TMI Blog2011 (7) TMI 1313X X X X Extracts X X X X X X X X Extracts X X X X ..... laims of the contractor and four counter claims of the Appellant. he rejected the other claims of Respondent and Appellant. Feeling aggrieved the Respondent filed an application to the civil court. The Appellant challenged the civil court judgment by filing an arbitration appeal before the High Court. The Bombay High Court held that the arbitrator had No jurisdiction to entertain or allow such a counter claim as the same had neither been placed before the court in the proceedings u/s 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. HELD THAT:- 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 arbitrato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 30.6.1999. 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, ₹ 1,00,000/- towards claim No. 2 with interest at 12% per annum from 26.8.1998 to 19.2.1999; ₹ 3,63,416/- towards claim No. 3 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein made a counter claim, which was allowed by the arbitrator. The Bombay High Court held that the arbitrator 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 decide 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 agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent 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 limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nated 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 natio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffs 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. (3) 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. (4) 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 . (5) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 courts 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 counterclaim 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oration Ltd. v. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Danvins 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 en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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