National Institute Of Banking ... vs Vij Construction Ltd.
2005 Latest Caselaw 857 Del

JUDGMENT

R.C. Jain, J.

1. This appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter called as the "Act") is directed against the Order of the Sole Arbitrator {Mr. justice, C.L. Chaudhary (Retd)} dated 6.2.2004, whereby the learned Arbitrator has directed deletion of certain counter-claims of the appellant from the scope of the Arbitration Proceedings.

2. In short the relevant facts giving rise to the present appeal are that an Agreement for construction was executed between the parties on 20.4.1996 whereby the respondent was to construct a building-Northern India Bank Staff Training College at Campus Project at Plot No. A-30, Sector 62, Institutional Area, Noida for the appellant. Disputes/differences arose between the parties with regard to the said contract and the respondent appointed one Mr. L.R. Pahwa as the Arbitrator to adjudicate upon certain claims. However, a petition (AA No. 182/2001) under Section 11 of the Act was also moved for appointment of the Arbitrator and was disposed of by this Court on 17.1.2000 with the following order:

"I am satisfied that disputes have arisen between the parties, as stated in the petition.

Counsel appearing for the respondent states that the respondent also has certain Counter Claims as against the petitioner. In that view of the matter and with the consent of the counsel appearing for the parties, I appoint Hon'ble Mr. Justice C.L. Chaudhary, a Retired Judge of this Court, as an Arbitrator for adjudicating all the disputes between the parties i.e. Claims of the petitioner arising out of and in connection with the present contract as also the Counter Claims of the respondent."

3. The learned Arbitrator entered upon the reference and the respondent-herein filed a statement of claim dated 11.5.2002 and thereafter additional statement of claim on 12.7.2002. In response to the same, the appellant filed reply to the said statement of claims/additional claims and also made counter claim against the respondent. The respondent, thereafter, moved an application under Sections 16 of the Act for deletion of certain counter claims which the appellant had preferred before the Arbitrator on the ground that as per the conditions of the contract, " dispute" had not arisen in respect of those counter claims as the person raising the dispute ought to have given a notice with regard to the disputes. The said application was opposed by the appellant by filing a reply inter-alia contending that the counter claims had arisen from the main contract dated 20.4.1996 between the parties and as per the order of this Court dated 17.1.2002 in AA No. 182/2001, all such counter-claims, once they arose from the contract were necessarily the subject matter of Arbitration. It was also pointed out that the counter- claims by their very nature were those which arose after the filing of the claims by the respondent and as such were bound to be considered by the Arbitrator.

4. Learned Arbitrator vide the impugned order has allowed the application of the respondent under Section 16 of the Act concluding as under:

" In view of this, I hold that the counter claims raised in the letter dated 8.5.2000 will have to be adjudicated upon by this arbitral tribunal and the rest of the counter-claims cannot be entertained and adjudicated upon, because those are pre-mature claims and are outside the ambit of the expression "dispute". The contention of Mr. Mahesh K. Chaudhary that the claimant had increased the amount of claims, which were filed before the previous Arbitrator Mr. Pahwa and the claims fled before this arbitral Tribunal. It is within my domain and province to decide this question as to what is the effect of increasing the amount, if Mr. Makesh K. Chaudhary's contention is correct? This point shall be decided by me, if raised in the pleadings.

In the result, the application is allowed to the extent indicated above. The application stands disposed of."

5. The above finding of the learned Arbitrator is primarily based on the following findings:-

(i) that no notice was given under Clause 24 of the contract before filing the counter claim; and

(ii) consequently, no "disputes" have arisen because until there is a demand and refusal there cannot be said to be a dispute which can be adjudicated upon.

6. I have heard Mr. Valmiki Mehta, learned senior counsel representing the appellant and Mr. V.K. Makhija, learned senior counsel representing the respondent and have given my thoughtful consideration to their respective submissions.

