Amendment for Counterclaim in Arbitration Cannot be Filed After Evidence Commences: Calcutta High Court - 2025-09-01

Procedural Limits: When Can Parties Amend Defenses in Arbitration?

In a significant ruling addressing the boundaries of arbitral procedure, the High Court at Calcutta has set clear parameters for the filing of counterclaims during ongoing arbitration proceedings. Justice Hiranmay Bhattacharyya, presiding over Gayatri Granites & Ors. v. Srei Equipment Finance Ltd. , upheld an arbitrator’s decision to reject an amendment application aimed at introducing a counterclaim after the claimant's evidence had been concluded.

Context: The Quest for Amendment

The dispute arose from an ongoing arbitration between Gayatri Granites (the petitioner) and Srei Equipment Finance Ltd. (the respondent) concerning an alleged loan default. After the claimants had finished presenting their evidence and the respondent had filed an affidavit of evidence, the petitioner sought to amend their 'Statement of Defence' to include a formal counterclaim.

The arbitrator rejected this amendment, noting that it was a belated attempt to introduce claims that were known to the petitioner from the outset. Aggrieved, the petitioners filed an application under Article 227 of the Constitution of India, challenging the arbitrator’s order and seeking judicial intervention.

Arguments from the Bar

Representing the appellants, Mr. Ratnanko Banerji argued that Section 23 (3) of the Arbitration and Conciliation Act, 1996, permits amendments at any point during proceedings. Relying on Life Insurance Corporation of India vs. Sanjeev Builders , he contended that amendments should be granted if they are vital for the "effective and proper adjudication" of the real controversy.

Conversely, Mr. Suddhasatva Banerjee, representing the respondent, challenged the maintainability of the petition. Citing a line of Supreme Court precedents including Deep Industries Ltd. v. ONGC and Bhavan Construction , he asserted that Article 227 of the Constitution of India does not grant the High Court authority to interfere with every interlocutory order passed by an arbitrator, thereby preserving the autonomy of the arbitral process.

Legal Analysis: Striking a Balance

The Court’s analysis hinged on interpreting the interface between Section 23 of the Arbitration Act and the principles of procedural fairness derived from the Code of Civil Procedure ( CPC ). Justice Bhattacharyya reasoned that while the Arbitration Act is not strictly bound by the CPC , the logic regarding counterclaims—as established in Ashok Kumar Kalra v. Wing CDR. Surendra Agnihotri —must apply to prevent the abuse of process.

The Court held that while there is no explicit time bar in Section 23 (2A) for filing a counterclaim, the law cannot be weaponized to cause indefinite delays. The Court concluded that counterclaims should generally not be permitted after issues have been framed or, at the latest, before the commencement of witness examination.

Key Observations

• "This Court accordingly holds that the counter claim in an arbitration proceedings shall not be allowed to be filed after the issues are framed and only in exceptional cases filing of a counter claim may be permitted till the stage of commencement of recording evidence."
• "The learned Arbitrator recorded a factual finding that the application for amendment is not based on any subsequent event... and also that the respondents were well aware of relevant facts which they have sought to be introduced by way of amendment."
• "Allowing the application for amendment of SoD to incorporate the counter claim at this belated stage would definitely cause serious prejudice and injustice to the claimant."
• "Interference under Article 227 is permissible only if the order is completely perverse and the same should be exercised in exceptional rarity if there is a jurisdictional error."

The Verdict: Finality of Proceedings

Declining to interfere with the arbitrator's order, the High Court emphasized that the order was neither perverse nor jurisdictional, fully aligning with the spirit of the Arbitration Act which discourages court interference. The petition was dismissed, reinforcing a vital takeaway for practitioners: strategic delays in filing counterclaims carry the risk of summary rejection once hearings have progressed. This ruling underscores that the mandate of "speedy trial" in arbitration is not merely a suggestion, but a threshold requirement that parties must respect.