Calcutta High Court
Kolkata Metropolitan Development ... vs Hindustan Construction Co. Ltd on 1 December, 2017
Author: Ashis Kumar Chakraborty
Bench: Ashis Kumar Chakraborty
IN THE HIGH COURT AT CALCUTTA
Civil Appellate Jurisdiction
Original Side
Present : Hon'ble Justice Ashis Kumar Chakraborty
G.A. No. 3448 of 2017
With
A.P.O. No. 501 of 2017
Arising out of
A.P. No. 956 of 2016
And
G.A. No. 3449 of 2017
With
A.P.O. No. 502 of 2017
Arising out of
A.P. No. 957 of 2016
Kolkata Metropolitan Development Authority
Vs.
Hindustan Construction Co. Ltd.
For the petitioner : Mr. Kishore Dutta, Advocate General
Mr. Sirsanya Bandhopadhyay, Adv.
Mr. Sanchari Chakraborty, Adv.
For the respondent : Mr. Ayan Bannerjee, Adv.
Judgement on : 01.12.2017
Ashis Kumar Chakraborty, J.
These appeals under Section 37 of the Arbitration and Conciliation Act, 1996, as amended by the Amendment Act 3 of 2016 (in short "the Act of 1996"), at the instance of the same respondent in the arbitral proceedings, have been filed against the orders both dated July 18, 2017 passed by the same learned Arbitrator, in the arbitral proceedings arising out of A.P. 956 of 2016 and A.P. No. 957 of 2016. By the impugned orders, the learned Arbitrator allowed the applications filed by the respondent in these appeals, the claimant, under Section 16 of the Act of 1996 and refused to consider the counter-claims of the present appellant, the respondent in the arbitral proceedings. In both the appeals, the appellant has also filed separate applications for stay of operation of the respective impugned orders passed by the learned Arbitrator, as well as stay of the respective arbitral proceeding.
The facts giving rise to both the arbitral proceeding, between the same parties in these appeals are identical and the question that falls for consideration in both the appeals is common. Accordingly, both the appeals are disposed of by this common judgement.
Since the facts relevant for deciding these appeals are identical, arising out of the same contract, it would be suffice to discuss the facts relating to the appeal A.P.O. No. 501 of 2017.
The brief facts necessary for present purposes are that by an agreement dated February 12, 2010 entered into between the parties (hereinafter referred to as "the contract"), the appellant awarded a contract in favour of the respondent for construction of the elevated road corridor from Park Circus to E.M. Bypass near Parama Island . Clause 41.1 of the Special Terms and Conditions of the said contract contained an arbitral agreement for adjudication of the disputes, if any between the parties which might arise in connection with, or arising out of the execution of the contract. Since clauses 41.1 and 41.2 of the Special Terms and Conditions of the said contract has a bearing on the issue involved in this appeal the said clause is extracted hereinbelow.
"Clause 41.1 :
Employer"s decision : If a dispute of any kind whatsoever arises between the Employer and the Contractor in connection with, or out of the Project or the execution of the Construction Works, whether during the execution of the works or after their completion and whether before or after repudiation or other termination of the Contract Agreement, including any dispute as to any opinion, instruction, determination, certificate or valuation of the Engineer In Charge, the matter in dispute shall, in the first place, being referred in writing to the Engineer In Charge, with a copy to the other party. All the disputes will be settled by the Employer with the help of Engineer In Charge and Employer's decision will be final and binding to all."
"Clause 41.2 :
Amicable Settlement : Where Notice of Intension to commence arbitration as to a dispute has been given in accordance with above Sub-Clause the parties shall attempt to settle such dispute amicably before the commencement of arbitration provided that, unless the parties otherwise agree, arbitration may be commenced on or after the fifty-sixth day after the day on which the notice of intention to commence the arbitration of such dispute was given, even if no attempt for amicable settlement thereof has been made".
