NATIONAL HIGHWAY AUTHORITY OF INDIA versus TRANSSTROY (INDIA) LIMITED on 11 July 2022

SUPREME COURT REPORTS

[2022] 6 S.C.R.

ANATIONAL HIGHWAY AUTHORITY OF INDIA

v.

TRANSSTROY (INDIA) LIMITED

(Civil Appeal No. 6732 of 2021)

BJULY 11, 2022

[M. R. SHAH AND SANJIV KHANNA, JJ.]

Arbitration and Conciliation Act, 1996: s. 23(2A) – Statementsof claim and defence – Contract between appellant (NHAI) and therespondent company – Dispute between the parties referred to theCarbitrator – Application u/s. 23(2A) by the appellant to permit themto place on record its counter claim – Rejection of, by the tribunalas also the High Court – On appeal, held: When there is a provisionfor filing the counter claim-set off, which is expressly inserted in s.23, there was no reason for curtailing the right of the appellant forDmaking the counter claim or set off – If the counter claim made bythe appellant is not allowed in the proceedings arising out of theclaims made by the respondent, it may lead to parallel proceedingsbefore various fora – It would defeat the object and purpose ofpermitting to file the counter claim/set off as provided u/s. 23(2A) –Furthermore, the appellant reserved its right to claim the damagesEand even in the Statement of Defence also claimed such a set off ofRs.1.23 crores – Thus, the High Court on a narrow interpretationof Clause 26 of the Contract erred in rejecting the application –Order passed by the arbitral tribunal and the High Court quashedand set aside.

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Allowing the appeal, the Court

HELD: 1.1 It is not open for the Contractor to contendthat the counter claim was without following the procedure asrequired in Clauses 26.1 and 26.2 of the Contract Agreementand, therefore, may not be taken on record. On a true and fairGinterpretation of Clause 26, failure to resolve the dispute (in thepresent case, the termination of the Contract by the NHAI), thearbitration proceedings would be maintainable. That does notmean that only a claim and/or counter claim as sought to becontended on behalf of the Contractor now would alone beHentertained. [Para 13][966-D-E]

1.2 Both the Arbitral Tribunal as well as the High Courthave failed to appreciate the difference between the expressions“claim”, which may be made by one side and “Dispute”, whichby its definition has two sides. [Para 13.1][966-E-F]

1.3 Even the Arbitral Tribunal while rejecting the applicationof the NHAI for extension of time to file the counter claim didnot observe and/or rejected the application for extension of timeto file the counter claim on the ground that the said counter claimwould not be maintainable without following the process asrequired under Clause 26 of the Contract agreement. [Para13.2][966-G]

1.4 When the NHAI filed the application under sub-section(2A) of Section 23 of the Arbitration Act, 1996 seeking to placeon record its counter claim, Arbitral Tribunal rejected the saidapplication by observing that in the application for permitting theNHAI to place on record the counter claim, the NHAI did notstated anything about having made an attempt for such amicablesettlement. However, it is required to be noted that from thevery beginning, the NHAI reserved its right to claim the damagesand even in the Statement of Defence also claimed such a set offof Rs.1.23 crores and also specifically stated therein that theNHAI reserved its right to file the counter claim. Therefore, onthe grounds on which the Arbitral Tribunal rejected the applicationof NHAI to place on record the counter claim can be said to becontrary to the intent between the parties to resolve the dispute(which was for termination of the Contract by the NHAI) throughconciliation first. In the facts and circumstances of the case, bysuch a narrow interpretation, the Arbitral Tribunal has taken awaythe valuable right of the NHAI to submit counter claim, which isof a very huge amount thereby negotiating the statutory andcontractual rights of the NHAI and paving way for a piecemealand inchoate adjudication. [Para 13.3][968-F-H; 969-A-C]

1.5 When there is a provision for filing the counter claim-set off, which is expressly inserted in Section 23 of the ArbitrationAct, 1996, there is no reason for curtailing the right of theappellant for making the counter claim or set off. If the counter A

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Aclaim made by the NHAI in the proceedings arising out of theclaims made by the Contractor is not allowed, it may lead toparallel proceedings before various fora. While passing theimpugned judgment and order, the High Court lost sight of thesaid aspect, which ought to have been considered whileconsidering the request on behalf of the NHAI to place on recordBits counter claim. Clauses 26.1 and 26.2 have to be interpretedin a pragmatic and practical manner, as they require that theparties must at first try to settle, resolve and even try conciliationbut when the procedure under Clauses 26.1 and 26.2 fails to yielddesired result, in the form of settlement within the periodCspecified in Clause 26.2, the Dispute can be resolved througharbitration in terms of Clause 26.3. Once any dispute, differenceor controversy is notified under Clause 26.1, the entire subjectmatter including counter claim/set off would form subject matterof arbitration as “any dispute which is not resolved in Clauses26.1 and 26.2”. [Para 13.4][969-C-F]D

