipt of a request to do so
from the other party; or (b) the two appointed arbitrators fail to agree on the
third arbitrator within thirty days from the date of their appointment, the appointment
shall be made, upon request of a party, by the Chief Justice or any person or
institution Designated by him. (5)
Failing any agreement
referred to in sub-section (2), in an arbitration with a sole arbitrator, if
the parties fail to agree on the arbitrator within thirty days from receipt of
a request by one party from the other party to so agree the appointment shall
be made, upon request of a party, by the Chief Justice or any person or
institution Designated by him. (6) Where, under an appointment procedure agreed
upon by the parties,- (a) a party fails to act as required under that
procedure; or (b) the parties, or the two appointed arbitrators, fail to reach an
agreement expected of them under that procedure; or (c) a person, including an
institution, fails to perform any function entrusted to him or it under that
procedure, a party may request the
Chief Justice or any person
or institution Designated by him to take the necessary measure, unless the
agreement on the appointment procedure provides other means for securing the appointment.
xxx xxx xxx (9) In the case of appointment of sole or third arbitrator in an
international commercial arbitration, the Chief Justice of India or the person or
institution designated by him may appoint an arbitrator of a nationality other than
the nationalities of the parties where the parties belong to different
nationalities." (emphasis supplied)
19.
Section
23 relating to filing of statements of claim and defence reads thus: "23. Statements
of claim and defence.- (1) Within the period of time agreed upon by the parties
or determined by the arbitral tribunal, the claimant shall state the facts supporting
his claim, the points at issue and the relief or remedy sought, and the
respondent shall state his defence in 16 respect of these particulars, unless
the parties have otherwise agreed as to the required elements of those
statements. (2)
The parties may submit
with their statements all documents they consider to be relevant or may add a
reference to the documents or other evidence they will submit. (3) Unless otherwise
agreed by the parties, either party may amend or supplement his claim or defence
during the course of the arbitral proceedings, unless the arbitral tribunal
considers it inappropriate to allow the amendment or supplement having regard
to the delay in making it." (emphasis supplied)Section 2 contains the definitions.
Sub-section (9) clarifies that except in sections 25(a) and 32(2)(a) , any
reference in the Act to a `claim' will apply to a `counter-claim'. The said
sub-section reads thus: "(9) Where this Part, other than clause (a) of
section 25 or clause (a) of sub-section (2) of section 32, refers to a claim, it
shall also apply to a counterclaim, and where it refers to a defence, it shall also
apply to a defence to that counterclaim."20. In contrast, section 20 of
the old Act which provided for applications to file the arbitration agreement
in court, read as under: "
20.
Application
to file in Court arbitration agreement.
a. Where any persons
have entered into an arbitration agreement before the institution of any suit
with respect to the subject matter of the agreement or any part of it, and
where a difference has arisen to which the agreement applies, they or any of
them, instead of proceeding under Chapter II, may apply to a Court having
jurisdiction in the matter to which the agreement relates, that the agreement
be filed in Court.
b. The application shall
be in writing and shall be numbered and registered as a suit between one or more
of the parties interested or claiming to be interested as plaintiff or plaintiffs
and the remainder as defendant or defendants, if the application has been presented
by all the parties, or, if otherwise, between the applicant as plaintiff and the
other parties as defendants.
c. On such application
being made, the Court shall direct notice thereof to be given to all parties to
the agreement other than the applicants, requiring them to show cause within
the time specified in the notice why the agreement should not be filed.
d. Where no sufficient cause
is shown, the Court shall order the agreement to be filed, and shall make an order
of reference to the arbitrator appointed by the parties, whether in the agreement
or otherwise, or, where the parties cannot agree upon an arbitrator, to an
arbitrator appointed by the Court.
e. Thereafter the arbitration
shall proceed in accordance with, and shall be governed by, the other
provisions of this Act so far as they can be made applicable." (emphasis
supplied)
21.
