Case: BHARAT PETROLEUM CORP. LTD Vs. GO AIRLINES(INDIA) LTD

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 payment4. 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 respondents 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 realization5. 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 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 terms6. The appellant filed its reply to the respondents 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 afterthought7. 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 Arbitrator8. 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 for damages for the alleged imposition of Cash and Credit, the learned Arbitrator held that the same is maintainable before the Arbitrator9. 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.

Court's reasoning:
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 (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 appellants 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 Arbitrator19. 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 Arbitrator23. 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 18.04.201124. 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.