1.6 It is required to be noted that as such there was nodelay at all on the part of the NHAI initially praying for extensionof time to file the counter claim and/or thereafter to file applicationunder Section 23(2A) permitting it to place on record the counterclaim. In the facts and circumstances of the case, not permittingEthe NHAI to file the counter claim would defeat the object andpurpose of permitting to file the counter claim/set off as providedunder Section 23(2A) of the Arbitration Act, 1996. Withoutappreciating the said aspects, the High Court by the impugnedjudgment and order, and on narrow interpretation of Clause 26Fseriously erred in rejecting the application under Section 34/37of the Arbitration Act, 1996 and confirming the order passed bythe Arbitral Tribunal in not permitting the NHAI to file the counterclaim. The High Court ought to have appreciated that permittingthe NHAI to file the counter claim may avoid multiplicity ofproceedings. [Para 13.5][969-G-H; 970-A-B]G

1.7 The order passed by the Arbitral Tribunal and theimpugned judgment and order passed by the High Court arequashed and set aside. Consequently, the application submittedby NHAI to permit it to file the counter claim is allowed and theNHAI is permitted to file the counter claim, which the ArbitralH

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Tribunal to consider alongwith the Statement of Claim submittedby the Contractor and the Statement of Defence of claim submittedby the NHAI on its own merits. [Para 14][970-B-D]

Gujarat State Cooperative Land Development Bank Ltd.v. P.R. Mankad and Ors. (1979) 3 SCC 123 : [1979] 2SCR 1023; Major (Retd.) Inder Singh Rekhi v. DelhiDevelopment Authority (1988) 2 SCC 338 : [1988] 3SCR 351; State of Goa v. Praveen Enterprises, (2012)12 SCC 581 : [2011] 10 SCR 1026; Bharat PetroleumCorporation Limited v. Go Airlines (India) Limited(2019) 10 SCC 250; Silpi Industries Etc. v. Kerala StateRoad Transport Corporation and Anr. (2021) SCCOnline SC 439; Kolkata Metropolitan DevelopmentAuthority v. Hindustan Construction Co. Ltd., (2017)SCC OnLine Cal 18978; M.K. Shah Engineers &Contractors v. State of MP. (1999) 2 SCC 594 : [1999]1 SCR 419; Nirman Sindia v. Indal Electromelts Ltd.,Coimbatore (1999) SCC OnLine Ker 149.

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Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6732of 2021.

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From the Judgment and Order dated 27.02.2018 of the High Courtof Delhi at New Delhi in O.M.P. (COMM) No.459 of 2017.

Ms. Madhavi Diwan, ASG, C. S. Chauhan, A. Venayagam Balan,Advs. for the Appellant.

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Nakul Dewan, Sr. Adv., Ms. Neelu Mohan, Ms. Kavita Jha,Surekh Baxy, Parag Rai, Advs. for the Respondent.

AThe Judgment of the Court was delivered by

M. R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court of Delhi in OMP No.459 of 2017 bywhich the High Court has dismissed the said petition under Section 34 ofBthe Arbitration and Conciliation Act, 1996 (hereinafter referred to as“the Arbitration Act, 1996”) in which the appellant – National HighwayAuthority of India (hereinafter referred to as “NHAI”) prayed to setaside the Arbitral Award dated 15.09.2017 and also the order passed bythe Arbitral Tribunal not entertaining and/or considering the counter claimCfiled by the NHAI, the original petitioner – NHAI has preferred thepresent appeal.2. The facts leading to the present appeal and the case on behalfof the appellant – NHAI are as under:- 2.1 That the NHAI and the respondent entered into a contract.DAn Engineering Procurement and Construction (EPC) Agreement(hereinafter referred to as “Contract”) was executed between the partieson 13.11.2014 in respect of “improvement/augmentation of two laningwith paved shoulders from km.94/000 to km.174/000 (design chainagefrom km.94/000 to km.174/000) of Karaikudi-Ramanathapuram SectionEof National Highway No. 210 including 500m on SH-35 Madurai Road(near Devakottai Rasta Railway Station) in the State of Tamil Nadu onEPC mode (total design length 80.00kms) under NHDP PHASE-III”.

2.2 According to the NHAI, the respondent/Contractor was incontinuous breach of specific obligations under the Contract for which aFcure period notice was issued by the NHAI under Clause 23.1.1 of theContract as far as back on 29.09.2015 calling upon the Contractor tocure the defaults within 60 days. The Contractor failed to cure the defectspointed out by the NHAI, thus, a notice of intention to terminate theContract 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’sGnotice of intention to terminate the contract. Having found the replytotally unsatisfactory, the NHAI issued a termination notice dated22.07.2016 under Clause 23.1.2 of the Contract. It is the case on behalfof the appellant – NHAI that the NHAI specifically stated in thetermination notice that “the same is without prejudice to the Authority’sright to claim damages for the Contractor’s failure to comply with theH

unambiguous obligations casted upon it under the Contract and/or torealize any dues, losses and damages whatsoever under the Contract orunder applicable laws, as the case may be”.

