PETROLEUM CORPORATION LIMITED versus GO AIRLINES (INDIA) LIMITED
[2019] 13 S.C.R. 1044, Supreme Court of India, 2019
Outcome: Dismissed (Dismissed)
Segment: Issues
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BHARAT PETROLEUM CORPORATION LIMITED
v.
GO AIRLINES (INDIA) LIMITED
(Civil Appeal No. 8227 of 2019)
OCTOBER 23, 2019
[R. BANUMATHI, A. S. BOPANNA AND
HRISHIKESH ROY, JJ.]
Arbitration and Conciliation Act, 1996 – ss.16, 37 – Counter
claims raised by the respondent, whether beyond the scope of
reference to arbitration – Under the Agreement dtd. 01.01.07 for
Aviation Fuel Supply, the appellant was to supply aviation fuel to
the respondent – Initially, agreement was  for the period from
01.01.07 to 31.03.09– Second Aviation Fuel Supply agreement dtd.
01.04.09 was from 01.04.09 to 31.03.11 – Dispute arose between
the parties when the appellant raised claim for interest for the
delayed payments of the fuel supplied during the period from
01.04.09 to 31.03.11 – Respondent did not accept any amount
payable towards interest –Appellant vide notice dtd. 25.03.10
invoked arbitration clause – Agreed by the respondent vide letter
dtd. 27.04.10 – Appellant raised claim for Rs.1,95,21,032/- with
interest @ 18% p.a. from the date of presentation of the claim till
payment and/or realization – Denying the claims, the respondent
also raised two counter claims and sought award directing the
appellant to issue CENVAT invoices in its favour for the aviation
fuel supplied under the agreement – Appellant also filed application
u/s.16 – Allowed by the Arbitrator– High Court allowed the appeal
by the respondent – Held: Merely because the
respondent did not
specify the nature of claims against BPCL in the letter dtd. 27.04.10,
may not be a ground to reject the counter claim of CENVAT invoices
at the threshold – Questions whether the issue regarding CENVAT
invoices was outside the terms of agreement or whether CENVAT
invoices relates to the agreement dtd. 01.01.07 and 01.04.09; whether
it is arbitrable and falls beyond the scope of reference to arbitration
and such other related questions, are to be determined only during
the enquiry – After enquiry, the Arbitrator might reject the counter
claim for CENVAT invoices as not arbitrable and the counter claim
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beyond the scope of reference to arbitration, but to reject the counter
claim at the threshold on the ground that the Arbitrator has no
jurisdiction would not be proper – High Court rightly set aside the
order of the Arbitrator – Judgment of the High Court, affirmed –
However, observations of the High Court in the impugned order in
para no.(10) as to the availability of CENVAT credit allegedly
specified in the 2004 Rules may not be considered as expression of
opinion on the merits of the matter – Arbitrator to proceed with the
matter on its own merits and in accordance with law – CENVAT
Credit Rules, 2004.
Dismissing the appeal, the Court
HELD: 1.1 Clause 12 provides for reference of dispute to
an Arbitrator nominated by mutual consent. If the parties fail to
decide the Arbitrator by mutual consent, each party will nominate
an Arbitrator of their choice and the Arbitrators so nominated
shall choose the third Arbitrator. Merely because the respondent
did not specify the nature of claims against BPCL in the letter
dated 27.04.2010, that may not be a ground to reject the counter
claim of CENVAT invoices at the threshold. Whether the counter
claim regarding CENVAT invoices is outside the terms of
arbitration agreement and whether it is arbitrable or outside the
scope of reference to arbitration could be seen only after enquiry
by the learned Arbitrator. [Para 19][1053-A-D]
1.2 The questions whether the issue regarding CENVAT
invoices was outside the terms of
agreement or whether CENVAT
invoices relates to the agreement dated 01.01.2007 and
01.04.2009 and whether it is arbitrable and whether it falls beyond
the scope of reference to arbitration and such other related
questions, are to be determined only during the enquiry. It may
be that after enquiry, the Arbitrator might reject the counter claim
for CENVAT invoices as not arbitrable and the counter claim
beyond the scope of reference to arbitration. But to reject the
counter claim at the threshold on the ground that the Arbitrator
has no jurisdiction would not be proper. The High Court, in our
view, has rightly set aside the order of the learned Arbitrator
dated 18.04.2011. The parties have inter alia raised various
contentions. Not inclined to consider those contentions at this
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stage. Lest, expressing any opinion on such contentions might
prejudicially affect the parties either in the proceedings before
the Arbitrator or any other proceedings that may be initiated by
the parties.  In the result, the impugned judgment of the High
Court of Bombay dated 07.12.2011 in Arbitration Appeal
(Lodging) No.14228 of 2011 is affirmed.  The observations of the
High Court in the impugned order in para No. (10) as to the
availability of CENVAT credit allegedly specified in the CENVAT
Rules, 2004 may not be considered as expression of opinion on
the merits of the matter. The learned Arbitrator shall proceed
with the matter on its own merits and in accordance with law.
