Prime Interglobe Private Limited v. Super Milk Products Private Limited

15. The petitioner’s application was dismissed by the learned arbitrator vide order dated 14.03.2022. The relevant observations of the arbitral tribunal are as follows[8]:- “9. A perusal of the record shows that this Tribunal granted opportunity to the Respondent to file Counter Claim on 21.08.2019 Document P-9 of the petitioner’s list of documents. Document P-12 of the petitioner’s list of documents. and 29.11.2019. The Respondent then filed an application under Sections 12 & 16 of the Arbitration and Conciliation Act, 1996 which was dismissed by a detailed order passed by this Tribunal on 25.02.2022. Thereafter, another opportunity was given to the Respondent to file Counter Claim on 25.02.2022. Till then neither the Statement of Defence nor the Counter Claim was filed. Vide emails dated 11.03.2020 and 26.03.2020, the Respondent again sought further time to file Statement of Defence but did not seek any opportunity to file Counter Claim. The Statement of Defence was filed around 08.06.2020 but the Respondent chose not to file the Counter Claim nor did it seek liberty to file the same later.

10. Pleadings were completed on 03.07.2020 and after issues were framed on 17.07.2020, trial could only commence on 12.12.2020 due to intervening applications filed by the Respondent and delay in filing affidavits by way of evidence by the parties. Trial concluded on 05.01.2022 and the matter was listed for final arguments for two consecutive days i.e. 10.02.2022 and 11.02.2022. However, the present application has been filed at this belated stage on 08.02.2022 seeking permission to file Counter Claim. It is relevant to mention here that neither at the time of filing Rejoinder has the Claimant filed the proposed Counter Claim. ***** ***** *****

15. As is seen above, none of the judgments referred to by the Respondent show that the Counter Claim can be filed as late as at the time of final arguments and after completion of the trial between the parties as a matter of right or such discretion should be exercised by the Tribunal in granting permission to file Counter Claim at the final stage of the case.

20. In the present case, that there has not only been an inordinate delay in filing the Counter Claim but despite repeated opportunities granted to the Respondent it did not chose to file the Counter Claim nor sought liberty to file the same later on account of unavailability of funds. In any event, the guidelines provided by the Hon’ble Supreme Court in Ashok Kalra (supra) deals with such a situation. It clearly holds that filing of the Counter Claim at a later stage could be allowed but the same ought be allowed in after considering the factors mentioned in para 21 of the said judgment and “in any event, after the framing of issues”, it ought not to be allowed.

21. It is true that the permission to file Counter Claim at the belated stage is at the discretion of the Tribunal but such discretion ought to be exercised keeping in mind the aforesaid factors as laid down in the aforesaid judgment as well as the conduct of the Respondent throughout the proceedings.

22. Accordingly, I find no merit in the application, dated 08.02.2022, the same is dismissed.”9

16. The petitioner did not challenge the aforesaid order, but instead served a legal notice dated 09.04.2022 upon the respondent for appointment of an arbitrator to adjudicate its claims under the MFA.10 The respondent replied, through counsel, on 09.05.2022 inter alia taking the position that the petitioner’s request was bad in law and barred, as a second arbitration would not lie in respect of disputes which have already been referred to arbitration.11

17. It is in these circumstances that the petitioner has filed the present petition before this Court.

18. Notice was issued in this petition on 19.05.2022. By an order dated 14.10.2022, this Court disposed of an application for early hearing filed by the petitioner with the following order: -

5. I am prima facie of the view that, the said order rejecting the petitioner’s request to file counter claims on the ground that the request was belated, does not foreclose the petitioner’s right to raise its claims in independent proceedings. In any event, it has been put to learned counsel for the respondent that an arbitrator may be appointed leaving all legal defences as to the maintainability, and the merits of the petitioner’s claims, open for adjudication in the arbitration proceedings. Mr. Chaturvedi will take instructions on this aspect also.