2.3 On receipt of the termination notice, the respondent/Contractoraddressed a letter to the NHAI on 02.01.2017 to refer certain disputesfor 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 requestedthe NHAI to nominate its Arbitrator so that the Presiding Arbitrator maybe appointed. The NHAI nominated its arbitrator by letter dated10.03.2017 which was followed by the appointment of the PresidingArbitrator. Accordingly, the Arbitral Tribunal came to be constituted.The Contractor filed the Statement of Claim on 15.05.2017. The NHAIfiled its statement of defence on 11.07.2017. It is the case on behalf ofthe NHAI that both in the termination notice dated 22.07.2016 as wellas in the Statement of Defence dated 11.07.2017, the NHAI reservedits right to claim damages and stated that it would file its counter claimseparately.

2.4 On 13.07.2017, i.e., after two days of filing the Statement ofDefence by the NHAI, the NHAI sent a letter to the Arbitral Tribunalseeking extension of time for filing the counter claim. Vide email dated18.07.2017 the Arbitral Tribunal rejected the NHAI’s request seekingextension of time for filing the counter claim and stated that no applicationhas been filed by the NHAI for filing counter claim. It appears thatthereafter the NHAI moved an application before the Arbitral Tribunalunder Section 23(2A) of the Arbitration Act to place its counter claim onrecord. It appears that on the very same day, the NHAI filed its counterclaim before the Arbitral Tribunal. The Arbitral Tribunal rejected theNHAI’s application permitting it to place on record the counter claimvide order dated 15.09.2017, essentially on the ground that the procedureunder Clauses 26.1 and 26.2 had not been followed by the NHAI andtherefore, the counter claim was beyond the scope of arbitrationagreement and adjudication of the said dispute is not within the jurisdictionof the Arbitral Tribunal.

2.5 Feeling aggrieved and dissatisfied with the order passed bythe Arbitral Tribunal dated 15.09.2017 dismissing the application filed bythe NHAI seeking permission to place on record the counter claim andholding that the dispute raised by the NHAI in the counter claim is not A

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Awithin the scope of arbitration agreement and that the dispute sought tobe filed is contractually not arbitrable and the adjudication of the saiddispute is not within the jurisdiction of the Arbitral Tribunal, NHAIpreferred the appeal under Section 34 of the Arbitration Act, 1996 beforethe High Court of Delhi.

B2.6 Before the High Court, an objection was raised on behalf ofthe Contractor on maintainability of the application under Section 34 ofthe Arbitration Act, 1996. However, treating the order dated 15.09.2017passed under Section 16(2) of the Arbitration Act, 1996, the High Courthas treated the proceedings before it as one under Section 37(2) of theArbitration Act, 1996 while deciding on the admissibility of the counterCclaim and thereafter has decided the same on merits.

2.7 By the impugned judgment and order, the High Court hasdismissed the said application and has confirmed the order passed bythe Arbitral Tribunal dated 15.09.2017 rejecting the application submittedby NHAI to take the counter claim on record.D

2.8 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court, the NHAI has preferred the presentappeal.

3. Ms. Madhavi Diwan, learned ASG has appeared on behalf ofEthe NHAI and Shri Nakul Dewan, learned Senior Advocate has appearedon behalf of the respondent – Contractor.

4. Ms. Madhavi Diwan, learned ASG appearing on behalf of theNHAI has vehemently submitted that in the facts and circumstances ofthe case, the High Court has committed a grave/serious error in confirmingFthe order passed by the Arbitral Tribunal not taking on record the counterclaim 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 appreciatethat the counter claim was based on common/overlapping cause of action.It is submitted that the arbitration invoked by the Contractor arose out ofGthe very termination notice which had been issued by the NHAI.Therefore, the foundation of the Contractor’s case before the ArbitralTribunal is the validity of such termination. Therefore, there was noquestion of seeking to hair split the dispute between the parties. It wouldlead to unnecessary multiplicity of proceedings and needless cost and H

inconvenience when the evidence itself is also common because thedispute arises out of the same transaction.

