National Highway Authority of India Versus Transstroy (India) Limited

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6732 OF 2021

National Highway Authority of India …Appellant

Versus

Transstroy (India) Limited …Respondents

J U D G M E N T

M.R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned judgment

and order passed by the High Court of Delhi in OMP No.459 of 2017 by

which the High Court has dismissed the said petition under Section 34 of

the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the

Arbitration Act, 1996”) in which the appellant – National Highway

Authority of India (hereinafter referred to as “NHAI”) prayed to set aside

the Arbitral Award dated 15.09.2017 and also the order passed by the

Arbitral Tribunal not entertaining and/or considering the counter claim

filed by the NHAI, the original petitioner – NHAI has preferred the

present appeal.

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

NHAI's 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 Authority's

right to claim damages for the Contractor's 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 NHAI's 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 NHAI's 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.

3. Ms. Madhavi Diwan, learned ASG has appeared on behalf of the

NHAI and Shri Nakul Dewan, learned Senior Advocate has appeared on

behalf of the respondent – Contractor.

4. Ms. Madhavi Diwan, learned ASG appearing on behalf of the NHAI

has vehemently submitted that in the facts and circumstances of the

case, the High Court has committed a grave/serious error in confirming

the order passed by the Arbitral Tribunal not taking on record the counter

claim filed by the NHAI.

4.1 it is further submitted by Ms. Diwan, learned ASG that, both, the

Arbitral Tribunal as well as the High Court have failed to appreciate that

the counter claim was based on common/overlapping cause of action. It

is submitted that the arbitration invoked by the Contractor arose out of

the very termination notice which had been issued by the NHAI.

Therefore, the foundation of the Contractor’s case before the Arbitral

Tribunal is the validity of such termination. Therefore, there was no

question of seeking to hair split the dispute between the parties. It would

lead to unnecessary multiplicity of proceedings and needless cost and

inconvenience when the evidence itself is also common because the

dispute arises out of the same transaction.

4.2 It is further submitted by Ms. Diwan, learned ASG that as such

Clause 26 can be invoked by either party. It is submitted that Clause 26

of the Contract is self-explanatory, where it refers to 'any dispute',

difference or controversy being required to be attempted to be amicably

resolved in accordance with the conciliation procedure under Clause

26.2. It is submitted that the provision requires the same to be notified in

writing by either party. Likewise, Clause 26.2 states that either party may

call upon the Authority's Engineer or such other person as the parties

may mutually agree upon to mediate and arrive at an amicable

settlement. It is submitted that the reason and the rationale behind

permitting either party to invoke Clause 26.1 is that by its very definition

'a dispute' is two sided. On interpretation of the word ‘dispute’, reliance is

placed upon the decisions of this Court in the case of Gujarat State

Cooperative Land Development Bank Ltd. Vs. P.R. Mankad and

Ors., (1979) 3 SCC 123 (para22) and Major (Retd.) Inder Singh Rekhi

VS. Delhi Development Authority, (1988) 2 SCC 338 (para 4).

4.3 Relying upon the aforesaid two decisions, it is further submitted by

Ms. Madhavi Diwan, learned ASG that in the present case, the word

"Dispute" has been used by the Contractor itself in its notice dated

02.01.2017 as well as in his letter dated 09.02.2017 whereby the

Contractor itself had referred the Termination Notice as an unilateral

decision from which a "Dispute" has arisen. It is submitted that thus, the

Dispute in the present case is with regard to the termination notice dated

22.07.2016 issued by the NHAI. It is submitted that therefore, it would

be a travesty of process to interpret "Dispute" as only allowing for the

claim made on behalf of the Contractor to be submitted to the process

contemplated under Clause 26. It is submitted that the Arbitral Tribunal

and 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. It is submitted that the language of

Clause 26 itself contemplates that "either party" to the dispute may

invoke this procedure. It is submitted that therefore there can be no

question of duplication of very same process which has been invoked

beforehand and eventually culminated in arbitration process. It is

submitted that the second round under Clause 26 would in any event be

an exercise in futility in as much as very same issue would have been

brought up namely whether termination of contract was lawful or not,

which issue by then was already pending before the Arbitral Tribunal.