6. I.A. No. 15128/2022 stands disposed of in these terms.”12

19. On the next date of hearing i.e., 30.11.2022, Mr. Ashish Dholakia, learned Senior Counsel for the respondent, raised a new submission, that the present petition under Section 11 of the Act was not maintainable as the disputes raised by petitioner herein had already been referred to arbitration in ARB.P. 474/2019. Parties were, therefore, directed to place a copy of the said petition before this Court. This Court also clarified that “pendency of the present petition will not come in the way of the proceedings in the ongoing arbitral proceedings.”13

20. It may be mentioned that, during the pendency of this petition, proceedings in the ongoing arbitration were concluded and the award was reserved. Mr. Dholakia then raised the grievance that, despite the Paragraph 4 of order dated 30.11.2022. orders of the Court dated 14.10.2022 and 30.11.2022, the petitioner had filed an application before the learned arbitrator for deferment of the award to await the result of the present petition. The following order was passed on 06.03.2023:- “***** ***** *****

6. The petitioner has filed a further application dated 03.03.2023 before the learned arbitrator seeking a deferment of the passing of the arbitral award until the present petition is decided. I am informed that the learned arbitrator has fixed a hearing on that application on 10.03.2023.

7. I have put it to Mr. Sameer Jain, learned counsel for the petitioner, that filing of such an application before the learned arbitrator is really an attempt to overreach the order of this Court dated 30.11.2022. He submits that this is not the case and the petitioner, in fact, participated in the proceedings before the learned arbitrator thereafter. He further draws my attention to an order dated 27.08.2022 passed by the learned arbitrator, whereby the learned arbitrator has observed as follows: -

9. In view of the repeated attempts of the petitioner to defer the conclusion of the pending arbitral proceedings, in which the respondent’s claims are being adjudicated, I have requested learned counsel for the parties to address me on the question as to whether the award being published in those proceedings would have any affect upon the right of the petitioner to relief in this petition. Curiously, Mr. Jain states that the petitioner’s right to seek appointment of an arbitrator in the present proceedings, i.e. to adjudicate the claims of the petitioner, would not be affected by the pendency or conclusion of the ongoing arbitral proceedings, in respect of the respondent’s claims.

10. Mr. Dholakia takes the same position. He, however, submits that some of the questions which may arise in the arbitration proceedings proposed by the petitioner are the very same questions which are being decided in the proceedings arising out of the respondent’s claims. In such an event, he reserves the right of the respondent, in the event the present petition succeeds, to raise contentions regarding abandonment of claims, issue estoppel, res judicata, etc., which the respondent may be entitled to raise in defence to the petitioner’s claims Mr. Jain does not dispute that these issues would be open for consideration by the learned arbitrator in the prospective arbitral proceedings in either event, i.e. whether the award is rendered before or after the conclusion of the present petition.

11. In these circumstances, it appears to me that this issue is really akin to a storm in a teacup. If the petitioner does succeed in the present application, the rights of the parties to argue before the learned arbitrator on the question of abandonment of claims, issue estoppel, res judicata or any other consequence of the ongoing arbitral proceedings, whether or not the award has been rendered yet, will remain reserved to them. It is, therefore, made abundantly clear that this Court has not passed any orders with respect to the ongoing arbitral proceedings.

12. Mr. Dholakia also submits that, subject to the reservations noted herein, the only question which requires consideration in the present petition is whether the petitioner’s request for appointment of an arbitrator is barred on the ground that an arbitrator had already been appointed in ARB.P. 474/2019, and the petitioner was obliged to prosecute its claims only in those proceedings.

13. Learned counsel for the parties have concluded their submissions on this aspect. Judgment is reserved.”14

21. Mr. Sameer Jain, learned counsel for the petitioner, submitted that the parties are not in dispute regarding the existence of the arbitration clause or the arbitrability of the substantive claims raised by the petitioner. He concluded that the refusal of the learned arbitrator, in the ongoing arbitration proceedings, to entertain the petitioner’s counter-claims on account of delay ought not to bar it from availing of independent remedies.

22. As noted in order dated 06.03.2023, extracted above, the question which requires to be adjudicated in this petition is whether the petitioner is barred from moving this Court under Section 11 of the Act in view of the reference in ARB.P. 474/2019. In this context, Mr. Dholakia submitted that the said petition was the culmination of an exchange of correspondence between both parties and their counsel, in which their respective claims were sought to be agitated. He argued that, consequently, although ARB.P. 474/2019 was filed by the respondent herein, it was in effect a petition in which both parties stood as petitioners. Mr. Dholakia drew my attention to a reference in the said petition to “adjudication of the disputes between the parties.”15 He submitted that this evidenced the intention of the respondent herein to incorporate disputes raised by the petitioner also.