4.2 It is further submitted by Ms. Diwan, learned ASG that assuch Clause 26 can be invoked by either party. It is submitted that Clause26 of the Contract is self-explanatory, where it refers to ‘any dispute’,difference or controversy being required to be attempted to be amicablyresolved in accordance with the conciliation procedure under Clause26.2. It is submitted that the provision requires the same to be notified inwriting by either party. Likewise, Clause 26.2 states that either partymay call upon the Authority’s Engineer or such other person as the partiesmay mutually agree upon to mediate and arrive at an amicable settlement.It is submitted that the reason and the rationale behind permitting eitherparty to invoke Clause 26.1 is that by its very definition ‘a dispute’ is twosided. On interpretation of the word ‘dispute’, reliance is placed uponthe decisions of this Court in the case of Gujarat State CooperativeLand 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 submittedby Ms. Madhavi Diwan, learned ASG that in the present case, the word“Dispute” has been used by the Contractor itself in its notice dated02.01.2017 as well as in his letter dated 09.02.2017 whereby theContractor itself had referred the Termination Notice as an unilateraldecision from which a “Dispute” has arisen. It is submitted that thus, theDispute in the present case is with regard to the termination notice dated22.07.2016 issued by the NHAI. It is submitted that therefore, it wouldbe a travesty of process to interpret “Dispute” as only allowing for theclaim made on behalf of the Contractor to be submitted to the processcontemplated under Clause 26. It is submitted that the Arbitral Tribunaland the High Court have failed to appreciate the difference between theexpressions ‘claim’ which may be made by one side and ‘Dispute’ whichby its definition has two sides. It is submitted that the language of Clause26 itself contemplates that “either party” to the dispute may invoke thisprocedure. It is submitted that therefore there can be no question ofduplication of very same process which has been invoked beforehandand eventually culminated in arbitration process. It is submitted that thesecond round under Clause 26 would in any event be an exercise infutility in as much as very same issue would have been brought up namely A

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Awhether termination of contract was lawful or not, which issue by thenwas already pending before the Arbitral Tribunal.

4.4 It is further submitted that the Arbitral Tribunal as well as theHigh Court have failed to appreciate that it was the NHAI who wascompelled to terminate the contract after providing sufficient opportunitiesBto the Contractor to cure the defects. The NHAI specifically reservedits right in the termination notice itself to claim damages which is a naturalconsequence of termination for Contractor’s failure to comply with itsobligations. It is submitted that therefore the contention on behalf of theContractor that the counter claim was by surprise or by way ofcounterblast be stated to be rejected.

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4.5 It is submitted that even it cannot be said that NHAI bysubmitting the counter claim has bypassed the procedure which the partieshad agreed. It is submitted that there can be no question of bypassingthe procedure when that stage has already passed in the present case. Itis submitted that Clause 26 does not contemplate repeated invocation ofDsame procedure when there is an overlapping cause of action and therepetition of process would be completely meaningless.

4.6 It is submitted that as per the settled position of law, rules orprocedures are the handmaids and not the mistress of justice. Theprocedural provisions cannot be interpreted in a hyper-technical mannerEto waste the time and resources of parties contrary to the letter andspirit of the Arbitration Act.

4.7 It is vehemently submitted by Ms. Diwan, learned ASG thatin the present case not taking on record the counter claim filed by theNHAI, the Arbitral Tribunal and the High Court both have lost sight ofFthe very object and purpose of Section 23(2A) which is meant to provideconvenience to the parties in being able to file the entirety of their claim/counter claim, etc. before the Arbitral Tribunal. It is submitted thattherefore, there was absolutely no reason for the High Court to haveexcluded the counter claim which was sought to be filed before theGArbitral Tribunal by the NHAI within two days of filing of its Statementof Defense. It is submitted that Section 23 has been amended pursuantto the recommendation of the Law Commission of India in its ReportNo. 246 “to ensure that counter claims and set off can be adjudicatedupon by an arbitrator without seeking a separate/new reference by therespondent so long as it falls within the scope of the arbitration agreement, H

in order to ensure final settlement of disputes between parties and preventmultiplicity of litigation”.

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4.8 Making above submissions and relying upon the decisions ofthis Court in the case of State of Goa Vs. Praveen Enterprises, (2012)12 SCC 581; Bharat Petroleum Corporation Limited Vs. GoAirlines (India) Limited, (2019) 10 SCC 250; Silpi Industries Etc.Vs. Kerala State Road Transport Corporation and Anr., 2021 SCCOnline SC 439 and the decision of the Calcutta High Court in the caseof Kolkata Metropolitan Development Authority Vs. HindustanConstruction Co. Ltd., 2017 SCC OnLine Cal 18978 (against whichSpecial Leave Petition (C) Nos. 18443-18444 of 2018 were filed andthe same were dismissed by this Court by order dated 23.07.2018), it isprayed to allow the present appeal and to direct the Arbitral Tribunal totake on record the counter claim filed by the NHAI and adjudicate thesame in accordance with law.

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5. Present appeal is vehemently opposed by Shri Nakul Dewan,learned Senior Advocate appearing on behalf of the respondent –Contractor.

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5.1 Shri Nakul Dewan, learned Senior Advocate appearing onbehalf of the respondent – Contractor has made following broadsubmissions in support of his prayer to dismiss the present appeal. Hehas submitted as under:- E

(i) Clause 26 of the EPC Contract mandatorily required theparties to attempt to amicably settle the Disputes (identifiedand crystallised prior to the reference) as a pre-conditionto the invocation of arbitration. That has not been done bythe appellant – NHAI with respect to its counter claim.

