Escorts Limited vs Knorr Bremse-Ag
2007 Latest Caselaw 2212 Del

JUDGMENT

Shiv Narayan Dhingra, J.

Page 3207

1. This petition has been preferred under Section 37(2)(a) of The Arbitration and Conciliation Act, 1996 against an order under Section 16(2)(3) of The Arbitration and Conciliation Act, passed by the Arbitral Tribunal by majority whereby it refused to consider the counter claim of the petitioner during the arbitration proceedings before the Tribunal. The Tribunal by majority held that it had to confine itself to the authority vested in it by the agreement of the parties as can be culled out from the correspondence exchanged between the parties referred in the order. Since, the Arbitral Tribunal was constituted to adjudicate the disputes which were the subject matter of proceedings pending before the Delhi High Court, It could not confer upon itself any other jurisdiction and therefore could not entertain the counter claim raised by the petitioner.

2. The petitioner and respondent had entered into a license agreement under which the petitioner was given license to manufacture brakes for rail and road vehicles. The license agreement was entered into in 1977, it was amended on 9th January, 1987 and with the approval of Government of India vide its letter No. FC II 631(9)) dated 13.12.1991, the validity of license agreement was extended up to 31st December, 1995. No dispute arose between the parties after expiry of the agreement till the year 2001. On 28th November, 2002 respondent served a legal notice upon the petitioner alleging violation of Article 1(3) of the license agreement. There was an arbitration clause under Article XI(4) of the license agreement which provided Page 3208 that any dispute, difference or claim arising out of or in relation to the license agreement between the parties shall be referred to the Indo-German Chamber of Commerce at Bombay for settlement under the arbitration rules then in force. Respondent invoked the arbitration clause and forwarded a statement of case to the Indo- German Chamber of Commerce. The petitioner sent its reply taking several pleas. Respondent thereafter moved a petition under Section 9 of Arbitration and Conciliation Act before this Court seeking a restraint orders against the petitioner and its employees. The said petition was heard by Single Bench of this Court, who vide its order dated 1.9.2003 declined to grant an injunction but directed the petitioner to furnish an undertaking in favor of the respondent that the petitioner will pay any amount(s) that will ultimately be found liable in terms of the agreement to the respondent. An appeal was preferred against the order of Single Bench before the Division Bench. The parties simultaneously took steps for constitution of Arbitral Tribunal. The FAO came for hearing before the Division Bench on 24th September, 2003. The petitioner had entered a caveat and put appearance before the Bench and accepted notice. The matter was adjourned to 1st October, 2003 to enable the counsel for petitioner to obtain instructions. In the meantime, the respondent had sent a letter to the petitioner proposing three names for concurrence of petitioner for appointment as sole arbitrator. The petitioner responded that Arbitral Tribunal be constituted where one arbitrator be appointed by the petitioner, one by the respondent and the two arbitrators may appoint a third arbitrator as Presiding Arbitrator. This proposal was accepted and the matter between the parties was referred to the Arbitral Tribunal for settlement. On 14th October, 2003 when the matter came up before the Division Bench, the Court observed that since the parties had taken steps to appoint the Arbitral Tribunal during the pendency of the appeal, there was no necessity of examining the validity of order of Single Bench, the liberty was given to the respondent to approach the Tribunal for appropriate relief and the appeal was disposed of.

3. Before the Arbitral Tribunal, respondent filed its claim and the petitioner filed counter claim. Vide impugned order, the Arbitral Tribunal by majority refused to entertain the counter claim filed by the petitioner, hence this petition.