7. In this case the foremost question which arises for consideration is whether the arbitrator could have made the impugned order on the application of the respondent under Section 16 of the Act holding that certain counter-claims cannot be entertained and adjudicated upon because those are pre-mature and are outside the ambit of the expression "dispute". The answer to this will depend on the answer of another question as to whether controversy in regard to the non-entertainability of counter-claims is a jurisdictional issue within the meaning of Section 16 of the Act and if it is not so at what stage the Arbitrator could consider this question? To find the answer we must refer to the provisions of Section 16 and 37 of the Act which are to the following effect:

" Section 16. Competence of arbitral tribunal to rule on its jurisdiction-(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,-

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defense; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.

Section 37: Appealable orders- (1) An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:-

(a) granting or refusing to grant any measure under Section 9;

(b) setting aside or refusing to set aside an arbitral award under section 34

(2) An appeal shall also lie to a Court from an order of the arbitral tribunal-

(a) accepting the plea referred to in sub-section

(2) or sub-section (3) of section 16; or

(b) granting or refusing to grant an interim measure under section 17.

(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court."

8. A conjoint reading of the above provisions of law would make it abundantly clear that Section 16 has conferred power on the arbitrator to decide:

(i) Whether it has the jurisdiction to entertain the arbitral proceedings:

(ii) Whether there exists an arbitration agreement;

and

(iii) Whether there exists a valid arbitration agreement between the parties.

9. Mr. Valmiki Mehta, urged that the application moved by the respondent under Section 16 of the Act which has been disposed of by the impugned order does not fall under the purview of Section 16 of the Act. In this connection he claimed parity between the provisions of Section 16 of the 1996 Act with that of Section 33 of the Arbitration Act 1940 and urged that Section 16 confers power on the arbitral tribunal to decide on its own jurisdiction, including ruling on any objections regarding the existence or validity of the Arbitration Agreement. According to him the Arbitrator could consider only the aforesaid questions and could not go into the question whether the counter-claim filed by the appellant constituted disputes. Mr. Mehta, urged that parties are at liberty to prove their claims and counter-claims by filing documents or otherwise and, therefore, the Arbitrator has the jurisdiction to adjudicate upon the counter-claims filed by the appellant and could not have rejected the same at this stage for want of jurisdiction at the threshold. In the opinion of this Court, the power conferred on the Arbitrator under Section 16 are of wide amplitude and it includes the power even to rule on the question as to whether any claim/counter claim can be said to be dispute within the meaning of the Arbitration Agreement and whether the Arbitrator has or does not have the jurisdiction to adjudicate on the said claim/counter claim. No doubt it may be open to a party to challenge the Award of the Arbitrator under Section 34 of the Act on the ground that the Award deals with a dispute not contemplated or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission of the arbitration, nevertheless, the power of the Arbitrator to rule on its jurisdiction including on the question of entertainability of a claim/counter claim is elementary in nature and goes to the very root of the matter. It is a well-settled legal position that an Arbitration Agreement is the source of power and authority of the Arbitrator and what is not contemplated to be settled through arbitration by the parties cannot be made subject matter of an arbitration. I am, therefore, of the considered opinion that the application filed by the respondent under Section 16 was maintainable and has been rightly answered by the learned Arbitrator in exercise of its power under Section 16 of the Act.

10. Now, the next question which needs to be considered is as to whether the learned Arbitrator was justified in holding that it could not entertain the counter-claims beyond those which found mention in the letter of the appellant dated 8.5.2000. Mr. Valmiki Mehta has invited the attention of this Court to the contents of the above letter dated 8.5.2000 and in particular to sub clause appearing after claim (vi) on page 4 of the said letter which is to the following effect:

" We further reserve our rights to claim such other amount from you as may be found due to us on the scrutiny of the accounts and otherwise."

11. On the strength of this Clause Mr. Valmiki Mehta has urged that counter claims raised by the appellants at serial No. 1 to 6 was not the exhaustive list of the counter claims which the appellant had against the respondent and it had reserved its right to supplement the same by making additional counter claims. The contention cannot be said to be devoid of merits because it is not unusual for the parties to supplement and amend their claims and counter-claims even during the pendency of the Reference before the arbitral tribunal. Section 23 of the Act in fact provides for such a course and reads as under:

"Statements of claim and defense- (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 defense in 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 defense 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."