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(ii) The term “Disputes” defined and set out in Clause 26.1.1.has to be strictly construed to mean those disputes whichwere identified by any party and referred for conciliationunder Clause 26.1.1 read with Clause 26.2. No suchidentification had been done by the appellant - NHAI forGits counter claim, meaning thereby that they cannot be raisedby the appellant - NHAI.

(iii) The mere reservation of rights would not entitle either partyto bypass the contractually agreed mechanism under Clause26 of the EPC Contract.

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(iv) Section 23(2A) of the Act does not permit a counter claimto be raised in a manner which is inconsistent with theagreement of the parties.

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5.2 Elaborating above submissions, it is submitted by Shri NakulDewan, learned Senior Advocate appearing on behalf of the respondentB– Contractor that Clause 26 of the EPC Contract is clear andunambiguous. It lays down a two-step process prior to the invocation ofthe arbitration process. It is submitted that the EPC Contract does notcontemplate parties directly raising claims by directly resorting toarbitration without going through the steps set out in Clause 26. It issubmitted that Step 1 can be said to be “Notification of Disputes”. In theCevent that a “dispute, difference, or controversy” has arisen betweenthe parties, then it has to be “notified in writing’ to the other party. Thisnotification can be done by any party which has a dispute. Suchnotification then gives rise to a “Dispute” defined and contemplated underClause 26.1.1 of the EPC Contract D

5.3 It is submitted that Step 2 is with respect to “Resolution byamicable settlement”. Under the Step 2, the parties are then required toattempt to amicably resolve the “Dispute” in accordance with theconciliation procedure set out at Clause 26.2. The mandatory requirementof conciliation is evident by the use of the word “shall” in Clause 26.1.1.EIt is submitted that as per Clause 26.2, the dispute is required to bemediated by NHAI’s Engineer or such other person as mutually decided,which is called the Conciliator under the EPC Contract. Failing suchmediation or without the intervention of the Conciliator, either party mayrefer the dispute to NHAI’s Chairman for amicable settlement, followingthe time-bound procedure set out in Clause 26.2.

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5.4 It is submitted that Step 3 is “Invocation of arbitration”. It issubmitted that it is only on the failure to resolve the dispute amicably thatthe Dispute notified under Clause 26.1.1. is thereafter referred toarbitration. Clause 26.3.1 clearly lays down that any “Dispute, which isnot resolved amicably as provided under Clause 26.1 and Clause 26.2”Gshall be finally referred to arbitration. It is submitted that therefore onlythose Disputes which are not resolved after Steps 1, 2 and 3 alone, canbe the subject matter of dispute before the Arbitral Tribunal.

5.5 It is submitted that any interpretation permitting the parties tobypass the mechanism laid down in the EPC Contract, unless waived, H

would amount to a rewriting of the contract. It is submitted that asobserved and held by this Hon’ble Court in the case of M.K. ShahEngineers & Contractors Vs. State of MP. (1999) 2 SCC 594, apre-arbitral requirement is an essential facet of the arbitration clause.Reliance is also placed on the decision of the Kerala High Court in thecase of Nirman Sindia v. Indal Electromelts Ltd., Coimbatore 1999SCC 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 acontract agree to any special mode for resolution of the disputes arisingout of the agreement and they are bound to comply with the modeprescribed under the agreement. Without resorting to the first stepprovided for the resolution of the dispute in the agreement they cannotjump to the second step or to the final step to settle the disputes betweenthe parties”.

5.6 It is further submitted by Shri Nakul Dewan, learned SeniorAdvocate appearing on behalf of the respondent – Contractor that themandatory and enforceable nature of contractually stipulated pre-conditions to arbitration, which are aimed at dispute resolution throughmediation or negotiations, have also been held to be enforceableinternationally.

5.7 It is submitted that therefore as Clause 26 of the EPC Contractis mandatory in nature, no claim should be allowed to be introduced in amanner contrary to the contractual mechanism may be by way of counterclaim.

5.8 It is further submitted by Shri Nakul Dewan, learned SeniorAdvocate appearing on behalf of the respondent – Contractor that in thepresent 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 otherParty”. It is submitted that Clause 1.1 of the EPC Contract further setsout that “words and expressions beginning with capital letters and definedin this Agreement ... shall, unless the context otherwise requires, havethe meaning ascribed thereto herein ...

5.9 It is submitted that therefore having contractually agreed toonly define notified disputes as “Disputes” and further restricting thereference of only such “Disputes” to arbitration under Clause 26.3 asonly those which are notified by parties under Clause 26.1 and referred AB

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Ato conciliation under Clause 26.2, no other interpretation, contrary to thewritten contract should be taken. That is because Courts give effect tothe contractual bargain of the parties unless such bargain is contrary tostatute or against public policy, neither of which exception has or can bepleaded in this case.

