$~[SECTION] * IN THE HIGH COURT OF DELHI AT NEW DELHI + O.M.P. (COMM) [SECTION]/[SECTION]016 & IA 310/[SECTION]016 Date of Decision : 7th March, [SECTION]019 AKM ENTERPRISES PVT. LTD. Petitioner Through: Mr.[ENTITY], Mr.[ENTITY], Mr.[ENTITY], Advs. versus AHLUWALIA CONTRACT (INDIA) LTD. Respondent Through: Mr.[ENTITY], Mr.[ENTITY], Mr.[ENTITY], Advs. CORAM: HON'BLE MR. JUSTICE [ENTITY] [ENTITY], J. (Oral)
1. This petition under [SECTION] of the [ACT] has been filed by the petitioner challenging the Arbitral Award dated 17.09.[SECTION]015 passed by the Sole Arbitrator adjudicating the disputes that have arisen between the parties in relation to the Agreement dated 07.0[SECTION].[SECTION]006 by which the petitioner had awarded the Civil and Structural Work for construction of a Mall/Multiplex, Five Star Hotel at Ferozpur Road, Ludhiana (Punjab) in favour of the respondent.
[SECTION]. The challenge to the Award is confined only to the rejection of the counter claim of the petitioner by the Arbitrator on the ground that the petitioner had not raised any such claim prior to the filing of the O.M.P. (Comm.) No.[SECTION]/[SECTION]016 Page 1 counter claim and, therefore, there was no pre-existing dispute between the parties which would make the said counter claim maintainable before the Arbitrator. The Arbitrator has also rejected the Counter claim on the ground that it had not been preferred by the authorized representative of the petitioner.
3. As far as the first finding of the Arbitrator is concerned, counsel for the petitioner submits that the Arbitrator has erred both in fact and in law in reaching the above finding. Referring to the Mediation Report dated 08.11.[SECTION]010 as also to the order of this Court dated [SECTION]9.11.[SECTION]010 passed in OMP No.[SECTION]3/[SECTION]009 titled [PRECEDENT], he submits that not only were these claims raised before the order of reference to the Arbitrator, but also this Court had specifically granted liberty to the parties to raise counter claims. He further relies upon the judgment of the Supreme Court in State of Goa vs. Praveen Enterprises ([SECTION]01[SECTION]) 1[SECTION] SCC 581 and of this Court in Escorts Ltd. vs. Knoor Bremse [SECTION]007 SCC OnLine DEL 1541; GAIL vs. Kalyani Mukund Ltd. [SECTION]010 SCC OnLine Del 1540; Hindustan Paper Corporation Ltd. vs. Delhi Paper Products & Ors.(OMP 379/[SECTION]001, Judgment dated 13.04.[SECTION]010); BSNL vs. Rivacom Pvt. Ltd., [SECTION]017 SCC OnLine Del 11860; and Gokul Projects vs. Cyclone Energy Pvt. Ltd., [SECTION]018 SCC OnLine Del 11814 to submit that for raising a counter claim it is not essential that the party raising such counter claim must first issue a notice invoking arbitration. The counter claim itself envisages filing of a claim by one O.M.P. (Comm.) No.[SECTION]/[SECTION]016 Page [SECTION] party to which the other party alongwith its reply, files a counter claim.
4. As far as the second issue is concerned, counsel for the petitioner has drawn my reference to Issue no.[SECTION]6 and paragraph 4 of the reply of the respondent to the counter claim filed by the petitioner and submits that the plea of lack of authorization of the signatory was not even raised by the respondent and the Arbitrator has decided the said issue without giving any opportunity to the petitioner to rebut the same.
5. On the other hand, counsel for the respondent submits that the counter claim was merely an afterthought and was completely frivolous. He has made reference to the Mediation Report dated 08.11.[SECTION]010 to submit that in such mediation proceedings, the petitioner had infact released various amounts in favour of the respondent which clearly show that the petitioner never had any counter claim against the respondent, as if that was so, these amounts would not have been released.
6. As far as the order dated [SECTION]9.11.[SECTION]010 of this Court is concerned, he submits that merely because it allows a party to raise counter claims, such party cannot raise the same without first issuing a notice to the other.
7. As far as the issue of authorization is concerned, while counsel for the respondent does not dispute that this was not an issue raised O.M.P. (Comm.) No.[SECTION]/[SECTION]016 Page 3 before the Arbitrator, he submits that the Arbitrator could consider the same as it was a fatal defect in the pleadings of the petitioner.