Section
20 of the old Act required the court while ordering the arbitration agreement to
be filed, to make an order of reference to the arbitrator. The scheme of the
new Act requires minimal judicial intervention. Section 11 of the new Act, on
the other hand, contemplates the Chief Justice or his designate appointing the
arbitrator but does not contain any provision for the court to refer the
disputes to the arbitrator. Sub-sections (4), (5) and (9) of section 11 of the Act
require the Chief Justice or his designate to appoint the arbitrator/s. Sub-section
(6) requires the Chief Justice or his designate to `take the necessary measure'
when an application is filed by a party complaining that the other party has
failed to act as required under the appointment procedure. All these sub-sections
contemplate an applicant 18filing the application under section 11, only after
he has raised the disputes and only when the respondent fails to co-operate/concur
in regard to appointment of arbitrator.
22.
Section
23 of the Act makes it clear that when the arbitrator is appointed, the
claimant is required to file the statement and the respondent has to file his
defence statement before the Arbitrator. The claimant is not bound to restrict
his statement of claim to the claims already raised by him by notice, "unless
the parties have otherwise agreed as to the required elements" of such claim
statement. It is also made clear that "unless otherwise agreed by the
parties" the claimant can also subsequently amend or supplement the claims
in the claim statement.
That is, unless the arbitration
agreement requires the Arbitrator to decide only the specifically referred disputes,
the claimant can while filing the statement of claim or thereafter, amend or add
to the claims already made. Similarly section 23 read with section 2(9) makes
it clear that a respondent is entitled to raise a counter claim "unless
the parties have otherwise agreed" and also add to or amend the counter claim,
"unless otherwise agreed".
In short, unless the arbitration
agreement requires the Arbitrator to decide only the specifically referred
disputes, the respondent can file counter claims and amend or add to the same,
except where the arbitration agreement restricts the arbitration to only those disputes
which are specifically referred to arbitration, both the claimant and
respondent are entitled to make any claims or counter claims and further entitled
to add to or amend such claims and counter claims provided they are arbitrable
and within limitation.
23.
Section
11 of the Act requires the Chief Justice or his designate only to appoint the arbitrator/s.
It does not require the Chief Justice or his designate to identify the disputes
or refer them to the Arbitral Tribunal for adjudication. Where the appointment
procedure in an arbitration agreement requires disputes to be formulated and
specifically referred to the arbitrator and confers jurisdiction upon the arbitrator
to decide only such referred disputes, when an application is filed under
section 11(6) of the Act, alleging that such procedure is not followed, the
Chief Justice or his designate will take necessary measures under section 11(6)
of the Act to ensure compliance by the parties with such procedure.
Where the arbitration
agreement requires the disputes to be formulated and referred to arbitration by
an appointing authority, and the appointing authority fails to do so, the Chief
Justice or his designate will direct the appointing authority to formulate the
disputes for reference as required by the arbitration agreement. The assumption
by the 20courts below that a reference of specific disputes to the Arbitrator by
the Chief Justice or his designate is necessary while making appointment of arbitrator
under section 11 of the Act, is without any basis. Equally baseless is the
assumption that where one party filed an application under section 11 and gets
an arbitrator appointed the arbitrator can decide only the disputes raised by the
applicant under section 11 of the Act and not the counter claims of the
respondent.
24.
Section
23 of the Act enables the claimant to file a statement of claim stating the facts
supporting his claim, the points at issue and the relief or remedy sought by him
and enables the respondent to state his defence in respect of those claims. Section
2(9) provides that if any provision [other than section 25 (a) or section
32(2)(a)], refers to a "claim", it shall apply to a "counter
claim" and where it refers to a "defence", it shall also apply
to a defence to that counter claim.
This would mean that
a respondent can file a counter claim giving the facts supporting the counter claim,
the points at issue and the relief or remedy sought in that behalf and the
claimant (who is the respondent in the counter claim) will be entitled to file his
defence to such counter claim. Once the claims and counter claims are before the
arbitrator, the arbitrator will decide whether they fall within the scope of
the arbitration agreement and whether he has jurisdiction to adjudicate on
those disputes (whether they are claims or the counter claims) and if the
answer is in the affirmative, proceed to adjudicate upon the same.