B5.10 It is submitted that the submission on behalf of the NHAIthat the counter claims arise out of the unlawful termination of the EPCContract, and that it falls within the definition of “Dispute” and that theterm “Dispute” ought to be widely construed to include the counter claimsthat may arise out of the termination of the EPC Contract is to be rejectedoutright. It is submitted that the use of the words “any Dispute” used inCClause 26.3.1 also ought to be accordingly construed to mean only thosematters which have been notified by the parties for amicable settlementunder 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 stageDof termination as well as of filing its Statement of Defence, it is entitledto raise the counter claim and the submission that permitting the NHAIto file the counter claim would avoid multiplicity, it is submitted that thesaid assertion is without any basis. It is submitted that the mandatorynature of Clause 26 which required a party to crystallise and notify itsEDispute to the other party is a clause which seeks to ensure that onlythose claims that are notified get adjudicated.

5.12 It is submitted that if the NHAI had any genuine claim, thenit ought to have notified the respondent - Contractor in accordance withClause 26.1.1 of the EPC Contract. The NHAI could have done soFeven after the Contractor sought to refer the Disputes to arbitrationwhere 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 itsrights to refer any counter claims to arbitration. It is submitted that thatbeing the case, the NHAI should not be allowed to introduce a counterGclaim of INR 208 crores through a circuitous interpretation of Section23(2A) of the Act.

5.13 Now, so far as reliance placed upon Section 23(2A) of theAct relied upon on behalf of the NHAI, it is submitted that though Section23(2A) of the Act recognises the right of a respondent to raise counterH

claims, the language of the statute is clear. In terms of Section 23(2A),the Tribunal has jurisdiction over such counter claims, “if such counterclaim 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 thearbitration agreement, as set out under Section 23(2A) of the Act, mustbe ascertained by a conjoint reading of Sections 2(1)(b), 7 and 21 of theAct read along with the arbitration clause. It is submitted that on a conjointreading of the aforesaid provisions of the Arbitration Act, 1996, it isapparent that parties are fully entitled to choose which disputes get referredto arbitration. The same is consistent with the recognition of the partyautonomy. It is submitted that in the present case, the parties have chosenthrough the mechanism set out under Clause 26.1.1 read with Clause26.3.1 that only those disputes notified by one party to the other and firstcategorised under the head of a Dispute which cannot be “resolvedamicably” under Clause 26.2 can be referred to arbitration. It is submittedthat therefore a counter claim directly brought before the Tribunal withouthaving been categorised as a “Dispute” in terms of Clause 26.1 and thattoo by bypassing the mandatory pre-conditions agreed between the partieswould fall outside the scope of the arbitration agreement as specifiedunder Section 23(2A) and hence beyond the jurisdiction of the Tribunal.

5.14 Making above submissions, it is vehemently submitted thatin the present case, both the Arbitral Tribunal as well as the Hon’bleHigh Court have not committed any error in not permitting the NHAI tofile the counter claim, which was filed straightaway before the ArbitralTribunal 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 partiesat length.

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

Whether in the facts and circumstances of the case, theHigh Court as well as the Arbitral Tribunal have committed anyerror in rejecting the application submitted by NHAI under Section23(2A) of the Arbitration Act, 1996 not permitting the NHAI totake 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 A

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Athe NHAI reserved its right to claim damages and stated that it wouldfile its counter claim separately and after two days only, i.e., on13.07.2017, sent a letter to the Arbitral Tribunal seeking extension oftime for filing the counter claim, which came to be rejected by the ArbitralTribunal vide e-mail on 18.07.2017. That thereafter, immediately the NHAImoved an application before the Arbitral Tribunal under Section 23(2A)Bof the Arbitration Act, 1996 to place its counter claim on record. In thisfactual background, the aforesaid issue/question posed for considerationof this Court is required to be considered.

9. While answering the aforesaid question, the relevant clausesof the Contract between the parties and the relevant provisions of theCArbitration Act, 1996 are required to be referred to.

10. Clause 26 of the Contract is with respect to the disputeresolution. Clause 26.1 to Clause 26.3.1, which are relevant for ourpurpose are as under:- D“26.1 Dispute Resolution 26.1.1Any dispute, difference or controversy of whatevernature howsoever arising under or out of or in relationto this Agreement (including its interpretation) betweenthe Parties, and so notified in writing by either Party toEthe other Party (the “Dispute”) shall, in the first instance,be attempted to be resolved amicably in accordance withthe conciliation procedure set forth in Clause 26.2.

26.1.2The Parties agree to use their best efforts for resolvingall Disputes arising under or in respect of this AgreementFpromptly, equitably and in good faith, and further agreeto provide each other with reasonable access duringnormal business hours to all non-privileged records,information and data pertaining to any Dispute.