4.4 It is further submitted that the Arbitral Tribunal as well as the High

Court have failed to appreciate that it was the NHAI who was compelled

to terminate the contract after providing sufficient opportunities to the

Contractor to cure the defects. The NHAI specifically reserved its right in

the termination notice itself to claim damages which is a natural

consequence of termination for Contractor's failure to comply with its

obligations. It is submitted that therefore the contention on behalf of the

Contractor that the counter claim was by surprise or by way of

counterblast be stated to be rejected.

4.5 It is submitted that even it cannot be said that NHAI by submitting

the counter claim has bypassed the procedure which the parties had

agreed. It is submitted that there can be no question of bypassing the

procedure when that stage has already passed in the present case. It is

submitted that Clause 26 does not contemplate repeated invocation of

same procedure when there is an overlapping cause of action and the

repetition of process would be completely meaningless.

4.6 It is submitted that as per the settled position of law, rules or

procedures are the handmaids and not the mistress of justice. The

procedural provisions cannot be interpreted in a hyper-technical manner

to waste the time and resources of parties contrary to the letter and spirit

of the Arbitration Act.

4.7 It is vehemently submitted by Ms. Diwan, learned ASG that in the

present case not taking on record the counter claim filed by the NHAI,

the Arbitral Tribunal and the High Court both have lost sight of the very

object and purpose of Section 23(2A) which is meant to provide

convenience to the parties in being able to file the entirety of their

claim/counter claim, etc. before the Arbitral Tribunal. It is submitted that

therefore, there was absolutely no reason for the High Court to have

excluded the counter claim which was sought to be filed before the

Arbitral Tribunal by the NHAI within two days of filing of its Statement of

Defense. It is submitted that Section 23 has been amended pursuant to

the recommendation of the Law Commission of India in its Report No.

246 "to ensure that counter claims and set off can be adjudicated upon

by an arbitrator without seeking a separate/new reference by the

respondent so long as it falls within the scope of the arbitration

agreement, in order to ensure final settlement of disputes between

parties and prevent multiplicity of litigation".

4.8 Making above submissions and relying upon the decisions of this

Court in the case of State of Goa Vs. Praveen Enterprises, (2012) 12

SCC 581; Bharat Petroleum Corporation Limited Vs. Go Airlines

(India) Limited, (2019) 10 SCC 250; Silpi Industries Etc. Vs. Kerala

State Road Transport Corporation and Anr., 2021 SCC Online SC

439 and the decision of the Calcutta High Court in the case of Kolkata

Metropolitan Development Authority Vs. Hindustan Construction

Co. Ltd., 2017 SCC OnLine Cal 18978 (against which Special Leave

Petition (C) Nos. 18443-18444 of 2018 were filed and the same were

dismissed by this Court by order dated 23.07.2018), it is prayed to allow

the present appeal and to direct the Arbitral Tribunal to take on record

the counter claim filed by the NHAI and adjudicate the same in

accordance with law.

5. Present appeal is vehemently opposed by Shri Nakul Dewan,

learned Senior Advocate appearing on behalf of the respondent –

Contractor.

5.1 Shri Nakul Dewan, learned Senior Advocate appearing on behalf

of the respondent – Contractor has made following broad submissions in

support of his prayer to dismiss the present appeal. He has submitted

as under:-

(i) Clause 26 of the EPC Contract mandatorily required the

parties to attempt to amicably settle the Disputes (identified

and crystallised prior to the reference) as a pre-condition to

the invocation of arbitration. That has not been done by the

appellant – NHAI with respect to its counter claim.

(ii) The term "Disputes" defined and set out in Clause 26.1.1.

has to be strictly construed to mean those disputes which

were identified by any party and referred for conciliation

under Clause 26.1.1 read with Clause 26.2. No such

identification had been done by the appellant - NHAI for its

counter claim, meaning thereby that they cannot be raised by

the appellant - NHAI.