25.
It
is of some relevance to note that even where the arbitration proceedings were
initiated in pursuance of a reference under section 20 of the old Act, this
Court held (in Indian Oil Corporation Ltd. vs. Amritsar Gas Service and Ors. - 1991(1)
SCC 533) that the respondent was entitled to raise counter claims directly
before the arbitrator, where all disputes between parties are referred to
arbitration. This Court observed :
"The appellant's
grievance regarding non-consideration of its counter- claim for the reason
given in the award does appear to have some merit. In view of the fact that
reference to arbitrator was made by this Court in an appeal arising out of refusal
to stay the suit under Section 34 of the Arbitration Act and their reference
was made of all disputes between the parties in the suit, the occasion to make a
counter-claim in the written statement could arise only after the order of
reference. The pleadings of the parties were filed before the arbitrator, and
the reference covered all disputes between the parties in the suit. Accordingly,
the counter-claim could not be made at any earlier stage. Refusal to consider
the counter- claim for the only reason given in the award does, therefore,
disclose an error of law apparent on the face of the award." (emphasis
supplied)
26.
A
counter claim by a respondent pre-supposes the pendency of proceedings relating
to the disputes raised by the claimant. The respondent could no doubt raise a
dispute (in respect of the subject matter of the counter claim) by issuing a
notice seeking reference to arbitration and follow it by an application under section
11 of the Act for appointment of Arbitrator, instead of raising a counter claim
in the pending arbitration proceedings. The object of providing for counter
claims is to avoid multiplicity of proceedings and to avoid divergent findings.
The position of a respondent in an arbitration proceedings being similar to
that of a defendant in a suit, he has the choice of raising the dispute by
issuing a notice to the claimant calling upon him to agree for reference of his
dispute to arbitration and then resort to an independent arbitration proceedings
or raise the dispute by way of a counter claim, in the pending arbitration
proceedings. Respondent's contentions
27.
The
respondent submitted that this Court in SBP & Co. vs. Patel Engineering Ltd.
-- 2005 (8) SCC 618 and National Insurance Co.Ltd. v Boghara Polyfab Private
Ltd. -- 2009 (1) SCC 267, has observed that while deciding an application under
section 11 of the Act, the Chief Justice or his designate can decide the
question whether the claim was a dead one (long time barred) that was sought to
be resurrected. According to appellant the logical inference from this
observation is that an application under section 11 should sufficiently
enumerate and describe the claims to demonstrate that they are within limitation.
Extending the same logic, respondent contends that any counter claim by the respondent
should also be described in his statement of objections with relevant
particulars so that the Chief Justice or his designate could consider and
pronounce whether such counter claim is barred by limitation. The respondent
therefore argues that every claim unless specifically mentioned in the application
under section 11 of the Act, and every counter claim unless specifically mentioned
in the statement of objections, cannot be the subject matter of arbitration.
28.
The
aforesaid contention of the respondent is based on the erroneous premises that
whenever an application is filed under section 11 of the Act, it is necessary for
the Chief Justice or his Designate to consider and decide whether the claims or
counter claims are barred by limitation or not. In SBP & Co. and Boghara
Polyfab, this Court classified the questions that may be raised in an
application under section 11 of the Act into three groups : (i) those which the
Chief Justice/his designate shall have to decide; (ii) those which the Chief
Justice/his designate may choose to decide or alternatively leave to the
decision of the Arbitral Tribunal; and (iii) those which the Chief Justice/his
designate should leave exclusively for the decision of the Arbitral Tribunal.