26.2ConciliationGIn the event of any Dispute between the Parties, eitherParty may call upon the Authority’s Engineer, or suchother person as the Parties may mutually agree upon(the “Conciliator”) to mediate and assist the Parties inarriving at an amicable settlement thereof. Failingmediation by the Conciliator or without the interventionH

of the Conciliator, either Party may require such Disputeto be referred to the Chairman of the Authority and theChairman of the Board of Directors of the Contractorfor amicable settlement, and upon such reference, thesaid persons shall meet no later than 7 (seven) businessdays from the date of reference to discuss and attemptto amicably resolve the Dispute. If such meeting doesnot take place within the 7 (seven) business day periodor the Dispute is not amicably settled within 15 (fifteen)days of the meeting or the Dispute is not resolved asevidenced by the signing of written terms of settlementwithin 30 (thirty) days of the notice in writing referredto in Clause 26.1.1 or such longer period as may bemutually agreed by the Parties, either Party may referthe Dispute to arbitration in accordance with theprovisions of Clause 26.3.

26.3Arbitration

26.3. “Any Dispute, which is not resolved amicably as providedin clause 26.1 & 26.2 shall be finally settled by arbitrationas set forth below:

i)The Dispute shall be finally settled by arbitration inaccordance with the Arbitration & Conciliation Act, 1996,or any statutory amendment thereof. The Arbitral tribunalshall consist of 3 Arbitrators, one each to be appointedby NHAI and the Contractor. The third Arbitrator shallbe chosen by the two Arbitrators so appointed by theParties and shall act as Presiding Arbitrator. In case offailure of the two Arbitrators, appointed by the partiesto reach upon a consensus within period of 30 days fromthe appointment of the Arbitrator appointed subsequently,the Presiding Arbitrator shall be appointed by theChairman of the Executive Committee of the IndianRoads Congress.

ii)

Neither party shall be limited in the proceedings beforesuch Tribunal to the evidence or arguments before theother party /Independent consultant.

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Aiii)Arbitration may be commenced during or after theContract Period, provided that the obligations of NHAIand the Contractor shall not be altered by reason of thearbitration being conducted during the Contract Period.

iv)If one of the parties fails to appoint its Arbitrator inBpursuance of Sub-Clause (1) above, within 30 days afterreceipt of the notice of the appointment of its Arbitratorby the other party, then the Chairman of the ExecutiveCommittee of the Indian Roads Congress, shall appointthe Arbitrator. A certified copy of the order of theChairman of the Executive Committee of the IndianCRoads Congress making such an appointment shall befurnished to each of the parties.

v)Arbitration proceedings shall be held at Delhi, India, andthe language of the Arbitration Proceedings and that ofall documents and communications between the partiesshall be English.

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11. Section 23 of the Arbitration Act, 1996 as amended by ActNo. 3 of 2016 is as under:- E

E“23. Statements of claim and defence.—(1) Within the periodof time agreed upon by the parties or determined by the arbitraltribunal, the claimant shall state the facts supporting his claim, thepoints at issue and the relief or remedy sought, and the respondentshall state his defence in respect of these particulars, unless theFparties have otherwise agreed as to the required elements of thosestatements.

(2) The parties may submit with their statements alldocuments they consider to be relevant or may add a referenceto the documents or other evidence they will submit.

(2A) The respondent, in support of his case, may also submita counter-claim or plead a set-off, which shall be adjudicated uponby the arbitral tribunal, if such counter-claim or set-off falls withinthe scope of the arbitration agreement.

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(3) Unless otherwise agreed by the parties, either partymay amend or supplement his claim or defence during the course H

of the arbitral proceedings, unless the arbitral tribunal considers itinappropriate to allow the amendment or supplement having regardto the delay in making it.

(4) The statement of claim and defence under this sectionshall be completed within a period of six months from the date thearbitrator 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 thenature of conciliation. Both the parties are given opportunity to resolvethe dispute amicably and efforts are to be made through conciliation toresolve the “Dispute” and thereafter the “Dispute”, which is not resolvedamicably, shall have to be finally settled by the arbitration. The wordsused are “any dispute, difference or controversy of whatever naturehowsoever arising under or out of or in relation to this agreement betweenthe parties……..”. It is required to be noted that in the present case, thecause for the dispute between the parties was the termination of thecontract by the NHAI. As far as the said dispute of termination of noticewas required to be resolved amicably as per the procedure prescribedunder Clauses 26.1 and 26.2 of the Contract Agreement. It may be truethat in a given case, the “Dispute” may include the claims and/or counterclaims, but, at the same time, the main dispute can be said to betermination of the contract, which as observed hereinabove was requiredto be resolved through conciliation after following the procedure as above.In the present case, the communication dated 02.01.2017 addressed bythe Contractor to the Chairman, NHAI, it was stated as under:- “Due to this unilateral action of the Authority a Dispute has arisenbetween the parties to the agreement. As the dispute has alreadyarisen, it is required the dispute to be referred to the Chairman ofthe Authority in accordance with the Clause 26.2 of the ContractAgreement for an amicable settlement.”

