PNP 1 ARP1097-18.11 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGNAL CIVIL JURISDICTION ARBITRATION PETITION NO.1097 OF 2010 Tata Industries Limited and another ..Petitioners. versus Grasim Industries Limited ..Respondent. .... Mr. Milind Sathe, Senior Advocate with Mr. K.K. Lahiri, Mr. Gopal Jain, Ms. Ruby Ahuja, Mr. S.V. Doijode, Mr. Parag Kabadi and Ms. Priyanka C. Kothari i/b Doijode Associates for the Petitioners. Dr. Virendra Tulzapurkar, Senior Advocate with Mr. Virag Tulzapurkar, Senior Advocate, Mr. Vikram Trivedi, Mr. Gaurav Pachnanda, Mr. Sachin Chandarana, Mr. Mayur Bhojwani and Ms. Shilpa Joshi i/b M/s. Manilal Kher Ambalal & Co. for the Respondent. ..... CORAM : DR.D.Y.CHANDRACHUD, J. 18 November 2010. ORAL JUDGMENT : 1. This Petition under Section 34 of the Arbitration and Conciliation Act 1996 raises a challenge to a procedural order of 13 May 2010 of an arbitral tribunal constituted in pursuance of an order passed by a designated Judge of the Supreme Court under Section 11(6). PNP 2 ARP1097-18.11 2. On 15 December 2000 a shareholders agreement was entered ’ into between the First Petitioner, the Respondent and the predecessor of the Second Petitioner. On 31 January 2006 a notice of termination was served by the First Petitioner on the ground that there was a breach of the shareholders agreement arising out of the Respondent ’ having applied for a United Access Service Licence for Mumbai Metro Circle in violation of the provisions of Article 3.04(b). This was followed on 27 November 2006 by a second notice by the First Petitioner seeking to terminate the agreement on the ground that there was a breach of the confidentiality clause of the shareholders’ agreement. On 5 May 2006 the First Petitioner issued a formal notice invoking the arbitration agreement between the parties under Section 21 of the Arbitration and Conciliation Act 1996. On 1 June 2006 two share purchase agreements were executed between the parties in pursuance of which certain shares of the Petitioners came to be sold to the Respondent though without prejudice to the contentions of either party with reference to the termination notices and the rights which had accrued under the shareholders agreement. The ’ contention of the Respondent on an application under Section 11(6) being moved was that there was no live dispute that would survive between the parties in view of the share purchase agreements dated 1 June 2006. Proceedings initiated before this Court under Section 11(6) were withdrawn in view of the contention of the Respondent that the presence of a foreign party would implicate an international commercial arbitration and that it would be only the Chief Justice of PNP 3 ARP1097-18.11 India who would have powers to constitute an arbitral tribunal under Section 11(12). 3. On 9 July 2008 a designated Learned Judge of the Supreme Court, in exercise of the jurisdiction under Section 11(12) rejected the contention of the Respondent that there was no live dispute that would survive as between the parties. A live dispute was found to exist and accordingly the application was disposed of by constituting an arbitral tribunal consisting of Dr. Justice A.S. Anand, Former Chief Justice of India, Mr. Justice Arun Kumar and Mr. Justice P. K. Balsubramanyan, Former Judges of the Supreme Court. The decision is reported in Tata Industries Limited v. Grasim Industries Limited1. 4. On 5 August 2008 the Respondent issued a notice to the Petitioners alleging a breach of the shareholders agreement and ’ thereafter filed a counter claim before the arbitral tribunal. The Petitioners moved an application inter alia under Sections 16(3) and 19(3) by which the Tribunal was requested to decide as a preliminary issue as to whether the counter claims of the Respondent were maintainable. By its procedural order dated 13 May 2010 the arbitral tribunal has held that the Respondent is entitled to file a counter claim. The Tribunal found no merit in the application seeking the rejection of the counter claim and came to the conclusion that the 1 (2008) 10 SCC 187. PNP 4 ARP1097-18.11 counter claim would have to be decided on merits after evidence was taken. The Tribunal has, however, clarified that the observations contained in the procedural order are confined to the disposal of the application filed by the Petitioners questioning the maintainability of the counter claim. 5. The procedural order of the Tribunal is assailed under Section 34 and the contention of the Petitioner is that the order amounts to an adjudication which will fall within the definition of the expression arbitral award within the meaning of Section 2(c). The “ ” maintainability of the Petition has been questioned on behalf of the Respondent on the ground that the ruling by the Tribunal holding that it has jurisdiction to entertain the counter claim cannot be questioned at this stage and that having regard to the scheme envisaged in Section 16, the Tribunal having taken a decision to reject the plea would have to continue with the arbitral proceedings and make an arbitral award. A party aggrieved by the arbitral award would be entitled to move an application for setting aside the award once a final award is made under Section 34. 