8. I have considered the submissions made by the counsels for the parties. The relevant extracts from the Mediation Report dated 08.11.[SECTION]010 are reproduced hereinunder:
"During the mediation proceedings with the sincere efforts of the parties, the counsels for the parties and the cooperation of the parties, the parties have acted as per my observations and the Respondents (AKM) has paid the following amount to the Petitioners (ACIL) for the work undertaken by them which includes the schedule of work at the stage of mediation proceedings.
a) A sum of Rs.5[SECTION],63,016/- (Rupees fifty lacs Sixty three thousand sixteen only) towards the plumbing work which was completed. The balance amount of Rs.9,30,5[SECTION]7/- (Rupees nine lacs thirty thousand five hundred twenty seven only) was agreed to be released after verification and modification of any, in respect of drawings already submitted by the Petitioner (in short ACIL).
b) A sum of Rs.8,44,07[SECTION]/- (Rupees eight lacs forty tour thousand seventy two only) towards final bill of construction of civil and structural works executed for agreed and undisputed work.
c) A sum of Rs.31,8195[SECTION]/- towards final bill of night club bills at Ludhiana and agreed and undisputed account.
O.M.P. (Comm.) No.[SECTION]/[SECTION]016 Page 4 d) An amount of Rs.1,51,733/- was paid
towards final bill for the external works executed by petition (ACIL) for agreed/undisputed account.
With the consent of both the parties the following items were left to be resolved in the subsequent proceedings:-
a. Decision on extra items to ACIL by AKM b. Issue of release of bank guarantee towards retention money to ACIL by AKM c. Issue with regard to labor cess. d. issues with regard to insurance policy etc." xxxxx
There are certain other disputes now raised, apart from mentioned hereinabove between the parties which they want to be adjudicated by an Arbitrator.
Under these circumstances, the file may be returned to Hon'ble Court for appropriate orders."
(Emphasis Supplied)
9. A reading of the above report would show that though four issues mentioned in the earlier part of the Mediation Report had remained unresolved at a particular stage of the Mediation proceedings, there were certain additional disputes raised before the mediator during the course of those proceedings, which the parties agreed had to be adjudicated by the Arbitrator. What is the exact nature of these additional disputes is not discernable from the above report, however, in the order dated [SECTION]9.11.[SECTION]010 passed by this Court, the unresolved disputes were referred to arbitration, specifically O.M.P. (Comm.) No.[SECTION]/[SECTION]016 Page 5 allowing the Arbitrator to adjudicate the claims and counter claims of the parties. The relevant extracts from the order are reproduced as under:
"The report of the mediator is placed on record. The parties have settled some of their disputes. In relation to the unresolved disputes, it has been agreed that those disputes shall be referred to arbitration.
xxxxx Learned counsels for the parties also request that this Court may appoint an independent arbitrator to adjudicate the unresolved disputes between them. Accordingly, I appoint Mr. Justice [ENTITY], retired judge, Allahabad High Court, Flat No.1133, Sector [SECTION]9, Noida, U.P. [SECTION]01301 (Tel No. 01[SECTION]0-[SECTION]45395[SECTION], 989155414[SECTION]) as the sole arbitrator to adjudicate the claims and counterclaims of the parties."
10. A reading of the above would clearly show that at least some submission was made before the Court regarding raising of counter claims by the petitioner, again what was the exact nature of the counter claims to be raised, is not discernable from the said order.
11. Be that as it may, in State of Goa (supra), the Supreme Court has clarified that the object of providing for counter claims is to avoid multiplicity of proceedings and to avoid divergent findings. Keeping this object in view, the respondent in an arbitration proceeding has a choice of raising the dispute (counter claim) by issuing a notice to the claimant calling upon him to agree for reference of this dispute O.M.P. (Comm.) No.[SECTION]/[SECTION]016 Page 6 (counter-claim) 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. The only effect of such counter claim would be on the issue of limitation.
1[SECTION]. This Court in BSNL vs. Rivacom Pvt. Ltd. [SECTION]017 SCC OnLine Del 11860 has again reiterated as under:
"As far as the issue of non-service of notice to the respondent before raising a counter claim is concerned, the same is no longer res integra and it has been authoritatively held by Supreme Court in State of Goa v. Praveen Enterprises ([SECTION]01[SECTION]) 1[SECTION] SCC 581 that the object of providing for counter claims is to avoid multiplicity of proceedings and to avoid divergent findings. 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."
13. In the present case, reference to the arbitration was made on an application filed by the respondent under [SECTION] of the Act. Counsel for the petitioner submits that in such proceedings even an opportunity to file reply had not arisen to the petitioner as the parties had immediately consented to be referred for mediation and thereafter to arbitration. Therefore, the petitioner had no opportunity to raise a counter claim in form of pleadings in those proceedings.