This Court held that
the issue whether a claim is dead claim (long barred claim) is an issue which the
Chief Justice or his designate may choose to decide or leave for the decision of
the Arbitral Tribunal. The difference between a dead/stale claim and a mere time
barred claim was explained by this Court in Indian Oil Corporation Ltd. v. M/s SPS
Engineering Ltd. [2011 (2) SCALE 291 ] thus : -
"When it is said
that the Chief Justice or his designate may choose to decide whether the claim
is a dead claim, it is implied that he will do so only when the claim is
evidently and patently a long time barred claim and there is no need for any detailed
consideration of evidence. We may elucidate by an illustration: If the
contractor makes a claim a decade or so after completion of the work without
referring to any acknowledgement of a liability or other factors that kept the
claim alive in law, and the claim is patently long time barred, the Chief
Justice or his designate will examine whether the claim is a dead claim (that
is, a long time barred claim).
On the other hand, if
the contractor makes a claim for payment, beyond three years of completing of
the work but say within five years of completion of work, and alleges that the final
bill was drawn up and payments were made within three years before the claim,
the court will not enter into a disputed question whether the claim was barred
by limitation or not. The court will leave the matter to the decision of the
Tribunal. If the distinction between apparent and obvious dead claims, and
claims involving disputed issues of limitation is not kept in view, the Chief
Justice or his designate will end up deciding the question of limitation in all
applications under Section 11 of the Act."
29.
The
issue of limitation is not an issue that has to be decided in an application under
section 11 of the Act. SBP & Co. and Boghara Polyfab held that the Chief
Justice or his designate will not examine issues relating to limitation, but
may consider in appropriate cases, whether the application was in regard to a
claim which on the face of it was so hopelessly barred by 25time, that it is already
a dead/stale claim which did not deserve to be resurrected and referred to
arbitration. The said decisions do not support the respondent's contention that
the details of all claims should be set out in the application under section 11
of the Act and that details of all counter claims should be set out in the
statement of objections, and that a claim or a counter claim which is not
referred to or set out in the pleadings in the proceedings under section 11 of
the Act, cannot be entertained or decided by the arbitral tribunal.
30.
Reliance
was next placed on the following passage from the Law and Practice of
Commercial Arbitration in England [Mustill & Boyd - (1989) Second Edn. Page
131] to contend that the counter claim ought to have been submitted to the
Arbitrator when he is appointed: "The fourth situation, in which both the claim
and the cross-claim are arbitrable, is the one most commonly encountered in practice.
The arbitrator should carefully consider whether the subject matter of the counter
claim was one of the matters submitted to him at the time of the appointment.
If it is, then it is up to him whether to allow the matter to be raised by
counter claim or made the subject of a separate arbitration.
In practice, we have
never known the second course to be followed. If, on the other hand, the
cross-claim was not a dispute which was submitted to him, he should not entertain
it unless it raises a pure defence, or unless the parties clearly agree that he
is to have jurisdiction over it." (emphasis supplied) The said observations
were made with reference to the Arbitration Law prevailing in United Kingdom in
the year 1989, prior to the enactment of (English) Arbitration Act, 1996.
Further the observations obviously related to an arbitration where specific disputes
were referred to arbitration and consequently the arbitrator was bound to restrict
himself to the disputes referred. We have already adverted to this aspect
earlier.
31.
The
respondent lastly contended that the Court is required to ascertain the precise
nature of the dispute which has arisen and then decide whether the dispute is one
which falls within the terms of the arbitration clause, before appointing an
arbitrator; and that could be done only if the claims are set out in the
application under section 11 of the Act and the counter claims are set out in the
statement of objections and court had an opportunity to examine it.
It is therefore submitted
that a dispute (relating to a claim or counter claim) not referred in the
pleadings, is not arbitrable. Reliance was placed upon certain observations in the
decision of the House of Lords in Heyman v. Darwins Ltd.-- 1942 AC 356. We extract
below the paragraph containing the relied upon observations : "The law permits
the parties to a contract to include in it as one of its terms an agreement to refer
to arbitration disputes which may arise in connection with it, and the court of
England enforce such a reference by staying legal proceedings in respect of any
matter agreed to be referred "if satisfied that there is no sufficient reason
why the matter should not be referred in accordance with the submission."
