Indraprastha Power Generation Co. Ltd. v. E.M. Services (I) Pvt Ltd

14. Learned Sole Arbitrator failed to appreciate that reply/written statement to SOC, itself contained the counter claim, which is one of the three judicially recognized modes of setting up a counterclaim and the learned Arbitrator misdirected himself on facts and in law by stating that there was no “prayer” for counter claim in reply of the petitioner.

15. Mr. Qadri, learned senior counsel argues that even if an order or decree in terms of the counter claim was not sought for by the petitioner, at best, it could have been a case of defect of deficiency in the form of “pleadings” and in these circumstances, learned Sole Arbitrator, at the outset, ought to have directed/afforded an opportunity to the petitioner to cure the defect of deficiency rather than rejecting to frame issue on the counter claim. Reliance is placed on Union of India v. Tata Teleservices (Maharashtra) Ltd., (2007) 7 SCC 517 wherein in somewhat similar circumstances, the Hon’ble Supreme Court observed that in the interest of justice, the appellant therein could have been granted an opportunity to remove the defect of deficiency/vagueness.

16. In view of the above judgment, learned Sole Arbitrator was under legal obligation to direct/afford an opportunity to the petitioner to cure the defect of deficiency in the form of the pleading qua counter claim. For that reason, refusal to frame counter claim as an additional issue, is patent illegality and as such impugned Award is unsustainable and liable to be set aside.

17. With regard to foreclosure of right to lead evidence/prove counter claim, learned senior counsel for the petitioner submits that the refusal to frame counter claim as an additional issue, in essence, foreclosed petitioner’s right to lead evidence and prove its pleaded case qua counter claim and as such, aforesaid refusal was prejudicial to petitioner’s right to lead evidence and prove pleaded case of counter claim. Once the learned Arbitrator refused to frame counter claim as an additional issue, the petitioner could not lead evidence and prove pleaded case qua counter claim. In fact, petitioner’s right to lead evidence qua counter claim and prove the same was foreclosed by learned Arbitrator at the outset vide order dated 13.02.2009. Petitioner as such, could not have led evidence on an issue which was not framed despite in the pleadings.

18. My attention is drawn to paragraphs “p”, “q”, “r”, “s” and “f” of impugned Award to submit that the findings of learned Arbitrator qua non-suiting petitioner for not leading evidence and proving actual loss suffered by the petitioner is patently illegal and prejudicial to the right of the petitioner to lead evidence and prove pleaded case qua counter claim.

SUBMISSONS ON BEHALF OF THE RESPONDENT

19. Per Contra, Mr. Chaitaley, learned counsel for the respondent urges that the petitioner had never during the course of the arbitration proceedings raised a counter claim (though referred to as “a claim” in the reply) except for making bald averments. There is no formal prayer or relief sought from the learned Arbitrator in respect of the pleading raised in the reply and also, no separate fees of the learned Arbitrator for adjudication of the counter claim was paid. Hence, the argument of the petitioner is meritless. Reliance is placed on Akella Lalitha v. Konda Hanumantha Rao, 2022 SCC OnLine SC 928 to submit that the relief not prayed should not and cannot be granted.

20. Learned counsel for the respondent further states that the order dated 13.02.2009 passed by the learned Sole Arbitrator not framing an issue of counter claim has never been challenged by the petitioner. Additionally, the petitioner has not amended its reply to raise formally a counter claim, pay fees thereupon and take recourse to appropriate remedies as available in law. Since then, throughout the arbitration proceedings, the petitioner has not raised any grievance regarding non-framing of an issue for adjudication in respect of the counter claim. The said plea is now raised in the present proceedings for the first time. The arbitration proceedings were permitted to proceed without objection and hence the said objection raised is belated and cannot be sustained at this stage long, after completion of the arbitration proceedings.

21. He further submits that the counter claim of the petitioner pertains to and relates to the claim for cost incurred by the petitioner for procuring electricity for the delayed period, which as per the case of the petitioner is attributable to the respondent. The learned Sole Arbitrator in the impugned Award has found no substance in the said stand and has not found a single document on record to even prima facie substantiate the said claim. In the absence of any document showing entitlement to the aforesaid claim of the petitioner, the learned Sole Arbitrator has in the Award rendered a specific finding that the delay is not attributable to the respondent and in fact, it is not a case of delay.