14. In Escorts Ltd. (supra), a similar situation had arisen and this Court had held as under:
"7. The proceedings pending before the Court were not in the form of a suit. Respondent had filed an application O.M.P. (Comm.) No.[SECTION]/[SECTION]016 Page 7 under [SECTION] of the [ACT] seeking injunction against the petitioner. An application under [SECTION] of the [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 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] of the [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 voilation 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 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 counterclaim 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] of the O.M.P. (Comm.) No.[SECTION]/[SECTION]016 Page 8 [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."
9. The proceedings under [SECTION] of [ACT] are akin to the proceedings under [SECTION] and [SECTION] of [ACT]. The application under [SECTION] and [SECTION] [ACT] 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] of [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 O.M.P. (Comm.) No.[SECTION]/[SECTION]016 Page 9 Arbitral Tribunal on the ground that the dispute referred was in respect of the claim made in the petition under [SECTION] of the [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."
15. Reliance of the Arbitrator on the judgment of Major (Retd.) Inder Singh Rekhi vs. DDA (1988) [SECTION] SCC 338 is totally unfounded. It is to be noted that the said judgment was passed under the [ACT] which in terms of [SECTION] thereof requires reference of difference/dispute to the Arbitrator. This is not to say that under [SECTION] of the Act an Arbitrator is to be appointed even though there is no dispute between the parties, however, at the same time under [SECTION] of the Act, the Court does not make a reference of disputes to the Arbitrator, it merely appoints an Arbitrator for the parties. Therefore, once an Arbitrator is appointed, the parties are free to raise their claims and counter claims before the Arbitrator unless the Agreement or the order of appointment itself restricts the disputes to be adjudicated by such Arbitrator.
16. The Arbitrator has further relied upon the judgment of the Supreme Court in McDermott International Inc. vs. Burn Standard Co. Ltd. and Others ([SECTION]006) 11 SCC 181. In the said judgment, the Supreme Court, infact, negated a plea raised on the maintainability of claim of damages on the ground that an invoice in that regard had not O.M.P. (Comm.) No.[SECTION]/[SECTION]016 Page 10 been raised. The Court held that for claiming damages no invoice needs to be raised prior to invocation of arbitration.
17. As far as the issue of lack of authority of the signatory to the counter claim is concerned, I find that no such issue had been framed by the Arbitrator. Issue no.[SECTION]6 framed by the Arbitrator reads as under:
"[SECTION]6. Whether the counter claims are not entertainable by this arbitral tribunal for the reasons stated in para 4 of the preliminary objections in the claimants reply to counter claims?"
18. Para 4 of the preliminary objection is reproduced hereinunder:
"4. The Counter Claim is barred by law inasmuch as there has never been any notice of the said claim. It is most respectfully submitted that the Ld. Arbitral tribunal is not clothed with the necessary jurisdiction to entertain the said counter claim of the Respondent. The Respondent never claimed to have any disputes whatsoever whether before the Hon'ble High Court of Judicature at Delhi, or even during the mediation proceedings before the mediation cell. There was not even a whisper of the Respondent having any dispute before the mediator. Neither the Report of mediator nor the order of the Hon'ble High Court finds any mention of any claim whatsoever of the Respondent. The Counter Claim is simply an afterthought of the Respondent designed at frustrating the legitimate claims of the claimant."
19. A reading of the above would show that the respondent had not raised any such plea before the Arbitrator and therefore, the petitioner would not have had an opportunity to rebut the same. In any case, lack of authority was a procedural defect which the petitioner could O.M.P. (Comm.) No.[SECTION]/[SECTION]016 Page 11 have rectified if put to notice. Reference in this regard can be made to the judgment of the Supreme Court in Uday Shankar Triyar vs. Ram Kalewar Prasad Singh & Anr. ([SECTION]006) 1 SCC 75.
[SECTION]0. In view of the above, the Award in so far as it refuses to consider the counter claim of the respondent on merit is set aside, leaving it open to the petitioner to agitate the same.
[SECTION]1. With the consent of the parties, the petitioner is permitted to approach the same Arbitrator for adjudication of the counter claim of the petitioner on merit. The parties are permitted to obtain copies of the arbitration record from this Court and file the same before the Arbitrator.
[SECTION][SECTION]. The petition is allowed in the above terms, with no order as to costs.
[ENTITY], J MARCH 07, [SECTION]019 RN O.M.P. (Comm.) No.[SECTION]/[SECTION]016 Page 1[SECTION]