6. The submissions which have been urged on behalf of the Petitioner are that - (i) After the decision of the Supreme Court in SPB and Company v. Patel Engineering Ltd.2, when a designated Judge appoints a 2 (2005) 8 SCC 618. PNP 5 ARP1097-18.11 tribunal only those disputes which are referred to in the notice under Section 21 can proceed to arbitration. There is no right inhering in the Respondent to file a counter claim in an ad hoc arbitration (as distinguished from an institutional arbitration) and unless the Respondent has issued a notice of request under Section 21, he would be precluded from raising a counter claim; (ii) In the present case the Respondent had consistently opposed the application under Section 11(6) on the ground that there was no live dispute that survived as between the parties, as a result of which the constitution of the arbitratral tribunal was delayed until the order of the designated Learned Judge of the Supreme Court under Section 11(6) of 9 July 2008. The Respondent is consequently barred from raising the counter claim on the principles of res judicata; election of remedies and on the basis that a party cannot be allowed to approbate and reprobate; (iii) The decision of the arbitral tribunal is a decision on merits which can consequently be questioned only in a petition under Section 34. Reliance has been placed on the judgment of the Supreme Court in National Thermal Power Corporation Limited V. Siemens Atkeingesellschaft3 7. On the other, counsel appearing on behalf of the Respondent 3 (2007) 4 SCC 451. PNP 6 ARP1097-18.11 submitted that - (i) There is no award of the arbitral tribunal at this stage which can be questioned under Section 34 and the procedural order merely holds that the Respondent is entitled to file a counter claim. All that the Tribunal has done is to reject an application seeking the dismissal of the counter claim at the threshold as being not maintainable; (ii) The application filed by the Petitioners before the arbitral tribunal raised an issue of a threshold bar to the maintainability of the counter claim. The question which was placed in issue before the Tribunal was that it had no jurisdiction to entertain the counter claim and the application itself was inter alia founded on the basis of the provisions of Section 16(3). A decision to entertain a counter claim cannot be regarded as a question determining the merits of the counter claim; (iii)If the Tribunal were to hold that it had no jurisdiction, while deciding the application under Section 16 the remedy of the Respondent would have been an appeal under Section 37. Conversely a decision of the Tribunal that it has jurisdiction must, in view of the statutory scheme lead to further proceedings before the arbitral tribunal and it is only when a final award is delivered by the Tribunal that the provisions of Section 34 can be invoked. PNP 7 ARP1097-18.11 8. While considering the merits of the rival contentions, it would be appropriate to advert to the application that was filed by the Petitioners before the arbitral tribunal. The application before the arbitral tribunal has been inter alia founded on Sections 16(3) and 19 (3). The Petitioners sought a decision of the arbitral tribunal on the “ maintainability of the Respondent s counter claims at this preliminary ’ juncture since the entire scope of Affidavit Evidence / Evidence to be led by the parties is wholly dependent on such decision.”4 According to the petitioners it was the contention of the Respondent all along that all disputes between the parties had come to an end and there were no live disputes that had remained. For this reason the Petitioners submitted that there is a threshold bar on the Respondent “ raising any claims in the present proceedings or in any other manner against the Claimants.”5 Paragraphs 15, 18 and 20 make it abundantly clear that the Petitioners sought the rejection of the counter claim at the very threshold. The averments in those paragraphs are as follows: 15. “ The Claimants state that the sequence of events summarized in the chronology above clearly indicates that this Hon’ble Tribunal was constituted to only arbitrate upon the claims of the Claimants. There is, therefore, a complete threshold bar against the Respondent instituting any Counterclaim. ..... 4 page 469 Paragraph 1. 5 page 470 Paragraph 4 PNP 8 ARP1097-18.11 18. ..... If the Claimants succeed in this Application, the purported Counterclaim must be rejected at the very threshold. This will save considerable valuable time of this Hon’ble Tribunal and as parties will lead evidence and file documents only qua the claims. An order to this effect is therefore, just, necessary and appropriate for a proper conduct of these Arbitral Proceedings. .... 