Arbitration Act, 1889, sec. 4.
Where proceedings at
law are instituted by one of the parties to a contract containing an arbitration
clause and the other party, founding on the clause, applies for a stay, the
first thing to be ascertained is the precise nature of the dispute which has
arisen The next question is whether the dispute is one which falls within the
terms of the arbitration clause. Then sometimes the question is raised whether the
arbitration clause is still effective or whether something has happened to render
it no longer operative. Finally, the nature of the dispute being ascertained, it
having been held to fall within the terms of the arbitration clause, and the
clause having been found to be still effective, there remains for the court the
question whether there is any sufficient reason why the matter in dispute should
not be referred to arbitration." (emphasis supplied)
The said observations
were made while examining whether a suit should be stayed at the instance of the
defendant on the ground that there was an arbitration agreement between the parties.
If a party to an arbitration agreement files a civil suit and the defendant
contends that the suit should be stayed and the parties should be referred to
arbitration, necessarily, the court will have to find out what exactly is the
subject matter of the suit, whether it would fall within the scope of the
arbitration clause, whether the arbitration clause was valid and effective and
lastly whether there was sufficient reason as to why the subject matter of the
suit should not be referred to arbitration.
The observations made
in Heymen, in the context of an application seeking stay of further proceedings
in a suit, are not relevant in respect of an application under section 11 of
the Act. This Court has repeatedly held that the questions for consideration in
an application under section 8 by a civil court in a suit are different from the
questions for consideration under section 11 of the Act. The said decision is
therefore of no assistance. Summation
32.
The
position emerging from above discussion may be summed up as follows:
a. Section 11 of the Act
requires the Chief Justice or his designate to either appoint the arbitrator/s
or take necessary measures in accordance with the appointment procedure
contained in the arbitration agreement. The Chief Justice or the designate is
not required to draw up the list of disputes and refer them to arbitration. The
appointment of Arbitral Tribunal is an implied reference in terms of the
arbitration agreement.
b. Where the arbitration
agreement provides for referring all disputes between the parties (whether without
any exceptions or subject to exceptions), the arbitrator will have jurisdiction
to entertain any counter claim, even though it was not raised at a stage earlier
to the stage of pleadings before the Arbitrator.
c. Where however the
arbitration agreement requires specific disputes to be referred to arbitration and
provides that the arbitrator will have the jurisdiction to decide only the disputes
so referred, the arbitrator's jurisdiction is controlled by the specific reference
and he cannot travel beyond the reference, nor entertain any additional claims
or counter claims which are not part of the disputes specifically referred to
arbitration. The position in this case
33.
The
arbitration clause in this case contemplates all disputes being referred to arbitration
by a sole arbitrator. It refers to an Appointing Authority (Chief Engineer, CPWD),
whose role is only to appoint the arbitrator. Though the arbitration clause requires
the party invoking the arbitration to specify the dispute/s to be referred to
arbitration, it does not require the appointing authority to specify the
disputes or refer any specific disputes to arbitration nor requires the
Arbitrator to decide only the referred disputes. It does not bar the arbitrator
deciding any counter claims. In the absence of agreement to the contrary, it has
to be held that the counter claims by the appellant were maintainable and arbitrable
having regard to section 23 read with section 2(9) of the Act.
34.
Counter
claim no.(3) in regard to which Rs.2,94,298/- has been awarded by the Arbitrator
relates to the cost of pipes entrusted by the appellant for carriage from store
to site, which were not accounted for by the respondent. It is not shown to be
barred by limitation. We find no error in the reasoning of the arbitrator in
awarding Rs.2,94,298/- under counter claim no.(3). Conclusion
35.
In
view of the above, this appeal is allowed and the order of the High Court affirming
the judgment of the trial court in regard to counter claim No.3, is set aside. Consequently
the award of arbitrator is upheld in its entirety and the challenge thereto by
the respondent is rejected.
..............................J.
(R V Raveendran)
..............................J.
(A K Patnaik)
New
Delhi;
July
4, 2011
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