22. Learned Sole Arbitrator has further found that there is no documentary material placed on record to even establish remotely the counter claim and as such the Award passed by the learned Sole Arbitrator is a reasoned Award and is a reasonable view taken of the matter on the basis of the material placed before the learned Sole Arbitrator. Hence, the impugned Award does not call for any interference within the limited jurisdiction of this Court.

23. Reliance is placed on Jakki Mull & Sons v. Jagdish Thakral, 2017 SCC OnLine Del 11667, Para 40-42 and Prabhakar Nirman v. Telecommunications Consultants India Ltd., 2019 SCC OnLine Del 9559, Para 52 [i] and [ii].

ANALYSIS AND FINDINGS

24. I have heard learned counsel for the parties and perused the material available on record.

25. The principles with regard to interference by a Court under section 34 of 1996 Act against the Arbitral Award have been reiterated time and again by the Hon’ble Supreme Court and this Court.

26. The scope under section 34 of the 1996 Act is very limited and narrow as the Court does not sit in appeal over the Award or review the Award passed by the Arbitral Tribunal nor re-appreciate the evidence.[1] Further, it is the prerogative of the Arbitral Tribunal to interpret the term of the Contract and if the Arbitral Tribunal has adopted a view which is plausible, the Court is not required to interfere even if an alternate view is possible.[2]

27. To set aside the Award, the Award must fall under any of the categories/grounds as mentioned in section 34 of the 1996 Act. One of the grounds, amongst other, pertains to public policy of India. Explanation 1 of Section 34(2)(b)(ii) of 1996 Act further provides that the Award in conflict with inter alia, the fundamental policy of Indian law or the most basic notions or morality or justice can be set aside.

28. In this regard, the Hon’ble Supreme Court in OPG Power Generation (P) Ltd. v. Enexio Power Cooling Solutions (India) (P) Ltd., (2025) 2 SCC 417 has observed as under:-

Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corpn. Ltd., (2024) 2 SCC 375. Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1. vulnerable. To bring the contravention within the fold of fundamental policy of Indian law, the award must contravene all or any of such fundamental principles that provide a basis for administration of justice and enforcement of law in this country.

56. Without intending to exhaustively enumerate instances of such contravention, by way of illustration, it could be said that: (a) violation of the principles of natural justice; (b) disregarding orders of superior courts in India or the binding effect of the judgment of a superior court; and

(c) violating law of India linked to public good or public interest, are considered contravention of the fundamental policy of Indian law. However, while assessing whether there has been a contravention of the fundamental policy of Indian law, the extent of judicial scrutiny must not exceed the limit as set out in Explanation 2 to Section 34(2)(b)(ii). xxxxxxxxxxx

63. As we have already noticed, the object of inserting Explanations 1 and 2 in place of earlier explanation to Section 34(2)(b)(ii) was to limit the scope of interference with an arbitral award, therefore the amendment consciously qualified the term “justice” with “most basic notions” of it. In such circumstances, giving a broad dimension to this category [ In conflict with most basic notions of morality or justice.] would be deviating from the legislative intent. In our view, therefore, considering that the concept of justice is open-textured, and notions of justice could evolve with changing needs of the society, it would not be prudent to cull out “the most basic notions of justice”. Suffice it to observe, they [Most basic notions of justice.] ought to be such elementary principles of justice that their violation could be figured out by a prudent member of the public who may, or may not, be judicially trained, which means, that their violation would shock the conscience of a legally trained mind. In other words, this ground would be available to set aside an arbitral award, if the award conflicts with such elementary/fundamental principles of justice that it shocks the conscience of the Court.”

29. The first and fundamental argument advanced by the learned senior counsel for the petitioner is that the counter claim of the petitioner was not considered despite specific pleading in the reply filed by the petitioner and the learned Arbitrator, for the vague reason, rejected the same on the ground that there was no specific prayer in the reply filed by the petitioner.

30. It is necessary to extract the order dated 13.02.2009 passed by the learned Sole Arbitrator:- “With the consent of the parties following issues are framed:

1. Whether the unit stopped functioning during the warranty period due to the fault of the claimant? OPR

2. Whether it was in the scope of the work of the claimant that claimant shall be responsible for not guiding/advising the concerned executive for proper performance of the turbine? OPR

3. Whether the claimant is entitled for the relief if any? OPC The respondent has additionally proposed an issue for counter claim. However since there is no prayer as such for the counter claim except an averment in the reply, the issue cannot be framed. The matter is now fixed for evidence of the claimant which shall be filed by way of affidavit before the next date of hearing with copy to the respondent. The witness of the claimant shall attend the proceedings on the next date i.e. 21st March 2009 at 4.00 p.m. for cross examination by the respondent.” (Emphasis added)

31. On bare reading, the learned Sole Arbitrator denied to frame an issue on counter claim only on the ground that the same was not specifically prayed in the reply filed by the petitioner except an averment in the reply.