20. The Claimants state that they have been constrained to file the present application at this juncture so that the valuable time of this Hon’ble Tribunal and time, energy and money of the parties are not expended on dealing with matters beyond the scope of the reference/ authority and also to enable this Hon’ble Tribunal to streamline the procedure, particularly insofar as the filing of Affidavit Evidence / leading Evidence is concerned.” 9. It was on this foundation that the Petitioners sought a determination by the Tribunal, as a preliminary issue, of whether the counter claims are at all maintainable and if they are not maintainable, a rejection by the Tribunal. 10. The Tribunal in the course of its procedural order construed the application filed by the Petitioners as an application questioning the maintainability of the counter claim on the basis that the Tribunal lacked jurisdiction for entertaining it. This is how the Tribunal construed the scope of the application in the following observations : It is in the context of the counter-claim raised by the “ respondent that the claimant has made the present application seeking an adjudication on the maintainability of the counter- PNP 9 ARP1097-18.11 claim on the broad basis that this tribunal lacks jurisdiction to entertain the counter-claim and that the respondent had disabled itself by its conduct from raising the counter-claim” 11. The Tribunal observed that it was not the contention of the Petitioners that the counter claim was not within the purview of the arbitration clause of the shareholders agreement or that there was no ’ arbitrable dispute. The conclusion which has been arrived at by the Tribunal while disposing of the application is as follows : We, therefore, hold that the respondent is entitled to file a “ counter-claim before us and the counter-claim it has filed has to be decided on merits after evidence is taken. We. therefore, find no merit in this application seeking the rejection of the counter- claim at the threshold as not maintainable.” 12. The conclusion of the Tribunal leaves no manner of doubt that all that the Tribunal has held is that the Respondent is entitled to file the counter claim. There is no determination on the merits of the counter claim by the Tribunal. The Tribunal has clarified that the merits of the counter claim would be determined after the evidence is taken. This is also evident from the observation of the Tribunal that all contents of its procedural order are confined to the disposal of the application filed by the Petitioners as referred to in the opening part of the order : Having said as above, it is emphasized that the “ observations made in this order shall not be construed as any expression of opinion on the merits of the Arbitral Case set up by either of the parties. The observations PNP 10 ARP1097-18.11 have been made only to consider and dispose of the application filed by the Claimant, as referred to in the opening part of this Order.” 13. In the opening part of the order the Tribunal has noted that the order disposes of an application questioning the maintainability of the counter claim. Evidently the jurisdiction of the Tribunal to entertain the counter claim was questioned. The Tribunal has decided upon its jurisdiction by holding that it is not precluded from considering the counter claim and that the Respondent was entitled to raise a counter claim before it. A determination by an arbitral tribunal on an issue of jurisdiction falls within the purview of Section 16. Under that provision the arbitral tribunal is entitled to rule on its jurisdiction including a ruling on any objections relating to the existence or validity of an arbitration agreement. Under sub section (5) of Section 16 where the arbitral tribunal takes a decision rejecting the plea that it has no jurisdiction, it must continue with the arbitral proceedings and make an arbitral award. Thereupon under sub section (6) a party aggrieved by the arbitral award may make an application for setting aside an arbitral award in accordance with Section 34. The Act clearly does not contemplate judicial interference at the stage when arbitral proceedings are pending upon a determination made by the Tribunal that it does not lack jurisdiction. The Court is bound to implement the policy and the provisions of the law. Section 5 mandates that notwithstanding anything contained in any other law PNP 11 ARP1097-18.11 for the time being in force, in matters governed by Part I, no judicial authority shall intervene except as provided in the Part. Where the Tribunal has held that it lacks jurisdiction as for instance when it accepts a plea under sub section (2) of Section 16, an appeal lies against such an order under sub section (2) of Section 37. That is simply because an order of the Tribunal holding that it lacks jurisdiction brings an end to proceedings before the Tribunal against which