(iii) The mere reservation of rights would not entitle either party

to bypass the contractually agreed mechanism under Clause

26 of the EPC Contract.

(iv) Section 23(2A) of the Act does not permit a counter claim to

be raised in a manner which is inconsistent with the

agreement of the parties.

5.2 Elaborating above submissions, it is submitted by Shri Nakul

Dewan, learned Senior Advocate appearing on behalf of the respondent

– Contractor that Clause 26 of the EPC Contract is clear and

unambiguous. It lays down a two-step process prior to the invocation of

the arbitration process. It is submitted that the EPC Contract does not

contemplate parties directly raising claims by directly resorting to

arbitration without going through the steps set out in Clause 26. It is

submitted that Step 1 can be said to be “Notification of Disputes”. In the

event that a "dispute, difference, or controversy" has arisen between the

parties, then it has to be "notified in writing' to the other party. This

notification can be done by any party which has a dispute. Such

notification then gives rise to a "Dispute" defined and contemplated

under Clause 26.1.1 of the EPC Contract

5.3 It is submitted that Step 2 is with respect to “Resolution by

amicable settlement”. Under the Step 2, the parties are then required to

attempt to amicably resolve the “Dispute” in accordance with the

conciliation procedure set out at Clause 26.2. The mandatory

requirement of conciliation is evident by the use of the word "shall" in

Clause 26.1.1. It is submitted that as per Clause 26.2, the dispute is

required to be mediated by NHAI's Engineer or such other person as

mutually decided, which is called the Conciliator under the EPC

Contract. Failing such mediation or without the intervention of the

Conciliator, either party may refer the dispute to NHAI's Chairman for

amicable settlement, following the time-bound procedure set out in

Clause 26.2.

5.4 It is submitted that Step 3 is “Invocation of arbitration”. It is

submitted that it is only on the failure to resolve the dispute amicably that

the Dispute notified under Clause 26.1.1. is thereafter referred to

arbitration. Clause 26.3.1 clearly lays down that any "Dispute, which is

not resolved amicably as provided under Clause 26.1 and Clause 26.2"

shall be finally referred to arbitration. It is submitted that therefore only

those Disputes which are not resolved after Steps 1, 2 and 3 alone, can

be the subject matter of dispute before the Arbitral Tribunal.

5.5 It is submitted that any interpretation permitting the parties to

bypass the mechanism laid down in the EPC Contract, unless waived,

would amount to a rewriting of the contract. It is submitted that as

observed and held by this Hon’ble Court in the case of M.K. Shah

Engineers & Contractors Vs. State of MP. (1999) 2 SCC 594, a prearbitral requirement is an essential facet of the arbitration clause.

Reliance is also placed on the decision of the Kerala High Court in the

case of Nirman Sindia v. Indal Electromelts Ltd., Coimbatore 1999

SCC OnLine Ker 149. It is submitted that in the aforesaid decision, the

Hon’ble High Court of Kerala has held that "when the parties to a

contract agree to any special mode for resolution of the disputes arising

out of the agreement and they are bound to comply with the mode

prescribed under the agreement. Without resorting to the first step

provided for the resolution of the dispute in the agreement they cannot

jump to the second step or to the final step to settle the disputes

between the parties".

5.6 It is further submitted by Shri Nakul Dewan, learned Senior

Advocate appearing on behalf of the respondent – Contractor that the

mandatory and enforceable nature of contractually stipulated preconditions to arbitration, which are aimed at dispute resolution through

mediation or negotiations, have also been held to be enforceable

internationally.

5.7 It is submitted that therefore as Clause 26 of the EPC Contract is

mandatory in nature, no claim should be allowed to be introduced in a

manner contrary to the contractual mechanism may be by way of

counter claim.

