Case: State Of Goa Vs. M/S Praveen Enterprises

2. Under an agreement dated 4.11.1992, the appellant (State of Goa) entrusted a construction work (Farm Development Works in Command Area of Water Course No.3 and 3A of minor M-3 of SIP in Salcette Taluka) to the respondent. Clause 25 of the agreement provided for settlement of disputes by arbitration, relevant portions of which are extractedwhere otherwise provided in the contract, all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim right matter or thing whatsoever, in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions orders or these conditions or otherwise concerning the works, or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the person appointed by the Chief Engineer, Central Public Works Department in charge of the work at the time of dispute...................It is a term of contract that the party invoking arbitrations shall specify the dispute or disputes to be referred to arbitration under this clause together with the amount or amounts claimed in respect of each suchper the contract, the work had to be commenced on 16.11.1992 and completed by 5.5.1994. On the ground that the contractor did not complete the 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, Rs.1,00,000/- towards claim No.2 with interest at 12% per annum from 26.8.1998 to 19.2.1999; Rs.3,63,416/- towards claim No.3 with interest at 12% per annum from 18.9.1995 to 22.2.1999; and Rs.59,075/- towards claim No. 14 (additional claim No. ii) with interest at 12% per annum from 18.9.1995 to 22.2.1999. In regard to the counter claims made by the appellant, the arbitrator awarded to the appellant Rs.2,94,298/- without any interest in regard to counter claim No.3. The arbitrator rejected the other claims of respondent and appellant. He awarded simple interest at 18% per annum on the award amount from the expiry of one month from the date of the award and directed both parties to bear their respective costs.5. Feeling aggrieved the respondent filed an application under section 34 of the Act, challenging the award insofar as (i) rejection of its other claims; and (ii) award made on counter claim No.3. The civil court (Adhoc Additional District Judge, Fast Track Court No.1, South Goa) disposed of the matter upholding the award in regard to the claims of the respondent but accepted the objection raised by the respondent in regard to award made on the counter claim. The court held that the arbitrator could not enlarge the scope of the reference and entertain either fresh claims by the claimants or counter claims from the respondent.6. The appellant challenged the said judgment by filing an arbitration appeal before the High Court. The High Court of Bombay dismissed the appeal by judgment dated 31.8.2007. The High Court held that the counter claims were bad in law as they were never placed before the court by the appellant (in the proceedings under section 11 of the Act for appointment of arbitrator) and they were not referred by the court to arbitration. The High Court held that in such circumstances arbitrator had no jurisdiction to entertain a counter claim. The High Court followed its earlier decision in Charuvil Koshy Verghese v. State of Goa - 1998 (2) SCC 21. In that case, an application was made by a contractor under Section 20 of the Arbitration Act, 1940 (`old Act for short), for filing the arbitration agreement and referring the disputes to the arbitrator. In its reply statement to the said application, the respondent did not assert its counter claim. The court allowed the application under section 20 and appointed an arbitrator to decide the disputes raised by the contractor. However when the matter went before the arbitrator, the respondent therein 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.

Court's reasoning:
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 agreement to refer future disputes to arbitration. After a dispute arises between the parties, they enter into an arbitration agreement to refer that specific dispute to arbitration. In such an arbitration, the arbitrator cannot enlarge the scope of arbitration by permitting either the claimant to modify or add to the claim or the respondent to make a counter claim. The arbitrator can only decide the dispute referred to him, unless the parties again agree to refer the additional disputes/counter claims to arbitration and authorize the arbitrator to decide them.As far as counter claims are concerned, there is no room for ambiguity in regard to the relevant date for determining the limitation. Section 3(2)(b) of Limitation Act, 1963 provides that in regard to a counter claim in suits, the date on which the counter claim is made in court shall be deemed to be the date of institution of the counter claim. As Limitation Act, 1963 is made applicable to arbitrations, in the case of a counter claim by a respondent in an arbitral proceedings, the date on which the counter claim is made before the arbitrator will be the date ofThe aforesaid contention of the respondent is based on the erroneous premises that whenever an application is filed under section 11 of the Act, it is necessary for the Chief Justice or his Designate to consider and decide whether the claims or counter claims are barred by limitation or not. In SBP & Co. and Boghara Polyfab, this Court classified the questions that may be raised in an application under section 11 of the Act into three groups : (i) those which the Chief Justice/his designate shall have to decide; (ii) those which the Chief Justice/his designate may choose to decide or alternatively leave to the decision of the Arbitral Tribunal; and (iii) those which the Chief Justice/his designate should leave exclusively for the decision of the Arbitral Tribunal. This Court held that the issue whether a claim is dead claim (long barred claim) is an issue which the Chief Justice or his designate may choose to decide or leave for the decision of the Arbitral Tribunal.The issue of limitation is not an issue that has to be decided in an application under section 11 of the Act. SBP & Co. and Boghara Polyfab held that the Chief Justice or his designate will not examine issues relating to limitation, but may consider in appropriate cases, whether the application was in regard to a claim which on the face of it was so hopelessly barred by time, that it is already a dead/stale claim which did not deserve to be resurrected and referred to arbitration. The said decisions do not support the respondents contention that the details of all claims should be set out in the application under section 11 of the Act and that details of all counter claims should be set out in the statement of objections, and that a claim or a counter claim which is not referred to or set out in the pleadings in the proceedings under section 11 of the Act, cannot be entertained or decided by the arbitral tribunal.