32. At this juncture, it is relevant to reproduce the relevant paragraph from the reply where the petitioner has pressed his counter claim.

33. A perusal of the above shows that the petitioner not only made a counter claim of Rs. 11.88 crores before the learned Sole Arbitrator but also gave the basis for its calculations for arriving at the said figure. Per contra, the respondent herein in the rejoinder, categorically denied the said claim. Relevant paragraph from the rejoinder is extracted below:-

6. The contents of the reply in para 8 of the respondent about the loss of the generation of electricity suffered by the respondent is denied in toto. Prior to the commissioning of the machine, the respondent Company had never generated the electricity as it is generating at present. Therefore, the respondents claim of Rs.11,88,00,000/- is absolutely false and baseless and the claimant Company is therefore entitled for the Claim as prayed.”

34. The respondent categorically denied the counter claim of the petitioner i.e. loss of the generation of electricity suffered by the petitioner and stated that the same is false and baseless.

35. Before dealing with the submissions and facts of the present case, it is apposite to underline the relevant principles.

36. Section 23 of 1996 Act reads as under:-

respect of these particulars, unless the parties have otherwise agreed as to the required elements of those statements. (2) The parties may submit with their statements all documents they consider to be relevant or may add a reference to the documents or other evidence they will submit. [(2A) The respondent, in support of his case, may also submit a counterclaim 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.] (3) Unless otherwise agreed by the parties, either party may amend or supplement his claim or defence during the course of the arbitral proceedings, unless the arbitral tribunal considers it inappropriate to allow the amendment or supplement having regard to the delay in making it. [(4) The statement of claim and defence under this section shall be completed within a period of six months from the date the arbitrator or all the arbitrators, as the case may be, received notice, in writing of their appointment.]

37. On perusal, the claimant is entitled to state facts supporting its claim, the points at issue and the relief sought whereas the respondent shall state his defence in respect of these particulars. The said procedure shall only be applied if the parties have not agreed otherwise. Further, sub section 2A of section 23 states that the respondent is also entitle to file counter claim or plead set off subject to arising within that particular arbitration agreement. However, there is no fixed format for filing counter claim. In fact, what is borne out from the pleading is that the respondent was categorically aware of the counter claim of the petitioner and in pursuant thereto, denied the averment in the rejoinder filed by the respondent. Therefore, it is not the case of the respondent that the respondent was not aware of the counter claim of the petitioner.

38. In Trojan & Co. Ltd. v. Nagappa Chettiar, (1953) 1 SCC 456, the Hon’ble Supreme Court clearly held that the decision of a case cannot be based on grounds outside the “pleadings” of the parties. Relevant paragraph is extracted below:-

valid grounds for entertaining the plaintiff's claim as based on failure of consideration on the case pleaded by him. In disagreement with the courts below we hold that the plaintiff was wrongly granted a decree for the sum of Rs 6762-8-0 in respect of the Associated Cement shares in this suit. Accounts settled could only be reopened on proper allegations.”

39. Learned counsel for the respondent has relied upon the decision of Akella Lalitha (supra). Relevant paragraphs of the said judgment are extracted below:-

and keeping aside the norms and principles governing grant of relief, grant a relief not even prayed for by the petitioner.””

40. I am fully bound by the ratio of the aforesaid two judgments. It is clear that the Court cannot consider a relief which is not found in the pleadings of the parties. Further, if an opportunity to oppose or resist such relief is not granted, it will amount to miscarriage of justice. But that is not the case in the present matter. The petitioner, in the present case, in the reply before the learned Sole Arbitrator clearly claimed Rs.

11.88 crores as a counter claim whereas the said counter claim was categorically rebutted/refused by the respondent in its rejoinder.

41. Once there is counter claim of the petitioner in its pleading and the petitioner has spelt out the reasons as well as has given basis for arriving at a figure of counter-claim and moreover, the respondent in its rejoinder has denied the claim of the petitioner, it was incumbent upon the learned Sole Arbitrator to frame an issue in this regard. The order dated 13.02.2009 is erroneous to the extent as the learned Sole Arbitrator in the said hearing ought to have framed an issue with regard to the counter claim of the petitioner. Every disputed fact/claim made by a party and rebutted by the opposing party is an issue in itself which need to be framed for adjudication.