5.8 It is further submitted by Shri Nakul Dewan, learned Senior

Advocate appearing on behalf of the respondent – Contractor that in the

present case the parties have contractually defined and limited the term

“Dispute” at Clause 26.1.1 of the EPC Contract to mean any dispute,

difference, or controversy "notified in writing by either Party to the other

Party". It is submitted that Clause 1.1 of the EPC Contract further sets

out that "words and expressions beginning with capital letters and

defined in this Agreement ... shall, unless the context otherwise requires,

have the meaning ascribed thereto herein ...

5.9 It is submitted that therefore having contractually agreed to only

define notified disputes as “Disputes” and further restricting the

reference of only such “Disputes” to arbitration under Clause 26.3 as

only those which are notified by parties under Clause 26.1 and referred

to conciliation under Clause 26.2, no other interpretation, contrary to the

written contract should be taken. That is because Courts give effect to

the contractual bargain of the parties unless such bargain is contrary to

statute or against public policy, neither of which exception has or can be

pleaded in this case.

5.10 It is submitted that the submission on behalf of the NHAI that the

counter claims arise out of the unlawful termination of the EPC Contract,

and that it falls within the definition of “Dispute” and that the term

“Dispute” ought to be widely construed to include the counter claims that

may arise out of the termination of the EPC Contract is to be rejected

outright. It is submitted that the use of the words "any Dispute" used in

Clause 26.3.1 also ought to be accordingly construed to mean only

those matters which have been notified by the parties for amicable

settlement under Clause 26.1.

5.11 Now, so far as the assertion on behalf of the appellant – NHAI that

having reserved its rights to raise counter claim at the stage of

termination as well as of filing its Statement of Defence, it is entitled to

raise the counter claim and the submission that permitting the NHAI to

file the counter claim would avoid multiplicity, it is submitted that the said

assertion is without any basis. It is submitted that the mandatory nature

of Clause 26 which required a party to crystallise and notify its Dispute to

the other party is a clause which seeks to ensure that only those claims

that are notified get adjudicated.

5.12 It is submitted that if the NHAI had any genuine claim, then it ought

to have notified the respondent - Contractor in accordance with Clause

26.1.1 of the EPC Contract. The NHAI could have done so even after the

Contractor sought to refer the Disputes to arbitration where it ought to

have sought the adjudication of its counter claims. However, it did not

do so and instead, expressly sought to refer the "disputes under

reference raised by the contractor". Thus, waiving its rights to refer any

counter claims to arbitration. It is submitted that that being the case, the

NHAI should not be allowed to introduce a counter claim of INR 208

crores through a circuitous interpretation of Section 23(2A) of the Act.

5.13 Now, so far as reliance placed upon Section 23(2A) of the Act

relied upon on behalf of the NHAI, it is submitted that though Section

23(2A) of the Act recognises the right of a respondent to raise counter

claims, the language of the statute is clear. In terms of Section 23(2A),

the Tribunal has jurisdiction over such counter claims, "if such counter

claim or set-off falls within the scope of the arbitration agreement."

5.13.1 It is submitted that in a given case the scope of the

arbitration agreement, as set out under Section 23(2A) of the Act, must

be ascertained by a conjoint reading of Sections 2(1)(b), 7 and 21 of the

Act read along with the arbitration clause. It is submitted that on a

conjoint reading of the aforesaid provisions of the Arbitration Act, 1996, it

is apparent that parties are fully entitled to choose which disputes get

referred to arbitration. The same is consistent with the recognition of the

party autonomy. It is submitted that in the present case, the parties have

chosen through the mechanism set out under Clause 26.1.1 read with

Clause 26.3.1 that only those disputes notified by one party to the other

and first categorised under the head of a Dispute which cannot be

"resolved amicably" under Clause 26.2 can be referred to arbitration. It

is submitted that therefore a counter claim directly brought before the

Tribunal without having been categorised as a “Dispute” in terms of

Clause 26.1 and that too by bypassing the mandatory pre-conditions

agreed between the parties would fall outside the scope of the arbitration

agreement as specified under Section 23(2A) and hence beyond the

jurisdiction of the Tribunal.

