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1996 Supreme(Ori) 176
High Court Of Orissa
DEEPAK MISRA
PUNJ SONS PVT LTD - Appellant
Versus
NATIONAL ALUMINIUM CO.LTD - Respondent
Civil Revision 98 Of 1995
Decided On : 11/11/1996
B.M.PATNAIK, INDRAJIT MOHANTY, P.K.ROY CHAUDHARY, RANJIB DAS
The arbitrator's interpretation of the arbitration clause, which led him to conclude that he lacked jurisdiction to decide the counterclaim, was not final and could be challenged in a court of law.
Headnote:
ARBITRATION - JURISDICTION - INTERPRETATION OF ARBITRATION CLAUSE - NOTICE OF DISPUTES - CONDITION PRECEDENT - SCOPE AND EFFECT OF ARBITRATION CLAUSE - POWER OF ARBITRATOR TO DECIDE OWN JURISDICTION - DISTINCTION BETWEEN JURISDICTIONAL FACTS AND INTERPRETATION OF ARBITRATION CLAUSE - ARBITRATOR'S INTERPRETATION OF ARBITRATION CLAUSE NOT FINAL - COURT'S POWER TO DECIDE JURISDICTIONAL ISSUES - COUNTERCLAIMS - ARBITRABILITY - CONNECTED WITH MAIN CLAIM - INSEPARABLE AND UNSEGREGABLE - JURISDICTION OF ARBITRATOR TO DECIDE COUNTERCLAIMS - DISCRETIONARY JURISDICTION OF COURT UNDER SECTION 115 OF THE CODE OF CIVIL PROCEDURE - SUBSTANTIAL JUSTICE.
Fact of the Case:
The petitioner, a construction company, entered into an agreement with the opposite party, a company, to execute certain civil and miscellaneous works. The agreement contained an arbitration clause (Clause-87) providing for the appointment of a sole arbitrator to adjudicate any disputes or differences arising between the parties. The petitioner filed a claim with the arbitrator, raising 19 items of claims on different heads. The opposite party filed a counterclaim against the petitioner, advancing 5 items of claim along with interest. The arbitrator, relying on certain Supreme Court judgments, held that the counterclaim was not arbitrable as it had not existed at the time of reference and no notice of the same had been given to the claimant prior to the reference, as required under Clause-87 of the agreement. The opposite party filed an application before the Civil Judge (Senior Division) under Sections 33 and 41 of the Arbitration Act, 1940, seeking a declaration that the counterclaims were maintainable before the arbitrator and should be adjudicated. The Civil Judge allowed the application, holding that the arbitrator was wrong in rejecting the counterclaim and that the changed circumstances and the change of law warranted a direction to the arbitrator to decide the counterclaim.
Finding of the Court:
The High Court held that the arbitrator's interpretation of Clause-87 of the agreement, which led him to conclude that he lacked jurisdiction to decide the counterclaim, was not final and could be challenged in a court of law. The Court observed that the arbitrator's finding with regard to his jurisdiction, which he arrived at by interpreting the arbitration clause, could not be regarded as final. The Court further held that the condition precedents in Clause-87, relating to the appointment of the arbitrator, were mandatory and had to be satisfied before the arbitrator could exercise jurisdiction. However, the Court found that the arbitrator had erred in holding that the counterclaim was not arbitrable merely because there was no notice of the same and no repudiation of the claim by the petitioner. The Court held that repudiation of a claim could be express or implied and that the arbitrator had unduly emphasized the notice part of the arbitration clause. The Court also held that the counterclaims were intrinsically and irretrievably connected with the claim of the petitioner and could not be brushed aside in the absence of any mandatory prohibition in the agreement. The Court further held that the Civil Judge (Senior Division) had not erred in exercising his discretion under Section 115 of the Code of Civil Procedure and directing the arbitrator to decide the counterclaim along with the main claim, as substantial justice had been done.
Issues: 1. Whether the arbitrator's interpretation of the arbitration clause, which led him to conclude that he lacked jurisdiction to decide the counterclaim, was final and could not be challenged in a court of law. 2. Whether the condition precedents in Clause-87 of the agreement, relating to the appointment of the arbitrator, were mandatory and had to be satisfied before the arbitrator could exercise jurisdiction. 3. Whether the arbitrator had erred in holding that the counterclaim was not arbitrable merely because there was no notice of the same and no repudiation of the claim by the petitioner. 4. Whether the counterclaims were intrinsically and irretrievably connected with the claim of the petitioner and could be brushed aside in the absence of any mandatory prohibition in the agreement. 5. Whether the Civil Judge (Senior Division) had erred in exercising his discretion under Section 115 of the Code of Civil Procedure and directing the arbitrator to decide the counterclaim along with the main claim.