42. Issues are the questions framed for determination of the lis between the parties based on the averments of disputed facts or law borne out of the pleading. Hence, once the reasons/basis for a counter claim, the amount and computation of the counter claim have been made in the reply, it does not matter if there is no specific prayer in the prayer clause. Pleadings are to be read as a whole and not in bits and pieces.

43. The order dated 13.02.2009 vis-a-vis non framing of issue qua counter claim is not appealable order under Section 37 of 1996 Act or is not an interim Award to be challenged under section 34 of 1996 Act.

44. Reliance placed on Jakki Mull & Sons (supra) is misplaced as the learned senior counsel for the petitioner therein failed to point out from the pleadings before the learned Arbitrator that the respondent was aware of the counter claim of the petitioner therein. Further, there was no such reply by the respondent of the alleged counter claim raised by the petitioner therein. In the present case, the respondent herein was categorically aware of the counter claim raised by the petitioner which was duly replied by the respondent in its rejoinder.

45. The Hon’ble Supreme Court in Union of India v. Tata Teleservices (Maharashtra) Ltd., (2007) 7 SCC 517observed as under:-

4. It may be true that in the prayer portion in the written statement an order or decree in terms of the counterclaim had not been sought for by the appellant. But the claim as made in the written statement relates to the claim based on the failure of the respondent, after having conveyed its acceptance of the letter of intent to provide service in the Karnataka Telecom Circle and the damages allegedly suffered by the appellant as a consequence and the entitlement of the appellant to reimbursement of the specified sum from the respondent. Even if there is some vagueness in the counterclaim, as felt by tdsat, we think that tdsat might have directed the appellant before us, to make its counterclaim more specific and in a proper manner. After all, a defect of deficiency could be permitted to be cured. We are, therefore, not impressed by the argument on behalf of the respondent before us that the counterclaim was rather vague and the same was rightly rejected for that reason by tdsat. After all, this vagueness can be directed to be removed in the interests of justice, if it were to be held that the counterclaim can be maintained by the Union of India.”

46. Taking a cue from the above judgment, I am of the view that the learned Sole Arbitrator ought to have given an opportunity to the petitioner to rectify the said defect before rejecting to frame an issue. Be that as it may, since no issue was framed on the counter claim, the petitioner had no opportunity to lead any evidence in this regard, as the evidence is only led on the issues framed by the Court/Arbitral Tribunal.

47. Another argument raised by the learned counsel for the respondent is that the learned Sole Arbitrator in paras “p”, “q” and “r” has duly considered the prayers of the petitioner and rejected the same for lack of evidence. The said paragraphs are extracted below:- “p. In the present case, the respondent has not proved on record any loss caused to it due to alleged delay in supply of spares or recommissioning or the Turbine Unit. Though on internal page 13 of the reply submitted by the respondent an estimate of loss has been stated but neither the same has been made a part of the prayer much so less as counterclaim nor has any evidence, to substantiate the loss, has been led by the respondent. q. The respondent has not made any efforts to prove the loss, if any, suffered by it due to delay in supply of spares or delay in commissioning of the unit or loss of generation. r. In the absence of any substantive material on record to demonstrate any loss suffered by the respondent, law does not allow the penalty stipulated in the contract to be recovered by the respondent from the claimant as per the provisions of Section 74 of the Contract Act.”

48. I am unable to agree as regards this argument. Parties are required to lead evidence on the questions which have been framed for determination by the learned Sole Arbitrator. Once the counter-claim was not an issue before the learned Sole Arbitrator, the petitioner could not be expected to lead evidence on the same and obviously there would be no evidence before the learned Sole Arbitrator in support of its counter claim.

49. Reliance placed on Prabhakar Nirman (supra) is misconceived as the case therein does not pertain to the non framing of issue on counter claims by the learned Arbitrator. In fact, the learned Arbitrator therein framed several counter claims.

CONCLUSION

50. For the foregoing reasons, the Arbitral Award dated 18.06.2010 is in conflict with the fundamental policy of Indian Law. In addition, the said Award suffers from violation of most basic notions of justice despite specific pleading, no issue of counter claim was framed by the learned Sole Arbitrator. Since there was no issue, the petitioner did not lead any evidence. Hence, the petitioner was clearly deprived of the adjudication of its claim and the same shocks the conscience of the Court. Accordingly, the petition is allowed and the Arbitral Award dated 18.06.2010 is set aside.

51. The petition is disposed of.

JASMEET SINGH, J