5.14 Making above submissions, it is vehemently submitted that in the

present case, both the Arbitral Tribunal as well as the Hon’ble High Court

have not committed any error in not permitting the NHAI to file the

counter claim, which was filed straightaway before the Arbitral Tribunal

without following the procedure as required under Clause 26. Therefore,

it is prayed to dismiss the present appeal.

6. We have heard the learned counsel for the respective parties at

length.

7. The short question, which is posed for the consideration of this

Court is :

Whether in the facts and circumstances of the case, the High

Court as well as the Arbitral Tribunal have committed any error in

rejecting the application submitted by NHAI under Section 23(2A)

of the Arbitration Act, 1996 not permitting the NHAI to take on

record the counter claim?

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. In this factual

background, the aforesaid issue/question posed for consideration of this

Court is required to be considered.

9. While answering the aforesaid question, the relevant clauses of

the Contract between the parties and the relevant provisions of the

Arbitration Act, 1996 are required to be referred to.

10. Clause 26 of the Contract is with respect to the dispute resolution.

Clause 26.1 to Clause 26.3.1, which are relevant for our purpose are as

under:-

“26.1 Dispute Resolution

26.1.1 Any dispute, difference or controversy of whatever

nature howsoever arising under or out of or in relation

to this Agreement (including its interpretation) between

the Parties, and so notified in writing by either Party to

the other Party (the "Dispute") shall, in the first

instance, be attempted to be resolved amicably in

accordance with the conciliation procedure set forth in

Clause 26.2.

26.1.2 The Parties agree to use their best efforts for

resolving all Disputes arising under or in respect of this

Agreement promptly, equitably and in good faith, and

further agree to provide each other with reasonable

access during normal business hours to all nonprivileged records, information and data pertaining to

any Dispute.

26.2 Conciliation

In the event of any Dispute between the Parties, either

Party may call upon the Authority's Engineer, or such

other person as the Parties may mutually agree upon

(the "Conciliator") to mediate and assist the Parties in

arriving at an amicable settlement thereof. Failing

mediation by the Conciliator or without the intervention

of the Conciliator, either Party may require such

Dispute to be referred to the Chairman of the Authority

and the Chairman of the Board of Directors of the

Contractor for amicable settlement, and upon such

reference, the said persons shall meet no later than 7

(seven) business days from the date of reference to

discuss and attempt to amicably resolve the Dispute. If

such meeting does not take place within the 7 (seven)

business day period or the Dispute is not amicably

settled within 15 (fifteen) days of the meeting or the

Dispute is not resolved as evidenced by the signing of

written terms of settlement within 30 (thirty) days of the

notice in writing referred to in Clause 26.1.1 or such

longer period as may be mutually agreed by the

Parties, either Party may refer the Dispute to

arbitration in accordance with the provisions of Clause

26.3.

26.3 Arbitration

26.3. "Any Dispute, which is not resolved amicably as

provided in clause 26.1 & 26.2 shall be finally settled

by arbitration as set forth below:

i) The Dispute shall be finally settled by arbitration in

accordance with the Arbitration & Conciliation Act,

1996, or any statutory amendment thereof. The Arbitral

tribunal shall consist of 3 Arbitrators, one each to be

appointed by NHAI and the Contractor. The third

Arbitrator shall be chosen by the two Arbitrators so

appointed by the Parties and shall act as Presiding

Arbitrator. In case of failure of the two Arbitrators,

appointed by the parties to reach upon a consensus

within period of 30 days from the appointment of the

Arbitrator appointed subsequently, the Presiding

Arbitrator shall be appointed by the Chairman of the

Executive Committee of the Indian Roads Congress.

ii) Neither party shall be limited in the proceedings before

such Tribunal to the evidence or arguments before the

other party /Independent consultant.

iii) Arbitration may be commenced during or after the

Contract Period, provided that the obligations of NHAI

and the Contractor shall not be altered by reason of

the arbitration being conducted during the Contract

Period.