The respondent started construction of the said elevated road corridor and the time for completion of the said work was extended from time to time. The respondent alleged that the extension of time for completion of the contract from time to time gave rise to its various claims against the appellant, but the latter refused to entertain such claims. Thus, the disputes and differences arose between the parties with regard to the claims of the respondent against the appellant and by a notice dated August 3, 2016 the respondent invoked the arbitral agreement for appointment of an Arbitrator which did not evoke any response from the appellant. The respondent filed an application, A.P. No. 956 of 2016 under Section 11(6) of the Act of 1996 before this Court for appointment of an arbitrator to adjudicate the claims raised by it against the appellant. By an order dated November 22, 2016 a learned Single Judge of this Court allowed the said application by appointing a retired Judge of this Court as the Arbitrator to adjudicate the disputes between the parties relating to the claims of the present respondent against the appellant. On December 07, 2016 the learned Arbitrator entered upon reference and the respondent filed its statement of claim. The appellant also filed its statement of defence wherein it raised counter-claims against the respondent. The respondent, however, filed an application before the learned Arbitrator under Section 16 of the Act of 1996. It alleged that as per the arbitration agreement contained in clause 41.1 of the Special Terms and Conditions of the contract it was mandatory for the appellant to first approach the Engineer-in- Charge raising its alleged claims against the respondent and since, the appellant did not fulfil the conditions of clause 41.1 its counter claims raised before the learned Arbitrator was not maintainable.
The application under Section 16 of the Act of 1996 was taken up for hearing by the learned Arbitrator. In support of its said application the present respondent, as the claimant in the arbitral proceeding contended before the learned Arbitrator that the arbitration agreement between the parties comprised multi-tire procedure, that is, clauses 41.1 and 41.2 of the Special Terms and Conditions of the contract requires a party to raise its disputes against the other being first referred to the Engineer-in-Charge, whereupon the parties would make an attempt to settle such disputes amicably before the commencement of arbitration and inasmuch as the respondent in the arbitral proceeding did not refer to its purported claims against the contractor to the Engineer-in-Charge, the learned Arbitrator could not entertain any of the counter-claims of the respondent before him. The present respondent, as the claimant further argued that it had obtained the order of appointment of the learned sole Arbitrator for adjudication of its claims only after complying with the conditions in clauses 41.1 and 41.2 of the said Special Terms and Conditions of the contract and the respondent in the arbitral proceeding, without fulfilling the said pre-conditions cannot claim any relief against it, even in the form of counter-claim, in any arbitral proceeding. It was contended that the respondent in the arbitral proceeding, admittedly not having followed of the said agreed procedure, the learned Arbitrator lacked the jurisdiction to entertain the counter-claims raised in the arbitral proceeding. In support of such contention, the present respondent relied on the Supreme Court decision in the case of State of Goa vs. Praveen Enterprise reported in (2012) 12 SCC 581 before the learned Arbitrator.
On the other hand, the present appellant, as the respondent in the arbitral proceeding contended before the learned Arbitrator that the condition provided in clauses 41.1 of the said Special Conditions of contract requiring a party to refer its disputes to the Engineer-in-Charge is applicable only at the stage of commencement of an arbitral proceeding and not to a respondent in the arbitral proceeding for filing its counter-claim as the same is not an initiation of a proceeding, but a right provided under Section 23(2A) of the Act of 1996 incorporate by way of amendment. In support of such contention, the present appellant also relied, before the learned Arbitrator on the decision of the Supreme Court in the case of Praveen Enterprise (supra).
After considering the contentions raised by the respective parties, the learned Arbitrator held that the judgments relied on by both parties make it clear that for lodging a claim in an arbitral proceeding compliance of the requirement as per clauses 41.1 and 41.2 of the said Special Terms and Conditions of the agreement is obligatory. According to the learned Arbitrator, the expression "such disputes" in clause 41.2 prescribes a restriction that only disputes mentioned in the notice can be subject matter of the arbitral proceeding. The learned Arbitrator further found that a perusal of Section 23 of the Act of 1996 shows that it is a right of the respondent in an arbitral proceeding similar to the right of the claimant under Section 23(1) of the said Act and admittedly Section 23(1) does not create a right exempting the claimant from compliance of multi-tier procedure as per agreement and therefore, Section 23(2A) also does not entitle the respondent to bypass the said procedure. The learned Arbitrator held that the apprehension of suffering diverse findings, in case of two different proceedings are initiated on the claims of the claimant and the respondent also has no basis as findings on facts in the earlier award will be binding the parties in subsequent proceeding. With these findings, by an order dated July 18, 2017 the learned Arbitrator allowed the application filed by the present respondent, the claimant in the arbitral proceeding, under Section 16 of the Act of 1996 and held that the counter claims of the present appellant, the respondent in the arbitral proceeding cannot be considered. As mentioned earlier, it is the said order dated July 18, 2017 passed by the learned Arbitrator which is the subject matter of challenge in this appeal.