4. The petitioner has cited following judgments:

Indian Oil Corporation Ltd. v. Amritsar Gas Service and Ors. , Western Coalfields Limited, Nagpur v. Narbada Constructions, Jabalpur 1999(1) M.P.L.J 55, Punjab Housing Development Board and Anr. v. Ludhiana Builders and Engineers (P) Ltd. 2001(3) Arb. LR 29 (SC), Food Corporation of India v. Anpo Shipping Co. Ltd and Ors. , Hirubhai Himabhai Patel and Ors. v. V.H.Patel and Co. and Ors. , Page 3209 V.H.Patel and Company and Ors. v. Hirubhai Himabhai Patel and Ors. , Mahan Traders and Ors. v. Amar Singh 134(2006) DLT 551, National Institute of Banking Studies and Corporation Management (NIBSCOM) v. Vij Construction Ltd. 120(2005) DLT 563, Bharat Heavy Electrical Ltd. v. BST Engineering Services 1995(2) ARB LR 403, Union of India v. Archana Steels , Patel Construction Co. v. Oil and Natural Gas Commission 1994(1) Arb. LR 26, Renusagar Power Co. Ltd. v. General Electric Company and Anr. , Tarapore and Company v. Cochin Shipyard Ltd. Cochin and Anr. , Sangamner Bhag Sahakari Karkhana Ltd. v. Krupp Industries Ltd. , Jag Mohan Chawla and Anr. v. Dera Radha Swami Satsang and Ors. , Mahendra Kumar and Anr. v. State of Madhya Pradesh and Ors. , Sugesan and Co. Pvt. Ltd. Madras v. Hindustan Machine Tools Ltd., Hyderabad , American Jurisprudence (1999) 61A AM JUR 2 D 86, Ram Sarup Gupta v. Bishun Narain Inter College and Ors. , Kedar Lal Seal and Anr. v. Hari Lal Seal and Almare Societa Di Navigazione S.P.A. v. Derby and Co. Ltd. 1989 (2) Lloyd's Law Reports 376.

5. The respondent has cited following judgments. Continental Construction Ltd. v. National Hydroelectric Power Corporation Ltd. 1998(1) Arb. LR 534, Batra Construction Co. v. DDA and Anr. 1999(1) Arb. LR 347, M.S.J. (Engineers) and Co. Pvt. Ltd. v. Union of India and Ors. 1996(1) Arb. L.R. 187, Food Corporation of India, v. T.R.Behl and Co. 1992(2) 456, Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority Page 3210, Orissa Mining Corporation Ltd. v. Prannath Vishwanath Rawlley , Dilip Construction Company v. Hindustan Steel Ltd. , Rajinder Krishan Khanna and Ors. v. Union of India and Ors. , State of Rajasthan v. Nav Bharat Construction Co. , Sanshin Chemicals Industry v. Oriental Carbons and Chemicals Ltd. and Ors. .

6. It has to be kept in mind that the dispute between the parties had not arisen during the currency of the license agreement between the parties. The dispute was raised by the respondent for the first time in the year 2001 when respondent made certain allegations against the petitioner, the petitioner vehemently denied those allegations and put its own interpretation on the license agreement. No suit was filed before the Court by either party. No reference of the dispute was made by the Court to the Arbitral Tribunal. The Arbitral Tribunal was appointed by the parties themselves when the proceedings under Section 9 of Arbitration and Conciliation Act were pending before the Court. The contention of the Arbitral Tribunal in its order dated 29.3.2007 that it was constituted to adjudicate the dispute which was subject matter of the proceeding pending before the Delhi High Court is therefore factually not correct. The Arbitral Tribunal was constituted by the parties to resolve the dispute between them independent of proceedings. The Tribunal while refusing to consider counter claim referred to a letter dated 30.9.2003 issued by the respondent while appointing Justice (Retd.) Mr. P.K.Bahri as nominee Arbitrator whereby the words used are 'in relation to the disputes arising of the License Agreement dated December 13, 1977 (as amended) between our client and Escorts Limited and which are the subject-matter of the above referred court proceedings.' The letter dated 30.9.2003 is a letter by respondent appointing one arbitrator. It is not a letter of parties referring dispute. Neither dispute was to be referred to one arbitrator. Dispute was to be referred to Arbitral Tribunal consisting of three arbitrators. The dispute unless specified in the reference is presented before the Tribunal by way of claim and counter claim.

7. The proceedings pending before the Court were not in the form of a suit. Respondent had filed an application under Section 9 of the Arbitration and Conciliation Act seeking injunction against the petitioner. An application under Section 9 of the Arbitration and Conciliation Act is an interim application seeking interim relief before or during the pendency of the arbitration proceedings. This application can be filed even before the Page 3211 appointment of the arbitrator or before the dispute is referred to the arbitrator. In the present case, no dispute was referred to the Arbitrator till the time the application was filed under Section 9 of Arbitration and Conciliation Act. The Tribunal came into existence only during the pendency of FAO before this Court. Merely because one party has referred in a letter appointing arbitrator of its side that the dispute which was being referred was the subject matter of FAO, would not preclude the other party from raising a counter claim before the Arbitral Tribunal appointed by the parties to go into the disputes which arose after termination of license agreement due to alleged violation of a covenant, post expiry of the license agreement. The petitioner also had disputes regarding post expiry period arising out of the same license agreement which the petitioner stated in its counter claim. The first statement of the claim which came up before the Tribunal was not by way of the proceedings of the Court but by way of filing of statement of claims by the respondent. The petitioner had no opportunity to state its side of the version, unless the respondent had filed its claim. I consider that the Tribunal could not have refused to consider the counter claim on the ground that counter claim was not referred to the Tribunal. I am supported in my view by Indian Oil Corporation Ltd. case (supra) wherein Supreme Court held as under:

15. 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 the 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. However, in the present case, the counter-claim not being pressed at this stage by learned Counsel for the appellant, it is unnecessary to examine this matter any further.

8. In Punjab Housing Development Board case (supra) Supreme Court observed as under:

5. From the arbitration clause incorporated in Clause 25-A of the agreement it is clear that all disputes in any way arising in connection or out of the instrument are to be referred for arbitration to the named Arbitrator i.e. Superintending Engineer of the Board. The parties appeared before the Arbitrator and filed their respective claims/counter claims. In the circumstances the Arbitrator was duty bound to adjudicate on the claims made by the respondent-contractor as well as the counter claims raised by the appellant- board. The Award is totally silent about the fate of the counter claims raised by the Page 3212 appellants. Indeed, there is no mention of the counter claim at all in the Award. The Appellant Court and the High Court also failed to take note of the objections raised by the appellants in this regard.

6. This Court in the case of Indian Oil Corporation Ltd. v. Amritsar Gas Service and Ors. held that refusal to consider the counter claim for the only reason stated in the Award that they were not placed before the court when the reference was made is not supportable. However, in that case as the counter claim was not being pressed by the appellant this Court did not examine the matter further. In the case in hand, the Arbitrator should have adjudicated on the counter claims filed by the appellants. Thus, the Award suffers from a manifest error due to non-consideration of the counter claims raised by the appellants against the respondents.

7. Determination of the amount due to be paid by the appellants to the respondent is also inter-linked with determination of the counter claims made by them. Therefore, the Award passed by the Arbitrator and the orders of the courts below confirming the same are liable to be set aside and the matter remitted to the Arbitrator for adjudication of the counter claims filed by the appellants. It is made clear that the Arbitrator will not reopen the adjudication of the claims made by the respondent on merits, but will only consider the merits of the counter claims raised by the appellants and then decide the amount which is to be paid by one party to the other. This appeal is disposed of in the manner aforementioned. No costs.

9. The proceedings under Section 9 of Arbitration and Conciliation Act are akin to the proceedings under Order 39 Rule 1 and 2 of CPC. The application under Order 39 Rule 1 and 2 CPC and reply thereto are not considered as pleadings of the parties. While replying to the application to the interim relief, it is not necessary for a party to state its entire case before the Court. It is sufficient for party to resist the application for interim relief and state so much which is necessary for resistance. While deciding application under Section 9 of Arbitration and Conciliation Act, the Court has to satisfy itself that there was an arbitration clause between the parties, a dispute has been raised in terms of the arbitration clause and there was sufficient ground to grant interim relief. It is not necessary for the Court to frame as to what was the exact nature of dispute which could be referred to the arbitrator. Neither it is necessary for the respondent to take a stand that it has a counter claim which should also be taken into consideration. I, therefore, consider that petitioner cannot be deprived of raising a counter claim before the Arbitral Tribunal on the ground that the dispute referred was in respect of the claim made in the petition under Section 9 of the Arbitration and Conciliation Act. A counter claim can be filed by the opposite party while filing reply to the claim of the claimant and when a counter claim is filed that becomes subject matter of the dispute between the parties and the Tribunal cannot refuse to entertain the counter claim.

Page 3213

10. Arbitration is resorted to by the parties to cut the delays and avoid multiplicity of proceedings and litigation between the parties before the Courts. If an arbitrator refuses to entertain the counter claim and asks the opposite party to raise a fresh dispute and start procedure de novo and to get the dispute referred again to another Tribunal, this will only result in multiplicity of proceedings failing the very purpose of the arbitration.

11. I, therefore, allow this petition, the order of the Tribunal dated 29.3.2007 is set aside. The Tribunal shall consider the counter claim of the petitioner along with claim of respondent.

The OMP stands disposed of.