a remedy of an appeal is created by the legislature. A finding by the Tribunal that it does not lack jurisdiction contrariwise does not bring to an end the conduct of the arbitral proceedings. The policy of the legislature is to minimalize judicial intervention in arbitral proceedings and to confine intervention into an exceptional category of cases stipulated in the legislation. The discipline of the Act must be observed by Courts. Excessive intervention in arbitral proceedings is liable to render the object and purpose of facilitating arbitration as an effective form of alternate dispute resolution in commercial disputes nugatory. The role of the Court when it enters into the arena of commercial disputes must be to facilitate an efficacious and expeditious determination of disputes. Both the sense of expedition and efficacy would be lost if the Court were to accept a plea of the nature that has been raised by the Petitioners. 14. The judgment of the Supreme Court in National Thermal Power Corporation (supra) dealt with a case where an arbitral proceeding took place before the ICC Court of Arbitration. The claims PNP 12 ARP1097-18.11 which were raised by the Respondent related to compensation on account of delay on the part of NTPC in procuring import licences and belatedly opening letters of credit. Besides filing a defence to the claims of the Respondent, NTPC filed several counter claims. The arbitral tribunal rendered a partial award inter alia holding that the claims of NTPC were not admissible on the ground that they had been resolved and settled in terms of a meeting which was held between the parties. NTPC moved the Delhi High Court in an appeal under Section 37. The High Court held that the provisions of Section 37 could not be validly invoked inasmuch as the Tribunal had not come to the conclusion that it lacked jurisdiction. The judgment of the Supreme Court which affirmed the judgment of the Delhi High Court ruled that the decision of the Tribunal was one that was rendered on merits upon which the Tribunal disposed of the counter claim while rendering a partial award. Since the decision of the Tribunal was one on merits, an appeal under Section 37 was not maintainable. This is evident from the observations contained in the judgment of Mr. Justice A.K. Mathur which are as follows : In view of the finding of fact recorded by the Tribunal that all “ the counterclaims stood covered by the decisions of the minutes of meeting, though it was initially opposed by the respondent SAG that it was not arbitrable or the Tribunal could not go into counterclaim, despite that it examined on the merit of the matter and on the merits the Tribunal disposed of the counterclaim by giving partial award. We fail to understand how can the appellant NTPC raise the question of jurisdiction and bring its case under Sections 16(2) and (3).” PNP 13 ARP1097-18.11 In a concurring judgment Mr. Justice Balasubramanyan held thus : In a case where a counterclaim is referred to and dealt with “ and a plea that the counterclaim does not survive in view of the settlement of disputes between the parties earlier arrived at is accepted, it could not be held to be a case of refusal to exercise jurisdiction by the Arbitral Tribunal. Same is the position when an Arbitral Tribunal finds that a claim was dead and was not available to be made at the relevant time or that the claim was not maintainable for other valid reasons or that the claim was barred by limitation. They are all adjudications by the Tribunal on the merits of the claim and in such a case the aggrieved party can have recourse only to Section 34 of the Act and will have to succeed on establishing any of the grounds available under that provision.” 15. In the case before the Supreme Court there was a determination on merits by the arbitral tribunal when it rendered a partial award. In contradistinction when there is clearly no determination on merits in the present case, all that the Tribunal has held is that the Respondent was entitled to raise a counter claim. The merits will await, as the Tribunal noted an adjudication after evidence is adduced. Hence, having regard to the discipline legislated upon by the provisions of Section 16 of the Arbitration and Conciliation Act 1996, the procedural order of the Tribunal holding in essence that it had jurisdiction to entertain the counter claim of the Respondent cannot be questioned at this stage. Consistent with the provisions of sub section (5) of Section 16, the Tribunal would have to continue with the arbitral proceedings and make an arbitral award and the party PNP 14 ARP1097-18.11 aggrieved by the arbitral award would be entitled to move an application for setting aside the award under Section 34. At this stage, the interference of the Court is not warranted. For the reasons aforesaid, there is no merit in the Arbitration Petition. The Petition is dismissed only on the ground as aforesaid. (Dr. D.Y. Chandrachud, J.)