Assailing the impugned order dated July 18, 2017 the learned Advocate General appearing for the appellant, in both the appeals, contended that in the present case by the notice dated August 23, 2016 the present respondent invoked the arbitration clause 41.1 of the Special Conditions of contract, when sub-section (2A) of Section 23 introduced by the Amendment Act 3 of 2016 had already come into force with effect from October 23, 2015 conferring the statutory right on a respondent in an arbitral proceeding before the learned Arbitrator to raise a counter-claim against the claimant. It was argued that as per sub-section (2A) of Section 23 of the Act of 1996, if a respondent in an arbitral proceeding raises any counter-claim against the claimant or a plea of set off falling within the scope of arbitration agreement, the arbitrator is mandatorily required to adjudicate upon such counter-claim or plea of set off at the instance of the respondent. The learned Advocate General strenuously contended that the requirement of fulfilment of the condition under clause 41.1 of the Special Conditions of contract for referring the disputes is applicable for commencement of the arbitral proceeding by a claimant and in view of the clear language of sub- section (2A) of Section 23 of the Act of 1996, the said condition is not applicable to the respondent in the arbitral proceeding to raise a counter-claim arising from a dispute covered by the arbitral agreement. It was argued that from the scheme of the Act of 1996 it cannot be doubted that a counter-claim by a respondent pre-supposes the pendency of proceeding relating to the disputes raised by the claimant and the object to provide for the right of the respondent in an arbitral proceeding to raise counter-claim under sub-section (2A) of Section 23 of the Act of 1996 is to avoid multiplicity of proceedings, as well as to avoid divergent findings. It was urged for the appellant that in the present case, as per the arbitral agreement between the parties all disputes between the parties arising out of or relating to the said contract are required to be referred to arbitration. Relying on paragraph 41(b) of the decision of the Supreme Court in the case of Praveen Enterprise (supra), the learned Advocate General contended that in the instant case the learned Arbitrator has the jurisdiction to entertain the counter-claim filed by the present appellant, even though it was not raised at a stage earlier to the stage of the pleadings before the Arbitrator. It was argued that in the instant case, in the absence of any requirement in the arbitral agreement between the parties of specific disputes to be referred to arbitration and that the Arbitrator will have the jurisdiction to decide only the disputes so referred, the learned Arbitrator fell into an error of law to allow the application filed by the present respondent under Section 16 of the Act of 1996. It was also strongly urged that in the face of clear and the unambiguous language of the provisions contained in sub-section (2A) of Section 23 of the Act of 1996, the learned Arbitrator committed an error of law in holding that since sub-section (1) of Section 23 does not create a right exempting the claimant from compliance of multi-tier procedure as per the arbitral agreement, sub-section (2A) of Section 23 also does not entitle the respondent in the arbitral proceeding to bypass the said procedure. On these grounds, the learned Advocate General strongly urged for setting aside of the impugned order passed by the learned Arbitrator.
However, Mr. Banerjee, learned advocate appearing for the claimant respondent in this appeal contended that the impugned order passed by the learned arbitrator is a well reasoned order which suffers from no infirmity in law calling for any interference of this Court in appeal. He submitted that in view of the arbitral agreement contained in clause 41.1 of the Special Conditions of Contract, the learned Arbitrator does not have the jurisdiction to adjudicate upon any claim of the claimant or the counter-claim raised by the respondent in the arbitral proceeding without the concerned party, first referring its dispute to the Engineer-in-Charge. Relying in clause ( c) of paragraph 41 of the decision of the Supreme Court in the case of Praveen Enterprise (supra), Mr. Banerjee submitted that it is settled law where the arbitration agreement requires specific disputes to be referred to arbitration and provides that the Arbitrator will have the jurisdiction to decide only the disputes so referred, the Arbitrator's jurisdiction is controlled by the specific reference. Therefore, in the case at hand, since the present appellant raised its counter-claims without first referring the same to the Engineer-in-Charge, the learned Arbitrator was absolutely correct in his decision to allow the application under Section 16 of the Act of 1996.