iv) If one of the parties fails to appoint its Arbitrator in

pursuance of Sub-Clause (1) above, within 30 days

after receipt of the notice of the appointment of its

Arbitrator by the other party, then the Chairman of the

Executive Committee of the Indian Roads Congress,

shall appoint the Arbitrator. A certified copy of the order

of the Chairman of the Executive Committee of the

Indian Roads Congress making such an appointment

shall be furnished to each of the parties.

v) Arbitration proceedings shall be held at Delhi, India,

and the language of the Arbitration Proceedings and

that of all documents and communications between the

parties shall be English.

xxxxxxxxxxxxxx”

11. Section 23 of the Arbitration Act, 1996 as amended by Act No. 3 of

2016 is as under:-

“23. Statements of claim and defence.—(1) Within the

period of time agreed upon by the parties or determined by

the arbitral tribunal, the claimant shall state the facts

supporting his claim, the points at issue and the relief or

remedy sought, and the respondent shall state his defence

in 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 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.

(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.”

12. Thus, from the aforesaid, it may be seen that Clause 26 – Dispute

Resolution Clause, i.e., Clause 26.1 and Clause 26.2, are in the nature

of conciliation. Both the parties are given opportunity to resolve the

dispute amicably and efforts are to be made through conciliation to

resolve the “Dispute” and thereafter the “Dispute”, which is not resolved

amicably, shall have to be finally settled by the arbitration. The words

used are “any dispute, difference or controversy of whatever nature

howsoever arising under or out of or in relation to this agreement

between the parties……..”. 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. In the present case, the communication dated

02.01.2017 addressed by the Contractor to the Chairman, NHAI, it was

stated as under:-

“Due to this unilateral action of the Authority a Dispute has

arisen between the parties to the agreement. As the dispute

has already arisen, it is required the dispute to be referred to

the Chairman of the Authority in accordance with the Clause

26.2 of the Contract Agreement for an amicable settlement.”

12.1 Even in the notice invoking arbitration dated 09.02.2017, it is

stated as under:-

“However the Authority has terminated the Contract

Agreement and invoked the performance Bank Guarantee of

Rs.21.00 Cr.

Due to this unilateral and illegal action of the Authority by a

Dispute has arisen between the parties to the agreement.

In accordance with the Clause 26.3.1 of the Contract

Agreement "Any dispute which is not resolved amicably as

provided in Clause 26.1 & 26.2 shall be finally settled by

arbitration as set forth below”

i) The Dispute shall be finally settled by arbitration in

accordance with the Arbitration & Conciliation Act,

1996, or any statutory amendment thereof. The Arbitral

tribunal shall consist of 3 Arbitrators, one each to be

appointed by NHAI and the Contractor. The third

Arbitrator shall be chosen by the two Arbitrators so

appointed by the Parties and shall act as Presiding

Arbitrator.

ii) Accordingly we are nominating Shri D Sree Rama

Murthy, as our arbitrator, whose consent is enclosed

herewith. We humbly request you to nominate your

arbitrator so that the third arbitrator shall be appointed

by the two arbitrators so appointed by the Parties and

shall act as Presiding Arbitrator.”

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.

13.2 At this stage, it is required to be noted that even the Arbitral

Tribunal while rejecting the application of the NHAI for extension of time

to file the counter claim did not observe and/or rejected the application

for extension of time to file the counter claim on the ground that the said

counter claim would not be maintainable without following the process as

required under Clause 26 of the Contract agreement. The order dated

18.07.2017 passed by the Arbitral Tribunal rejecting the application

submitted by NHAI for extension of time to file the counter claim is as

under:-

“This has reference to the respondent’s letter dated July 13,

2017 making request for extending the lime by 4 weeks for

filing of the counterclaims. In this connection the AT has to

remind the respondent that at the time of first and

preliminary meeting held on 20.04.2017, while fixing the

schedule for filing of pleadings by the parties, the AT had

specifically brought the fact to the notice of both the parties

including the respondent, vide para 12.0 of the minutes of

the said meeting, that the present arbitral matter is covered

under the Act of 1996 as amended in year 2015 and

therefore the adjudication is to be completed within one year

and therefore the directions given by the AT shall be

complied with within the time frame indicated without being

required to seek any postponement or extension of time.