[Paras 23-25][1055-C-G]
State of Goa v. Praveen Enterprises (2012) 12 SCC
581 : [2011] 10 SCR 1026 - referred to.
Case Law Reference
[2011] 10 SCR 1026
referred to
Para 21
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8227
2019.
From the Judgement and Order 07.12.2011 of the High Court of
Judicature at Bombay in Arbitration Appeal (Lodging) No. 14228 of
2011.
S. Guru Krishnakumar, Sr. Adv., Parijat Sinha, Ms. Reshmi Rea
Sinha, S. C. Ghosh, Rudra Dutta, Arindam Ghosh,  Advs. for the
Appellant.
Ritin Rai, Sr. Adv., Debmalya Banerjee, A. S. Aman, Kartik
Bhatnagar, Manish Sharma, Vardaan Wanchoo, Ujjwal Singh, M/S.
Karanjawala & Co.,  Advs. for the Respondent.
The Judgement of the Court was delivered by
R. BANUMATHI, J.
1. Leave granted.
2.
This appeal arises out of the judgment dated 07.12.2011 passed
by the High Court of Bombay in Arbitration Appeal (Lodging) No.14228
of 2011 in and by which the High Court allowed the appeal filed by the
respondent-Go Airlines by holding that the Arbitrator has the jurisdiction
to consider the counter claim relating to CENVAT credit thereby setting
aside the order passed by the Arbitrator.
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3. Brief facts which led to filing of this appeal are as under:-
An Agreement for Aviation Fuel Supply dated 01.01.2007 was
entered into between the parties under which the appellant-Bharat
Petroleum Corporation Limited (BPCL) was to supply and sale of Aviation
fuel to the respondent-Go Airlines (India) Limited. Initially, the agreement
was entered into for the period from 01.01.2007 to 31.03.2009. By virtue
of the second agreement dated 01.04.2009, another Aviation Fuel Supply
Agreement was entered into between the appellant and the respondent
for the period from 01.04.2009 to 31.03.2011. On 06.07.2009, the appellant
issued letter to the respondent along with the statement giving details of
invoices and requesting inter alia that the payment of outstanding dues
as well as the interest amount of Rs.1.45 crores be released immediately.
In reply to the said letter, the respondent by its e-mail dated 06.07.2009
stated inter alia that the outstanding interest was Rs.1.41 crores and
not Rs.1.45 crores as mentioned in the said letter dated 06.07.2009. As
the payments were not made, the appellant-BPCL put the respondent-
Airlines on “Cash and Carry” terms on account of default in making
payment for supply of fuel and interest on delayed payment.
4. Dispute arose between the parties when the appellant raised a
claim for interest for the delayed payments of the fuel supplied during
the period from 01.04.2009 to 31.03.2011. The respondent did not accept
any amount
payable towards interest. Since the dispute in respect of the
liability and payment of interest on delayed payment could not be resolved
through mutual correspondence between the parties, the appellant vide
its notice dated 25.03.2010 invoked arbitration clause i.e. Clause No.12
of the agreement dated 01.01.2007 suggesting the name of Mrs. Justice
(Retd.) Sujatha Manohar as the sole Arbitrator. The respondent vide its
letter dated 27.04.2010 agreed to the dispute being referred for arbitration
and accepted Mrs. Justice (Retd.) Sujatha Manohar as the Arbitrator.
