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2011 (7) TMI 1313 - SC - Indian LawsApplication u/s 11 of the Arbitration and Conciliation Act - enforcement of arbitration clause - Jurisdiction of arbitrator to consider the counter claim - Under agreement, the Appellant entrusted a construction work to the Respondent. Clause 25 of the agreement provided for settlement of disputes by arbitration. As per 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. 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 u/s 11, and the said application was allowed and arbitrator was appointed. The arbitrator called upon the parties to file their statement. the Respondent filed its claim statement before the arbitrator. The Appellant filed its Reply Statement with counter claim. The arbitrator considered the fourteen claims of the contractor and four counter claims of the Appellant. he rejected the other claims of Respondent and Appellant. Feeling aggrieved the Respondent filed an application to the civil court. The Appellant challenged the civil court judgment by filing an arbitration appeal before the High Court. 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 u/s 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. HELD THAT - The arbitration clause in this case contemplates all disputes being referred to arbitration by a sole arbitrator. It refers to an Appointing Authority (Chief Engineer, CPWD), whose role is only to appoint the arbitrator. Though the arbitration clause requires the party invoking the arbitration to specify the dispute/s to be referred to arbitration, it does not require the appointing authority to specify the disputes or refer any specific disputes to arbitration nor requires the Arbitrator to decide only the referred disputes. It does not bar the arbitrator deciding any counter claims. In the absence of agreement to the contrary, it has to be held that the counter claims by the Appellant were maintainable and arbitrable having regard to Section 23 read with Section 2(9) of the Act. In view of the above, this appeal is allowed and the order of the High Court affirming the judgment of the trial court, is set aside. Consequently the award of arbitrator is upheld in its entirety and the challenge thereto by the Respondent is rejected.
Issues Involved:
1. Jurisdiction of the arbitrator to entertain counter claims. 2. Interpretation of "reference to arbitration" under the Arbitration and Conciliation Act, 1996. 3. Applicability of Sections 21 and 43 of the Arbitration and Conciliation Act, 1996. 4. Scope of Sections 11 and 23 of the Arbitration and Conciliation Act, 1996. 5. Relevance of prior judicial decisions on counter claims in arbitration. Issue-wise Detailed Analysis: 1. Jurisdiction of the Arbitrator to Entertain Counter Claims: The main question was whether the Respondent in arbitration proceedings could make a counter-claim without it being specifically referred to arbitration by the court or agreed upon by the parties. The court clarified that under Section 23 read with Section 2(9) of the Arbitration and Conciliation Act, 1996, a Respondent is entitled to raise counter claims unless the arbitration agreement restricts the arbitration to only those disputes specifically referred. The court concluded that the counter claims by the Appellant were maintainable and arbitrable. 2. Interpretation of "Reference to Arbitration": The court detailed that "reference to arbitration" can mean various acts, including parties referring disputes to an agreed arbitrator, an appointing authority nominating an arbitrator, or a court appointing an arbitrator upon a party's application. The court emphasized that where all disputes are referred to arbitration, the arbitrator has jurisdiction to decide all disputes raised in the pleadings, including counter claims, unless the arbitration agreement specifically limits the arbitrator's jurisdiction. 3. Applicability of Sections 21 and 43 of the Arbitration and Conciliation Act, 1996: Section 21 specifies the commencement of arbitral proceedings, which is relevant for determining the applicability of the Limitation Act, 1963, to arbitration. The court noted that Section 21 is mainly for determining the date of commencement of arbitration to decide if claims are barred by limitation. For counter claims, Section 3(2)(b) of the Limitation Act, 1963, provides that the date of making the counter claim before the arbitrator is the date of "institution" for limitation purposes. 4. Scope of Sections 11 and 23 of the Arbitration and Conciliation Act, 1996: Section 11 pertains to the appointment of arbitrators and does not require the Chief Justice or his designate to identify and refer specific disputes to arbitration. Section 23 allows the claimant to file a statement of claim and the Respondent to file a counter claim. The court clarified that the arbitrator could entertain counter claims unless the arbitration agreement restricts the arbitration to specifically referred disputes. 5. Relevance of Prior Judicial Decisions on Counter Claims in Arbitration: The court discussed prior decisions, including SBP and Co. v. Patel Engineering Ltd. and National Insurance Co. Ltd. v. Boghara Polyfab Private Ltd., which indicated that the Chief Justice or his designate could decide if a claim was a dead one (long time barred). However, the court clarified that this does not mean all claims and counter claims must be detailed in the Section 11 application. The court also referred to Indian Oil Corporation Ltd. v. Amritsar Gas Service, which allowed counter claims to be raised directly before the arbitrator when all disputes between parties are referred to arbitration. Conclusion: The appeal was allowed, and the High Court's order affirming the trial court's judgment regarding counter claim No. 3 was set aside. Consequently, the arbitrator's award was upheld in its entirety, and the challenge by the Respondent was rejected.
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