Case: National Highway Authority of India Vs. Transstroy (India) Limited

2. The facts leading to the present appeal and the case on behalf of the appellant – NHAI are as under:-2.1 That the NHAI and the respondent entered into a contract. An Engineering Procurement and Construction (EPC) Agreement (hereinafter referred to as Contract) was executed between the parties on 13.11.2014 in respect of improvement / augmentation of two laning with paved shoulders from km.94/000 to km.174/000 (design chainage from km.94/000 to km.174/000) of Karaikudi-Ramanathapuram Section of National Highway No. 210 including 500m on SH-35 Madurai Road (near Devakottai Rasta Railway Station) in the State of Tamil Nadu on EPC mode (total design length 80.00kms) under NHDP PHASE-III.2.2 According to the NHAI, the respondent/Contractor was in continuous breach of specific obligations under the Contract for which a cure period notice was issued by the NHAI under Clause 23.1.1 of the Contract as far as back on 29.09.2015 calling upon the Contractor to cure the defaults within 60 days. The Contractor failed to cure the defects pointed out by the NHAI, thus, a notice of intention to terminate the Contract was issued by the NHAI on 12.04.2016 under Clause 23.1.2. The respondent/Contractor sent its reply dated 14.04.2016 to the NHAIs notice of intention to terminate the contract. Having found the reply totally unsatisfactory, the NHAI issued a termination notice dated 22.07.2016 under Clause 23.1.2 of the Contract. It is the case on behalf of the appellant – NHAI that the NHAI specifically stated in the termination notice that the same is without prejudice to the Authoritys right to claim damages for the Contractors failure to comply with the unambiguous obligations casted upon it under the Contract and/or to realize any dues, losses and damages whatsoever under the Contract or under applicable laws, as the case may be.2.3 On receipt of the termination notice, the respondent/Contractor addressed a letter to the NHAI on 02.01.2017 to refer certain disputes for amicable settlement under Clause 26.2 of the Contract. That thereafter, the Contractor invoked the arbitration clause (Clause 26 of the Contract) vide letter dated 09.02.2017 and nominated its Arbitrator and requested the NHAI to nominate its Arbitrator so that the Presiding Arbitrator may be appointed. The NHAI nominated its arbitrator by letter dated 10.03.2017 which was followed by the appointment of the Presiding Arbitrator. Accordingly, the Arbitral Tribunal came to be constituted. The Contractor filed the Statement of Claim on 15.05.2017. The NHAI filed its statement of defence on 11.07.2017. It is the case on behalf of the NHAI that both in the termination notice dated 22.07.2016 as well as in the Statement of Defence dated 11.07.2017, the NHAI reserved its right to claim damages and stated that it would file its counter claim separately.2.4 On 13.07.2017, i.e., after two days of filing the Statement of Defence by the NHAI, the NHAI sent a letter to the Arbitral Tribunal seeking extension of time for filing the counter claim. Vide email dated 18.07.2017 the Arbitral Tribunal rejected the NHAIs request seeking extension of time for filing the counter claim and stated that no application has been filed by the NHAI for filing counter claim. It appears that thereafter the NHAI moved an application before the Arbitral Tribunal under Section 23(2A) of the Arbitration Act to place its counter claim on record. It appears that on the very same day, the NHAI filed its counter claim before the Arbitral Tribunal. The Arbitral Tribunal rejected the NHAIs application permitting it to place on record the counter claim vide order dated 15.09.2017, essentially on the ground that the procedure under Clauses 26.1 and 26.2 had not been followed by the NHAI and therefore, the counter claim was beyond the scope of arbitration agreement and adjudication of the said dispute is not within the jurisdiction of the Arbitral Tribunal.2.5 Feeling aggrieved and dissatisfied with the order passed by the Arbitral Tribunal dated 15.09.2017 dismissing the application filed by the NHAI seeking permission to place on record the counter claim and holding that the dispute raised by the NHAI in the counter claim is not within the scope of arbitration agreement and that the dispute sought to be filed is contractually not arbitrable and the adjudication of the said dispute is not within the jurisdiction of the Arbitral Tribunal, NHAI preferred the appeal under Section 34 of the Arbitration Act, 1996 before the High Court of Delhi.2.6 Before the High Court, an objection was raised on behalf of the Contractor on maintainability of the application under Section 34 of the Arbitration Act, 1996. However, treating the order dated 15.09.2017 passed under Section 16(2) of the Arbitration Act, 1996, the High Court has treated the proceedings before it as one under Section 37(2) of the Arbitration Act, 1996 while deciding on the admissibility of the counter claim and thereafter has decided the same on merits.2.7 By the impugned judgment and order, the High Court has dismissed the said application and has confirmed the order passed by the Arbitral Tribunal dated 15.09.2017 rejecting the application submitted by NHAI to take the counter claim on record.2.8 Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court, the NHAI has preferred the present appeal.