In the said letter, respondent stated that they are sure that the learned
Arbitrator would be able to adjudicate the issues appropriately considering
the respondent’s various claims against appellant-BPCL. The appellant
raised a claim for an aggregate sum of Rs.1,95,21,032/- with interest at
the rate of 18% per annum from the date of presentation of the said
claim till payment and/or realization.
5. The respondent filed its statement of defence denying the claims
made by the appellant and it also raised two counter claims before the
Arbitrator seeking an award directing the appellant to issue CENVAT
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invoices in favour of the respondent in respect of the Aviation fuel supplied
under the agreement; in the alternative prayed for an award for a sum
of Rs.11,60,44,466/- plus Rs.4,31,45,967/- being interest, as well as further
interest on the principal amount computed at the rate of 15% per annum
with effect from 01.10.2009 till payment. In its second claim, the
respondent demanded damages for alleged imposition of “Cash and
Credit” terms by the appellant with effect from 04.07.2009 when the
appellant refused to supply the Aviation fuel to the respondent except on
“Cash and Credit” terms.
6. The appellant filed its reply to the respondent’s counter claim
denying the claim of the respondent and inter alia stated that the counter
claim filed by the respondent was beyond the scope and jurisdiction of
the Arbitrator. It was stated that there was no dispute existing between
the parties in respect of the alleged obligation to supply CENVAT invoices
prior to commencement of the arbitration as it was never asked for by
the respondent-Go Airlines. The appellant averred that the respondent
had demanded CENVAT invoices from the appellant for the supplies
made from the year 2005 onwards for the first time by its letter only on
05.05.2010 i.e. after the commencement of the present arbitration. The
appellant averred that the respondent never asked for CENVAT invoices
during the subsistence of the said agreement and that the
counter claim
raised by the respondent was an afterthought.
7. The appellant also filed an application under Section 16 of the
Arbitration and Conciliation Act, 1996 inter alia submitting that the counter
claim filed by the respondent was beyond the scope and jurisdiction of
the Arbitrator and that the respondent demanded the CENVAT invoices
from the appellant for the supplies made from the year 2005 onwards
for the first time only by letter dated 05.05.2010 i.e. after the
commencement of the arbitration. The respondent filed its reply to the
said application filed under Section 16 of the Act inter alia stating that
the counter claim filed by the respondent was well within the scope and
jurisdiction of the Arbitrator.
8. The learned Arbitrator vide order dated 18.04.2011 allowed
the application filed by the appellant under Section 16 of the Act inter
alia holding that the counter claim relating to CENVAT invoices is beyond
the scope and jurisdiction of the Arbitrator and rejected that part of the
counter claim. Insofar as the counter claim of the respondent praying
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for damages for the alleged imposition of “Cash and Credit”, the learned
Arbitrator held that the same is maintainable before the Arbitrator.
9. Being  aggrieved  by  the  order  of  the  Arbitrator dated
18.04.2011, the respondent filed appeal before the High Court of Bombay
under Section 37 of the Act. The High Court vide impugned judgment
dated 07.02.2011 allowed the appeal preferred by the respondent and
set aside the order of the Arbitrator dated 18.04.2011 by holding that the
Arbitrator has jurisdiction to entertain the counter claim filed by the
respondent relating to non-furnishing of invoices for CENVAT credit.
Insofar as the observations of the Arbitrator, the High Court held that
the learned Arbitrator may be well within the rights to reject the counter
claim on merits after the parties put forth their case. The High Court
however held that the rejection of the counter claim at the threshold,
was not justified in view of the arbitration agreement between the parties.
Being aggrieved, the appellant-BPCL has filed this appeal.