Further the last date for filing of the SOD was determined in

consultation with the respondent to be on or before

30.06.2017. The SOD was however filed by the respondent

on 11.07.2017 after seeking an extension of time for 2

weeks. The AT had granted the said extension with a view to

give the respondent a reasonable opportunity to present its

case. Now the respondent is seeking an extension of time

for filing of the counterclaims.

It may be mentioned here that the claimant has, vide its

email dated 18.07.2017, objected to grant of any extension

of time for filing of the counterclaims for the reasons stated

therein,

The AT has given thought to request made by the

respondent taking into consideration the procedure and

schedule of filing of pleadings agreed upon by both the

parties as detailed in the Proceedings of the AT dated

20.04.2017 and the Act of 1996 as amended in year 2015.

The AT observes that sub-sections 23(2) and 23(2A) of the

amended Act of 1996, read together provide that the

respondent may, in support of his case, also submit a

counterclaim or plead a set-off, along with its Statement of

Defence for adjudication by the AT. The AT observes that the

respondent has pleaded a set-off of Rs. 1.23 crores vide its

Statement of Defence; while as regards the counterclaims, it

has been stated therein that the respondent reserves its right

to file the counterclaims. The respondent has not stated any

applicable law in respect of reserving such right.

In the above background, the AT observes that (i) during the

proceedings the procedure and schedule for filing the

pleadings were determined by the AT as agreed to by both

the parties; that there is no mention therein for filing of the

counterclaims by the respondent and (ii) the Statement of

Defence has already been filed by the respondent, with setoff and without any counterclaim as per the procedure

agreed to by and between the parties, except that the

respondent has sue moto reserved its right to file

counterclaim at a later date. Thereafter there is no

application by the respondent for filing of any counterclaim.

In the above circumstances, there is no question of having

any date determined by the AT or agreed upon by the parties

for filing the counterclaim by the respondent, and if there is

no date fixed or agreed upon for filing of the counterclaims,

the question of its extension does not arise. Therefore, the

AT orders that the request for an extension of time for filing

of the counterclaim made by the respondent is not in

accordance with applicable law and is irrelevant in view of

the factual circumstances as above.

In view of the delay in filing of the SOD by the respondent,

the claimant shall file its rejoinder thereon, if any, on or

before 05.08.2017 and the statement of admission and

denial of documents shall be filed by the parties on or before

11.08.2017i.e. the date of the next meeting of the AT.

The above decision of the AT does not preclude the

respondent from having another legal remedy in respect of

its claims.

The above Order is issued by the Presiding Arbitrator in

consultation with and on behalf of the AT.”

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.

14. In view of the above and for the reasons stated above, the order

passed by the Arbitral Tribunal dated 15.09.2017 and the impugned

judgment and order passed by the High Court deserve to be quashed

and set aside and are accordingly quashed and set aside.

Consequently, the application submitted by NHAI to permit it to file the

counter claim is hereby allowed and the NHAI is permitted to file the

counter claim, which the Arbitral Tribunal to consider alongwith the

Statement of Claim submitted by the Contractor and the Statement of

Defence of claim submitted by the NHAI on its own merits. In view of the

delay occasioned by the impugned orders, we direct that the period

between 18.07.2017 till 11.07.2022 shall be excluded for computing the

period for passing of the award under Section 29A of the Arbitration Act,

1996.

Present Appeal is accordingly Allowed. However, in the facts and

circumstances of the case, there shall be no order as to costs.

Pending applications, if any also stand disposed of.

…………………………………..J.

[M.R. SHAH]

NEW DELHI; …………………………………..J.

JULY 11, 2022. [SANJIV KHANNA]

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