Ratio Decidendi: 1. The arbitrator's finding with regard to his jurisdiction, which he arrived at by interpreting the arbitration clause, cannot be regarded as final. 2. The condition precedents in an arbitration clause, relating to the appointment of the arbitrator, are mandatory and have to be satisfied before the arbitrator can exercise jurisdiction. 3. Repudiation of a claim may not always be in express terms and can be by express or implied conduct. 4. Counterclaims that are intrinsically and irretrievably connected with the claim of the petitioner cannot be brushed aside in the absence of any mandatory prohibition in the agreement. 5. The Court has the discretion to direct the arbitrator to decide the counterclaim along with the main claim, if substantial justice requires it.
Final Decision: The High Court dismissed the revision petition filed by the petitioner, upholding the order of the Civil Judge (Senior Division) directing the arbitrator to decide the counterclaim along with the main claim.
DIPAK MISRA, J.
( 1 ) WARRANTABLENESS of the order dated 25. 3. 1995 passed by the learned Civil Judge (Senior Division), bhubaneswar in Misc: Case No. 108/93 allowing the application filed under Section 33 of the Arbitration Act, 1940, by the opposite party No. 1 herein is called in question by the present revisionist invoking the revisional jurisdiction of the Court under Section 115 of the Code of Civil Procedure.
( 2 ) THE petitioner-company had entered into an agreement with the opposite party undertaking to execute the work. "civil and misc. Works-Di-waste Water Collection System. Road Bridge-II Culverts, Micro Levelling, lining SW, Drains etc. for Alumina Plant at damanjodi, District-Koraput, Orissa" and the same was valued at Rs. 1,36,34,708. 07. As per the terms and conditions of the contracts, the Contractor was required to complete the work within a stipulated time. The contract was terminated by the opposite party No. 1 (hereinafter referred to as "the owner") on 17. 4. 1986. On receipt of the order of termination, the petitioner informed the owner on 24. 4. 1986 that the termination was illegal and unjustified and would lodge claim for losses and damage suffered by it. On 15. 5. 1986, the claim was lodged with the owner and it called upon to meet its liability and make payment or to resort to the. arbitration clause, i. e. Clause-87 of the Agreement.
( 3 ) THE Chairman-cum-Managing Director of the owner, resorting to Clause-87 of the agreement appointed opposite party No. 2 as the sole Arbitrator who entered into the reference on 15. 2. 1987. The relevant portion of the order of reference is produced hereunder. "in respect of the alleged disputes between M/s. Punj Sons (Pvt.) Ltd. , (contractor) and M/s. National aluminium company Limited arising out of contract for civil and miscellaneous works for Part-B Waste Water Collection System, road Phase-II, Culverts, Micro levelling etc. for Alumina Plant at damanjodi of NALCO, I, the Chairman-cum-managing Director of National aluminium Company Ltd. , in exercise of the powers of appointing authority as per the terms of the contract, do hereby appoint you as the Sole Arbitrator for adjudicating upon the alleged disputes xxx"
( 4 ) BEFORE the learned Arbitrator, the petitioner herein filed its statement of claim raising as many as 19 items of claims on different heads. The owner filed the counter statement denying its liability and simultaneously filed a counter claim against the claimant therein. In the counter claim, 5 items of claim along with interest were advanced and it was indicated that the counter claims emanated from the same dispute. This counter claim was filed on 5. 7. 1987. On 30:8. 1987, the petitioner filed an application praying for striking down thte claim filed by the owner on various grounds.
( 5 ) THE learned Arbitrator took up the matter and relying on the ratio of Uttam chand Saligram v. Mohammed Jaw mamooji; Mathura Das v. Kushiram ; B. B. 'rum Mfg. Co. v. Corporation ; Dillip construction Co. v. Hindustan Steel Limited , and State of Orissa v. B. C. Pasayat , expressed that the counter claim has to be looked into by the following parameters :-" (1) There must be difference or dispute between the parties before reference can be made to arbitration; (2) Any reference of a dispute or difference coming into existence during the arbitration proceeding will not within the jurisdiction of the arbitration to decide in the pending reference: (3) Dispute or difference arises when one party asserts a right and the other repudiates the same; (4) A repudiation by the other party may be either express or implied or may be by words or conduct. "
( 6 ) AFTER referring to the aforesaid touch stone, the learned Arbitrator referred to Clause-87 of the Agreement and opined that two important conditions precedent have been imposed before the Arbitrator gets jurisdiction to adjudicate any claim. The two conditions as discerned by the Arbitrator are :- (i) there sh