10. Mr. S. Guru Krishnakumar, learned Senior counsel appearing
for the appellant has submitted that as per the arbitration clause in the
agreement dated 01.01.2007, the Arbitrator could adjudicate disputes
arising out of the terms and conditions of the agreement and the counter
claim raised by the respondent in an arbitration proceeding does not
arise from the terms and conditions of the contract/agreement under
which the
Arbitrator has been appointed. It was submitted that under
Section 16 of the Act, the Arbitrator can refuse to entertain the said
counter claim even at the time of filing of such counter claim on the
ground that the same is beyond the jurisdiction and the findings arrived
at by the learned Arbitrator is a possible view and the High Court ought
not to have substituted its own view in the place of the finding arrived at
by the Arbitrator. The learned Senior counsel further submitted that the
levy of service tax on domestic air travel was introduced by the Finance
Act, 2010 (w.e.f. 01.04.2010) and on economy class from 01.07.2010
and in any event, the need for issuance of CENVAT credit invoices
arises only after 01.04.2010 and as such, the said counter claim could
not be considered under Clause 7(ii) of the said agreement which expired
on 31.03.2009. The learned Senior counsel further submitted that since
the respondent was not liable to pay service tax on domestic air travel
prior to 01.04.2010, there was no requirement for issuance of CENVAT
credit invoices. It was submitted that at no point of time before the
commencement of the arbitration proceeding, the respondent ever claimed
BHARAT PETROLEUM CORPORATION LIMITED v.
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furnishing of CENVAT invoices and the learned Arbitrator rightly held
that the counter claim is beyond the specific reference to the Arbitral
Tribunal and the High Court erred in substituting its view with the findings
of the learned Arbitrator which is in contravention of the settled position.
11. Per contra, Mr. Ritin Rai, learned Senior counsel appearing
for the respondent submitted that the counter claim raised by the
respondent in respect to issuance of CENVAT invoices by the appellant
falls within the terms of the agreement dated 01.01.2007 and the second
agreement dated 01.04.2009 entered into between the appellant and the
respondent for supply of Aviation fuel. Taking us through the clauses of
the agreement, the learned Senior counsel submitted that as per Clause
7(ii) of the agreement dated 01.01.2007, the appellant-BPCL was duty
bound to provide invoices to the respondent-Company including those
for taxes and duties as applicable on the date of supply of Aviation fuel.
The learned Senior counsel further submitted that even assuming, though
not admitting, that such liability to issue CENVAT invoices does not directly
arise out of the Clause 7(ii) of the agreement dated 01.01.2007,
considering the business efficacy, the same is to be held as an “implied
term of the contract” and the appellant-Company was under a duty to
issue CENVAT invoices pertaining to all taxes and duties as applicable.
12. The learned
Senior counsel for the respondent further
contended that the question whether or not the counter claim raised by
the respondent-Company falls within the scope of the agreement entered
into between the parties or within the terms of reference is a question of
fact and the same could be decided by the learned Arbitrator after due
enquiry and the learned Arbitrator was not right in rejecting the counter
claim at the threshold which is not in accordance with the settled position
of law.
13. We have carefully considered the rival contentions and perused
the impugned judgment and materials on record. The points falling for
consideration are whether the counter claim regarding CENVAT invoices
was beyond the scope of reference to arbitration and whether the High
Court was right in holding that the learned Arbitrator had jurisdiction to
consider the counter claim regarding CENVAT invoices raised by the
respondent.
14. Relevant facts are not in dispute. Admittedly, there is Aviation
Fuel Supply Agreement dated 01.01.2007 (for the period from 01.01.2007
to 31.03.2008) and another Fuel Supply Agreement dated 01.04.2009
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(for the period from 01.04.2009 to 31.03.2011). Dispute arose between
the parties relating to payment and interest payable on the delayed
payment. The appellant sent notice dated 25.03.2010 suggesting the
appointment of Arbitrator Mrs. Justice Sujatha Manohar. The respondent
sent the reply dated 27.04.2010 whilst accepting the appellant’s suggestion
has recorded that “….we are sure that she would be able to adjudicate
the issues appropriately considering our various claims against
BPCL”. According to the respondent, they have accepted the nomination
of a Single Arbitrator conditional that the Arbitrator would also adjudicate
its counter claim against the appellant. According to the respondent, in
their reply dated 27.04.2010, they have laid the basis for making the
counter claim though they have not specifically stated about CENVAT
invoices. Once a claim is made, the defendant has a right to make a
counter claim. The respondent relies upon clause 7(ii) of the agreement
in the counter claim of CENVAT invoices. Whether or not the counter
claim is part of the reference and whether it is arbitrable and whether
the dispute are traceable to contractual rights or obligations or wholly
outside the contract could be determined only after the enquiry by the
Arbitrator.