I have considered the facts of the present case, as well as the arguments advanced for the respective parties. In the present case, the question that falls for consideration is as to whether in view of clause 41.1 of the Special Terms and Conditions of the contract in order to maintain its counter-claim in the arbitral proceeding against the respondent, the present appellant was required to first refer its said counter claims to the Engineer-in-Charge. It is not the case of the present respondent that the appellant cannot raise any counter- claim in the arbitral proceeding before the learned Arbitrator. The respondent, however, contended that if the present appellant intends to raise any counter-claim in the arbitral proceeding, such counter-claim must be first referred to the Engineer-in-Charge. There cannot be two opinion that a counter-claim by a respondent pre- supposes the pendency of the proceeding relating to the claims of the claimant in the arbitral proceeding. In the case of Praveen Enterprise (supra) the Supreme Court, after considering the provisions of Sections 2(9), read with Section 23 and 11 of the Act of 1996, held that when the arbitration clause contemplates all disputes being referred to arbitration by a sole arbitrator and the role of the appointing authority (the Chief Engineer) 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 dispute to arbitration, there cannot be any bar for the arbitrator from deciding any counter- claim.
In view of the above ratio in the case of Praveen Enterprise (supra), in the present case, when the arbitration agreement requires all disputes between the parties relating to the contract dated February 12, 2010 be referred to arbitration by an Arbitrator, the words "such disputes"
appearing in clause 41.2 of the Special Conditions of the contract would not render the counter claims of the present appellant raised in its statement of defence not maintainable, as held by the learned Arbitrator.
Further, in order to obviate all confusion, the Parliament incorporated sub-section (2A) in Section 23 of the Act of 1996 which came into effect from October 23, 2015. In this regard, the provisions in sub-section (2A) of Section 23 is quoted below:
"23. Statements of claim and defence-
1...................
2..................
2A. The respondent, in support of his case, may also submit a counter claim or plead a set off, which shall be adjudicated upon by the arbitral tribunal, if such counterclaim or set off falls within the scope of the arbitration agreement (emphasis supplied).
3. .............."
From a bare reading of the above provisions it clear beyond any doubt that sub-section (2A) of Section 23 confers the right on a respondent in an arbitral proceeding, to raise counter-claim or plead a set off in support of its case in the statement of defence. Therefore, in view of the clear and unambiguous language used in sub- section (2A) of Section 23 of the Act of 1996, I find force in the contention raised on behalf of the present appellant that the present case in exercise of the right conferred under sub-section (2A) of Section 23 of the Act of 1996 it was entitled to raise its counter claims in its defence statement filed before the learned Arbitrator.
When the provisions contained in sub-section (2A) of Section 23 of the Act of 1996 conferred the right on the present appellant to raise its counter claims, in support of his case against the claims raised by the respondent claimant, I find the decision of the learned Arbitrator to hold that the counter-claims of the present appellant were not maintainable as the same were not referred to the Engineer-in-Charge cannot be sustained.
For all the foregoing reasons , the impugned order dated July 18, 2017 passed by the learned Arbitrator in the arbitral proceeding between the parties to the appeal, arising out of A.P. No. 956 of 2016 is set aside. The learned Arbitrator will proceed with the arbitral proceeding and consider the counter-claims raised by the present appellant against respondent, in accordance with law.
In view of the above decision, the impugned order dated July 18, 2017 passed by the learned Arbitrator in the arbitral proceeding between the parties to the appeal, arising out of AP. No. 957 of 2016 is also set aside. The learned Arbitrator will also proceed with the arbitral proceeding and consider the counter-claims raised by the present appellant against the respondent, in accordance with law.
The learned Arbitrator shall be free to fix his remuneration, in both the arbitral proceedings, after considering the counter claims raised by the respondent.
There shall , however, be no order as to costs.
Urgent certified copy of this judgement, if applied for, be supplied to the parties subject to compliance with all requisite formalities.
(ASHIS KUMAR CHAKRABORTY, J.)