Arbitration and Conciliation Act, 1996: s. 23(2A) – Statements of claim and defence – Contract between appellant (NHAI) and the respondent company – Dispute between the parties referred to the arbitrator – Application u/s. 23(2A) by the appellant to permit them to place on record its counter claim – Rejection of, by the tribunal as also the High Court – On appeal, held: When there is a provision for filing the counter claim-set off, which is expressly inserted in s. 23, there was no reason for curtailing the right of the appellant for making the counter claim or set off – If the counter claim made by the appellant is not allowed in the proceedings arising out of the claims made by the respondent, it may lead to parallel proceedings before various fora – It would defeat the object and purpose of permitting to file the counter claim/set off as provided u/s. 23(2A) – Furthermore, the appellant reserved its right to claim the damages and even in the Statement of Defence also claimed such a set off of Rs.1.23 crores – Thus, the High Court on a narrow interpretation of Clause 26 of the Contract erred in rejecting the application – Order passed by the arbitral tribunal and the High Court quashed and set aside.
Allowing the appeal, the Court
HELD: 1.1 It is not open for the Contractor to contend that the counter claim was without following the procedure as required in Clauses 26.1 and 26.2 of the Contract Agreement and, therefore, may not be taken on record. On a true and fair interpretation of Clause 26, failure to resolve the dispute (in the present case, the termination of the Contract by the NHAI), the arbitration proceedings would be maintainable. That does not mean that only a claim and/or counter claim as sought to be contended on behalf of the Contractor now would alone be entertained. [Para 13][966-D-E]
1.2 Both the Arbitral Tribunal as well as the High Court have failed to appreciate the difference between the expressions “claim”, which may be made by one side and “Dispute”, which by its definition has two sides. [Para 13.1][966-E-F]
1.3 Even the Arbitral Tribunal while rejecting the application of the NHAI for extension of time to file the counter claim did not observe and/or rejected the application for extension of time to file the counter claim on the ground that the said counter claim would not be maintainable without following the process as required under Clause 26 of the Contract agreement. [Para 13.2][966-G]
1.4 When the NHAI filed the application under sub-section (2A) of Section 23 of the Arbitration Act, 1996 seeking to place on record its counter claim, Arbitral Tribunal rejected the said application by observing that in the application for permitting the NHAI to place on record the counter claim, the NHAI did not stated anything about having made an attempt for such amicable settlement. However, it is required to be noted that from the very beginning, the NHAI reserved its right to claim the damages and even in the Statement of Defence also claimed such a set off of Rs.1.23 crores and also specifically stated therein that the NHAI reserved its right to file the counter claim. Therefore, on the grounds on which the Arbitral Tribunal rejected the application of NHAI to place on record the counter claim can be said to be contrary to the intent between the parties to resolve the dispute (which was for termination of the Contract by the NHAI) through conciliation first. In the facts and circumstances of the case, by such a narrow interpretation, the Arbitral Tribunal has taken away the valuable right of the NHAI to submit counter claim, which is of a very huge amount thereby negotiating the statutory and contractual rights of the NHAI and paving way for a piecemeal and inchoate adjudication. [Para 13.3][968-F-H; 969-A-C]
1.5 When there is a provision for filing the counter claimset off, which is expressly inserted in Section 23 of the Arbitration Act, 1996, there is no reason for curtailing the right of the appellant for making the counter claim or set off. If the counter claim made by the NHAI in the proceedings arising out of the claims made by the Contractor is not allowed, it may lead to parallel proceedings before various fora. While passing the impugned judgment and order, the High Court lost sight of the said aspect, which ought to have been considered while considering the request on behalf of the NHAI to place on record its counter claim. Clauses 26.1 and 26.2 have to be interpreted in a pragmatic and practical manner, as they require that the parties must at first try to settle, resolve and even try conciliation but when the procedure under Clauses 26.1 and 26.2 fails to yield desired result, in the form of settlement within the period specified in Clause 26.2, the Dispute can be resolved through arbitration in terms of Clause 26.3. Once any dispute, difference or controversy is notified under Clause 26.1, the entire subject matter including counter claim/set off would form subject matter of arbitration as “any dispute which is not resolved in Clauses
26.1 and 26.2”. [Para 13.4][969-C-F]
1.6 It is required to be noted that as such there was no delay at all on the part of the NHAI initially praying for extension of time to file the counter claim and/or thereafter to file application under Section 23(2A) permitting it to place on record the counter claim. In the facts and circumstances of the case, not permitting the NHAI to file the counter claim would defeat the object and purpose of permitting to file the counter claim/set off as provided under Section 23(2A) of the Arbitration Act, 1996. Without appreciating the said aspects, the High Court by the impugned judgment and order, and on narrow interpretation of Clause 26 seriously erred in rejecting the application under Section 34/37 of the Arbitration Act, 1996 and confirming the order passed by the Arbitral Tribunal in not permitting the NHAI to file the counter claim. The High Court ought to have appreciated that permitting the NHAI to file the counter claim may avoid multiplicity of proceedings. [Para 13.5][969-G-H; 970-A-B]
1.7 The order passed by the Arbitral Tribunal and the impugned judgment and order passed by the High Court are quashed and set aside. Consequently, the application submitted by NHAI to permit it to file the counter claim is allowed and the NHAI is permitted to file the counter claim, which the Arbitral Tribunal to consider alongwith the Statement of Claim submitted by the Contractor and the Statement of Defence of claim submitted by the NHAI on its own merits. [Para 14][970-B-D]
Gujarat State Cooperative Land Development Bank Ltd. v. P.R. Mankad and Ors. (1979) 3 SCC 123 : [1979] 2 SCR 1023; Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority (1988) 2 SCC 338 : [1988] 3 SCR 351; State of Goa v. Praveen Enterprises, (2012)
12 SCC 581 : [2011] 10 SCR 1026; Bharat Petroleum Corporation Limited v. Go Airlines (India) Limited (2019) 10 SCC 250; Silpi Industries Etc. v. Kerala State Road Transport Corporation and Anr. (2021) SCC Online SC 439; Kolkata Metropolitan Development Authority v. Hindustan Construction Co. Ltd., (2017) SCC OnLine Cal 18978; M.K. Shah Engineers &
Contractors v. State of MP. (1999) 2 SCC 594 : [1999]
1 SCR 419; Nirman Sindia v. Indal Electromelts Ltd., Coimbatore (1999) SCC OnLine Ker 149.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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