23. Mr. Dholakia submitted that, in these facts, the petitioner and the respondent were both in the position of claimants before the learned arbitrator and Section 25(a) of the Act would lead to the conclusion that the proceedings in respect of the respondent’s claims have already been terminated. Section 25(a) reads as follows:-

Mr. Dholakia, however, very fairly pointed out that this provision is inapplicable to counter-claims, by virtue of Section 2(9) of the Act, which is in the following terms: - “2. Definitions (9) Where this Part, other than clause (a) of section 25 or clause (a) of sub-section (2) of section 32, refers to a claim, it shall also apply to a counterclaim, and where it refers to a defence, it shall also apply to a defence to that counterclaim.” Paragraph 24 and the prayer clause (a) of ARB. P. 474/2019.

24. In support of his contention that successive petitions under Section 11 of the Act are impermissible, Mr. Dholakia relied upon the judgment of the Division Bench of this Court in Hero Wind Energy Pvt. Ltd. vs. Inox Renewables Ltd. and Anr.16, wherein the Court held that although there can be multiple claims and multiple references at multiple stages of a contract, “if a particular issue is included in the terms of reference, the parties would be estopped by the doctrine of res judicata from raising that issue in subsequent arbitration proceedings even though the Arbitrator had made no award in relation to that issue.”17

25. Mr. Dholakia also cited the judgment of a coordinate Bench in National Highways Authority of India vs Abhijeet Angul Sambalpur Toll Road Ltd.18, wherein the Court has held that a refusal to entertain counter-claims amounts to an interim award capable of challenge under Section 34 of the Act.

26. While Mr. Dholakia is right in submitting that parties had each raised their claims against each other in correspondence exchanged between them, however, from a reading of the petition filed by the respondent [ARB.P. 474/2019], it appears that the respondent, in fact, sought reference of its own claims before the learned arbitrator. While recounting the correspondence in some detail, the respondent herein specifically asserted that the petitioner’s notice dated 21.05.2019 was

“void ab initio”.19 The reference to “disputes between the parties” does not necessarily imply that the claims of the petitioner herein were also the subject matter of ARB. P. 474/2019, filed by the respondent. Indeed, disputes commonly arise because one party asserts claims, which the other party denies. The matter is one which requires a contextual determination. In the present case, the respondent averred in ARB.P. 474/2019 that the petitioner’s invocation of arbitration was “void ab initio”20 and also stated as follows: - “34. As elaborated in the aforementioned paragraphs, the Petitioner has a strong prima facie case in its favour and the balance of convenience also lies in its favour and against the Respondent. Further, irretrievable losses would be caused by the Petitioner in the event the relief sought in the present Petition is not granted. The Petitioner has been unlawfully and illegally deprived of the monies due to it under the MFA, that the Respondent has illegally withheld the legitimate dues of the Petitioner and thereby caused immense financial losses to the Petitioner.

35. The Petitioner is in the process of computing its claims which are including, but not limited to the sum claimed by the Petitioner in the notice dated 28 May 2019 i.e. INR 1,41,39,522 (Rupees One Crore Forty-One Lacs Thirty-Nine Thousand Five Hundred Twenty-Two Only) along with interest as per terms of the Agreement, which sum the Respondent is liable to remit in favour of the Petitioner.

36. That it is further submitted that the present Application is without prejudice to the right of the Applicant to raise additional claims/pleas before the Arbitral Tribunal to be constituted in accordance with the Agreements”21

27. In the context of these averments, it is not possible to hold that the respondent intended the petitioner’s claims also to be referred to Paragraph 18 of ARB. P. 474/2019. Ibid. arbitration, or that the order of this Court dated 26.07.2019 in ARB. P. 474/2019 so implied. Of course, when arbitration proceedings are invoked at the instance of one party, it is generally open to the other party to file its counter-claims in the same proceedings, but this does not per se signify that the Court has referred the claims of the prospective counter-claimant, so as to bar its right to assert its claims at a future date.