12. Mr. Makhija has on the other hand urged that a claim/counter claim being capable of settlement through the process of arbitration should have ripened into dispute or differences within the meaning of Arbitration Agreement. In the case in hand clause 24 of the Construction Agreement dated 20.4.1996 provide for settlement of disputes through Arbitration. The said clause reads as under:

"ARBITATION. All disputes or differences of any kind whatsoever which shall at any time arise between the parties.... after written notice by either party to the contract to the other of them and to the Employer hereinafter mentioned be referred for adjudication to a sole Arbitrator..."

13. In this regard it is contended that whatever counter-claims the appellant had against the respondent were fully set out in clauses 1 to 6 of the letter dated 8.5.2000 which was before the Court at the time of making the reference and the counter-claims " referred to in the order of this Court dated 17.1.2002 in AA No. 182/2001" were relatable only to and confined to those counter-claims and to no others. A careful reading of the above order does not show that this Court wanted to restrict the counter-claims only to those referred in letter dated 8.5.2000 because this letter does not find reference in the said order. In any case, it is a settled legal preposition that once the parties have provided arbitration as the mode of settlement of the disputes/differences under a contract, it should relate to all disputes/differences arising out of or in relation to the said contract. It would be wholly unjust and improper to tell a party that though the disputes/differences referred to by one party are liable to be settled through arbitration, the disputes /differences raised by the other party in relation to the same contract are not capable of settlement through arbitration.

14. Mr. Makhija, learned senior counsel representing the respondent has supported the impugned order of the learned Arbitrator on the strength of several judgments of the various High Courts and has urged that the counter-claims other than those which find mention in the letter dated 8th May, 2000 cannot be termed as "disputes" within the meaning of Clause 24 of the General Conditions of Contract. The basis of this submission is that to constitute a dispute firstly there should be an assertion of a claim and then its denial and since the counter claims raised by the appellant were not asserted at any stage, there was no question of the respondent refuting the same and, therefore, the said counter-claims cannot be termed as "dispute". It is also contended that no notice as was envisaged by Clause 24 was given by the appellant in regard to those counter claims and, therefore, the said counter-claims cannot be said to be dispute or difference capable of arbitration. Mr. Makhija, however fairly conceded that the absence of notice would not be fatal and the counter-claims if they can constitute a dispute could well be considered the subject matter of the arbitration.

15. Yet another objection raised on behalf of the respondent is about the maintainability of the present appeal. Mr. Makhija, learned counsel for the respondent has contended that the present appeal under the provisions of Section 37 of the Act is misconceived and not maintainable because the impugned order of the learned Arbitrator deciding the plea raised by the respondent in regard to the non-maintainability of the counter-claim is within jurisdiction and powers conferred on him under Section 16 sub-sections 1, 2 and 5 of the Act and there is no error of law or jurisdiction. In the opinion of this Court, this argument is contrary to the respondent's own stand because the respondent has itself moved an application under Section 16 of the Act calling upon the sole Arbitrator to adjudicate on the question of its jurisdiction to entertain the counter-claims of the appellant. It, therefore, does not lie in their mouth to urge that the impugned order does not fall under sub-section 2 or 3 of Section 16 of the Act.

16. Having considered the matter from different angles more particularly having regard to the order of this Court dated 17.1.2002, this Court is of the considered opinion that the impugned order/finding of the Arbitrator holding that the counter-claims other than those raised in the letter dated 5.5.2000 cannot be entertained and adjudicated upon because those are pre-mature claims and are outside the ambit of the expression " dispute" is legally unsustainable and therefore liable to be set aside.

17. In the result the appeal is allowed and the impugned order of the Arbitrator is hereby set aside and the Arbitrator is directed to entertain and adjudicate upon all the counter-claims made by the appellant herein before the Arbitrator in accordance with law.