Court's reasoning:
8. At the outset, it is required to be noted that in the present case, the NHAI submitted the Statement of Defence on 11.07.2017 in which the NHAI reserved its right to claim damages and stated that it would file its counter claim separately and after two days only, i.e., on 13.07.2017, sent a letter to the Arbitral Tribunal seeking extension of time for filing the counter claim, which came to be rejected by the Arbitral Tribunal vide e-mail on 18.07.2017. That thereafter, immediately the NHAI moved an application before the Arbitral Tribunal under Section 23(2A) of the Arbitration Act, 1996 to place its counter claim on record.It is required to be noted that in the present case, the cause for the dispute between the parties was the termination of the contract by the NHAI. As far as the said dispute of termination of notice was required to be resolved amicably as per the procedure prescribed under Clauses 26.1 and 26.2 of the Contract Agreement. It may be true that in a given case, the Dispute may include the claims and/or counter claims, but, at the same time, the main dispute can be said to be termination of the contract, which as observed hereinabove was required to be resolved through conciliation after following the procedure as above.13. Therefore, thereafter, it is not open for the Contractor to contend that the counter claim was without following the procedure as required in Clauses 26.1 and 26.2 and, therefore, may not be taken on record. On a true and fair interpretation of Clause 26, failure to resolve the dispute (in the present case, the termination of the Contract by the NHAI), the arbitration proceedings would be maintainable. That does not mean that only a claim and/or counter claim as sought to be contended on behalf of the Contractor now would alone be entertained.13.1 Both the Arbitral Tribunal as well as the High Court have failed to appreciate the difference between the expressions claim, which may be made by one side and Dispute, which by its definition has two sides.13.3 However, thereafter, when the NHAI filed the application under sub-section (2A) of Section 23 of the Arbitration Act, 1996 seeking to place on record its counter claim, by order dated 15.09.2017, the Arbitral Tribunal rejected the said application by observing that in the application for permitting the NHAI to place on record the counter claim, the NHAI has not stated anything about having made an attempt for such amicable settlement. However, it is required to be noted that from the very beginning, the NHAI reserved its right to claim the damages and even in the Statement of Defence also claimed such a set off of Rs.1.23 crores and also specifically stated therein that the NHAI reserved its right to file the counter claim. Therefore, on the grounds on which the Arbitral Tribunal had rejected the application of NHAI to place on record the counter claim can be said to be contrary to the intent between the parties to resolve the dispute (which was for termination of the Contract by the NHAI) through conciliation first. In the facts and circumstances of the case, by such a narrow interpretation, the Arbitral Tribunal has taken away the valuable right of the NHAI to submit counter claim, which is of a very huge amount thereby negotiating the statutory and contractual rights of the NHAI and paving way for a piecemeal and inchoate adjudication.13.4 When there is a provision for filing the counter claim – set off, which is expressly inserted in Section 23 of the Arbitration Act, 1996, there is no reason for curtailing the right of the appellant for making the counter claim or set off. If we do not allow the counter claim made by the NHAI in the proceedings arising out of the claims made by the Contractor, it may lead to parallel proceedings before various fora. While passing the impugned judgment and order, the High Court has lost sight of the aforesaid aspect, which ought to have been considered while considering the request on behalf of the NHAI to place on record its counter claim. Clauses 26.1 and 26.2 have to be interpreted in a pragmatic and practical manner, as they require that the parties must at first try to settle, resolve and even try conciliation but when the procedure under Clauses 26.1 and 26.2 fails to yield desired result, in the form of settlement within the period specified in Clause 26.2, the Dispute can be resolved through arbitration in terms of Clause 26.3. Once any dispute, difference or controversy is notified under Clause 26.1, the entire subject matter including counter claim/set off would form subject matter of arbitration as any dispute which is not resolved in Clauses 26.1 and 26.2.13.5 At this stage, it is required to be noted that as such there was no delay at all on the part of the NHAI initially praying for extension of time to file the counter claim and/or thereafter to file application under Section 23(2A) permitting it to place on record the counter claim. In the facts and circumstances of the case, we are of the opinion that not permitting the NHAI to file the counter claim would defeat the object and purpose of permitting to file the counter claim/set off as provided under Section 23(2A) of the Arbitration Act, 1996. Without appreciating the aforesaid aspects, the High Court has by the impugned judgment and order, and on narrow interpretation of Clause 26 has seriously erred in rejecting the application under Section 34/37 of the Arbitration Act, 1996 and confirming the order passed by the Arbitral Tribunal in not permitting the NHAI to file the counter claim. The High Court ought to have appreciated that permitting the NHAI to file the counter claim may avoid multiplicity of proceedings.