28. Having come to the conclusion that the reference in ARB.P. 474/2019 was only in respect of the respondent’s claims, I am also unable to accept Mr. Dholakia’s contention regarding applicability of Section 25(a) of the Act. I am instead of the view that Section 2(9) of the Act clearly protects the petitioner.

29. Mr. Dholakia’s reliance upon Abhijeet Angul Sambalpur Toll Road Ltd.22 is misplaced. The said judgment is inapplicable to the present case, as the petitioner has not sought to challenge the order of the tribunal dated 14.03.2022, but seeks independent reference of its claims. The petitioner was not required to challenge the said order before filing proceedings for arbitration in respect of its claims, as the order only declined the petitioner’s application for filing of its counter-claims on the ground of delay. It did not suggest that the counter-claims were not maintainable, or reject them on merits, so as to require setting aside of that order, prior to adjudication of the petitioner’s claims.

30. The present case, in my view, is much closer to the judgment of a coordinate Bench in Airone Charters Pvt. Ltd. vs Jetsetgo Aviation Supra (note 18). Services Pvt. Ltd.23, cited by Mr. Jain, wherein also the petitioner’s counter-claims in ongoing arbitral proceedings were not permitted to be filed, and the petitioner thereafter approached this Court under Section 11 of the Act. While acknowledging the general principle that a legal right carries with it a remedy in law, the Court observed as follows:-

72. It is not, therefore, as if the learned Arbitral Tribunal had held the petitioner not to be entitled to prefer its claims. The counterclaims, which were earlier on record, were struck off the record only because of the time constraint within which the learned Arbitral Tribunal would have to render its award and the withdrawal, by the petitioner, of OMP (Misc) (Comm) 290/2019. That impediment does not apply, where the petitioner desires to agitate the claims substantively in arbitral proceedings. The independent right of the petitioner, to do so, stands recognized by the Supreme Court in Praveen Enterprises and by this Court in A.K.M. Enterprises.

73. I cannot, therefore, accept the submission of Mr. Sibal that, the petitioner was barred from seeking reference of its claims to arbitration under Section 11 of the 1996 Act, owing to its counterclaims having been struck off the record by the learned Arbitral Tribunal.”

31. The position in present case is analogous to the facts in Airone Charters Pvt. Ltd.,24 as the learned arbitrator has not permitted the petitioner to raise its counter-claims in the arbitral proceedings.

32. I also bear in mind that an elaborate enquiry into the maintainability of the claims sought to be agitated by the petitioner is not appropriate at the stage of proceedings under Section 11 of the Act. While the judgments of the Supreme Court on the scope of Section 11 of the Act, including inter alia Vidya Drolia and Others vs. Ibid. Durga Trading Corporation25 and BSNL v. Nortel Networks (India) (P) Ltd.26, permit the Court to weed out entirely spurious claims, such jurisdiction is to be sparingly exercised, limited to cases in which the proceedings are really in the nature of “deadwood”.27 The Court has made it clear that the default position, even in doubtful cases, is to refer the disputes to arbitration rather than to enter into an elaborate analysis at this stage.

33. Having regard to these principles, I am of the view that the appropriate course in the present case is to refer the petitioner’s claims to arbitration, leaving all rights and contentions reserved for adjudication by the learned arbitrator. As noted in orders dated 14.10.2022 and 06.03.2023, these would include arguments with regard to the effect of the arbitration proceedings/award rendered by the learned arbitrator, appointed by this Court vide order dated 26.07.2019 in ARB.P. 474/2019. All issues arising therefrom are left open for adjudication by the learned arbitrator appointed today.

34. For the aforesaid reasons, the petition is disposed of with the following directions:-

International Arbitration Centre, Delhi High Court, Shershah Road, New Delhi [“DIAC”], and will be governed by the Rules of the DIAC, including as to the remuneration of the learned arbitrator.

35. It is made expressly clear that this order is without prejudice to the rights and contentions of the parties with regard to the maintainability of the claims before the learned arbitrator, including on grounds of abandonment of claims, issue estoppel, res judicata, limitation, etc. and on merits. The parties will be entitled to raise these contentions before the learned arbitrator and also seek appropriate orders in light of the proceedings taken at the instance of the respondent, and the award rendered therein.

36. There will be no order as to costs.