15. Contention of the respondent is that as per Clause 7(ii) of the
agreement, the appellant was required to issue CENVAT invoices
pursuant to supply of Aviation fuel under the agreement and the
appellant
did not do so and therefore, issuance of CENVAT invoices and dispute
between the parties relating to the terms and conditions set forth in the
agreement and consequently, the Tribunal has the jurisdiction to adjudicate
upon the same.
16. Clause 7(ii) of the agreement requires issuance of taxes invoices
by the appellant. Clause 7 of the agreement reads as under:-
“7. Invoicing and Payment Terms:
i.
Seller shall invoice Buyer for the fuel deliveries (Jet A-1);
ii. Invoices in Indian Rupees containing the date of delivery,
locations, Aircraft Registration No., Grade, Quantity of
Fuel, Unit Price, taxes and duties (applicable on the date
of delivery) with delivery ticket attached shall be submitted
to Buyer’s local office/designated bank for payment/
factoring in full. Cost of factoring & insurance shall be
borne by Go Air.
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iii. Seller will invoice the Buyer as per the following periodicity,
to the designated persons/address:-
Billing period
Date of Credit into BPC A/c by Bank
1st to 7th
16th
8th to 15th
23rd
16th to 23rd
30th/31st
24th to month end
8th (next month)
In case the above dates are weekend or holidays payment
will be made on the next working day.
iv. In case of any delay in payment beyond due date, the
outstanding amount will attract interest at PLR plus 2%.
v. In case Bank limits get choked, payment shall be made by
due dates directly by Go Air.
vi. In case the factoring limit remains choked, exposure would
need to be covered with adequate BG, in absence of which
would be constrained to review the discount arrangements
& payments terms.
17. Contention of the learned Senior counsel for the respondent is
that Clause 7(ii) of the agreement requires issuance of invoices inter
alia the invoices of taxes and duties available on the date of delivery.
According to the respondent, the request for issuance of CENVAT
invoices were in the nature of oral requests/demands which were made
by the respondent’s representative during the course of the discussion
and despite such requests, CENVAT invoices were not issued and
therefore, there is a “dispute” between the parties relating to the terms
and conditions set forth in the agreement.
18. Case of the appellant is that the counter claim regarding
CENVAT credit is beyond the scope of
reference to arbitration and is
not expressly covered under the terms and conditions of the agreement
nor impliedly arising under the agreement dated 01.01.2007. It is submitted
that in response to the said notice dated 25.03.2010-for appointment of
Arbitrator, the respondent sent the reply on 27.04.2010 accepting the
Arbitrator and stating that the Arbitrator would be able to adjudicate the
respondent’s various claims against BPCL and in the said reply, the
respondent has not specifically raised the plea of CENVAT invoices.
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19. Clause 12 of the agreement dated 01.01.2007 deals with the
arbitration clause. Clause 12 provides for reference of dispute to an
Arbitrator nominated by mutual consent. If the parties fail to decide the
Arbitrator by mutual consent, each party will nominate an Arbitrator of
their choice and the Arbitrators so nominated shall choose the third
Arbitrator. As rightly contended by the learned Senior counsel for the
respondent, in response to the notice dated 25.03.2010 issued by the
appellant suggesting the appointment of Mrs. Justice Sujatha Manohar
as Arbitrator, the respondent accepted the same by expressing hope
“that she would be able to adjudicate the issues appropriately
considering our claims against BPCL”. Merely because the
respondent did not specify the nature of claims against BPCL in the
letter dated 27.04.2010, that may not be a ground to reject the counter
claim of CENVAT invoices at the threshold. Whether the counter claim
regarding CENVAT invoices is outside the terms of arbitration agreement
and whether it is arbitrable or outside the scope of reference to arbitration
could be seen only after enquiry by the learned Arbitrator.
20. Taking us through the relevant materials, the learned Senior
counsel for the appellant made earnest submissions that before
05.05.2010, the respondent did not make any claim of CENVAT invoices
and only for the first time on 05.05.2010 that is after the commencement
of the arbitration proceeding, the respondent
called upon the claimant to
issue CENVAT invoices. According to the appellant, as per the terms of
the agreement, the appellant was not bound to issue CENVAT invoices
to the respondent and levy of service tax on domestic air travel came
into force only by the Finance Act, 2010 and therefore, the learned
Arbitrator has rightly held that the counter claim is beyond the specific
reference and would not fall within the jurisdiction of the Arbitrator.
21. The learned Senior counsel for the appellant submitted that
when the jurisdiction of the Arbitrator is circumscribed by specific
reference, the Arbitrator can decide only those specific disputes. In
support of this contention, the learned Senior counsel placed reliance
upon State of Goa v. Praveen Enterprises (2012) 12 SCC 581, in
which it was held as under:-
“11. 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
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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.”
22. The learned Senior counsel for the respondent contended that
Clause 7(ii) of the agreement requires the invoices issued by the
respondent to contain inter alia the taxes and duties and this has been
refused by the appellant and therefore, there is a dispute between the
parties relating to the agreement and the learned Arbitrator ought not to
have rejected the counter claim at the threshold by holding that the counter
claim is outside the jurisdiction of the Arbitrator. In this regard, the learned
Senior counsel for the respondent also placed reliance upon Praveen
Enterprises in which it was held as under:-
“27. Similarly, Section 23 read with Section 2(9) makes it clear
that a respondent is entitled to raise a counter claim “unless the
parties have otherwise agreed” and also add to or amend the
counter
claim, “unless otherwise agreed”. In short, unless the
arbitration agreement requires the arbitrator to decide only the
specifically referred disputes, the respondent can file counter
claims and amend or add to the same, except where the arbitration
agreement restricts the arbitration to only those disputes which
are specifically referred to arbitration, both the claimant and the
respondent are entitled to make any claims or counter claims and
further entitled to add to or amend such claims and counter claims
provided they are arbitrable and within limitation.
………
29. 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.
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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 basis. Equally baseless is the
assumption that where one party filed an application under Section
11 and gets an arbitrator appointed the arbitrator can decide only
the disputes raised by the applicant under Section 11 of the Act
and not the counter claims of the respondent.”
23. The questions whether the issue regarding CENVAT invoices
was outside the terms of agreement or whether CENVAT invoices relates
to the agreement dated 01.01.2007 and 01.04.2009 and whether it is
arbitrable and whether it falls beyond the scope of reference to arbitration
and such other related questions, are to be determined only during the
enquiry. It may be that after enquiry, the Arbitrator might reject the
counter claim for CENVAT invoices as not arbitrable and the counter
claim beyond the scope of reference to arbitration. But to reject the
counter claim at the threshold on the ground that the Arbitrator has no
jurisdiction would not be proper. The High Court, in our view, has rightly
set aside the order of the learned Arbitrator dated 18.04.2011.
24. The learned Senior counsel appearing for the parties have
inter alia raised various contentions. We are not inclined to consider
those contentions at this stage. Lest, expressing any opinion on such
contentions might prejudicially affect the parties either in the proceedings
before the Arbitrator or any other proceedings that may be initiated by
the parties.
25. In the result, the impugned judgment of the High Court of
Bombay dated 07.12.2011 in Arbitration Appeal (Lodging) No.14228 of
2011 is affirmed and this appeal is dismissed. The observations of the
High Court in the impugned order in para No. (10) as to the availability
of CENVAT credit allegedly specified in the CENVAT Rules, 2004 may
not be considered as expression of opinion on the merits of the matter.
The learned Arbitrator shall proceed with the matter on its own merits
and in accordance with law. No costs.
Divya Pandey.
Appeal dismissed.
BHARAT PETROLEUM CORPORATION LIMITED v.
GO AIRLINES (INDIA) LIMITED [R. BANUMATHI, J.]