12.1 Even in the notice invoking arbitration dated 09.02.2017, it isstated as under:- “However the Authority has terminated the Contract Agreementand invoked the performance Bank Guarantee of Rs.21.00 Cr.

Due to this unilateral and illegal action of the Authority by a Disputehas arisen between the parties to the agreement.

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AIn accordance with the Clause 26.3.1 of the Contract Agreement“Any dispute which is not resolved amicably as provided in Clause26.1 & 26.2 shall be finally settled by arbitration as set forth below”

i)The Dispute shall be finally settled by arbitration in accordancewith the Arbitration & Conciliation Act, 1996, or any statutoryBamendment thereof. The Arbitral tribunal shall consist of 3Arbitrators, one each to be appointed by NHAI and theContractor. The third Arbitrator shall be chosen by the twoArbitrators so appointed by the Parties and shall act asPresiding Arbitrator.

Cii)Accordingly we are nominating Shri D Sree Rama Murthy,as our arbitrator, whose consent is enclosed herewith. Wehumbly request you to nominate your arbitrator so that thethird arbitrator shall be appointed by the two arbitrators soappointed by the Parties and shall act as Presiding Arbitrator.”

D13. Therefore, thereafter, it is not open for the Contractor tocontend that the counter claim was without following the procedure asrequired in Clauses 26.1 and 26.2 and, therefore, may not be taken onrecord. On a true and fair interpretation of Clause 26, failure to resolvethe dispute (in the present case, the termination of the Contract by theNHAI), the arbitration proceedings would be maintainable. That doesEnot mean that only a claim and/or counter claim as sought to be contendedon behalf of the Contractor now would alone be entertained.

13.1 Both the Arbitral Tribunal as well as the High Court havefailed to appreciate the difference between the expressions “claim”,which may be made by one side and “Dispute”, which by its definitionFhas two sides.

13.2 At this stage, it is required to be noted that even the ArbitralTribunal while rejecting the application of the NHAI for extension oftime to file the counter claim did not observe and/or rejected theapplication for extension of time to file the counter claim on the groundGthat the said counter claim would not be maintainable without followingthe process as required under Clause 26 of the Contract agreement.The order dated 18.07.2017 passed by the Arbitral Tribunal rejecting theapplication submitted by NHAI for extension of time to file the counterclaim is as under:- H

“This has reference to the respondent’s letter dated July 13, 2017making request for extending the lime by 4 weeks for filing of thecounterclaims. In this connection the AT has to remind therespondent that at the time of first and preliminary meeting heldon 20.04.2017, while fixing the schedule for filing of pleadings bythe parties, the AT had specifically brought the fact to the noticeof both the parties including the respondent, vide para 12.0 of theminutes of the said meeting, that the present arbitral matter iscovered under the Act of 1996 as amended in year 2015 andtherefore the adjudication is to be completed within one year andtherefore the directions given by the AT shall be complied withwithin the time frame indicated without being required to seekany postponement or extension of time. Further the last date forfiling of the SOD was determined in consultation with therespondent to be on or before 30.06.2017. The SOD was howeverfiled by the respondent on 11.07.2017 after seeking an extensionof time for 2 weeks. The AT had granted the said extension witha view to give the respondent a reasonable opportunity to presentits case. Now the respondent is seeking an extension of time forfiling of the counterclaims.

It may be mentioned here that the claimant has, vide its emaildated 18.07.2017, objected to grant of any extension of time forfiling of the counterclaims for the reasons stated therein,

The AT has given thought to request made by the respondenttaking into consideration the procedure and schedule of filing ofpleadings agreed upon by both the parties as detailed in theProceedings of the AT dated 20.04.2017 and the Act of 1996 asamended in year 2015.

The AT observes that sub-sections 23(2) and 23(2A) of theamended Act of 1996, read together provide that the respondentmay, in support of his case, also submit a counterclaim or plead aset-off, along with its Statement of Defence for adjudication bythe AT. The AT observes that the respondent has pleaded a set-off of Rs. 1.23 crores vide its Statement of Defence; while asregards the counterclaims, it has been stated therein that therespondent reserves its right to file the counterclaims. Therespondent has not stated any applicable law in respect of reservingsuch right.

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In the above background, the AT observes that (i) during theproceedings the procedure and schedule for filing the pleadingswere determined by the AT as agreed to by both the parties; thatthere is no mention therein for filing of the counterclaims by therespondent and (ii) the Statement of Defence has already beenfiled by the respondent, with set-off and without any counterclaimas per the procedure agreed to by and between the parties, exceptthat the respondent has sue moto reserved its right to filecounterclaim at a later date. Thereafter there is no application bythe respondent for filing of any counterclaim. In the abovecircumstances, there is no question of having any date determinedby the AT or agreed upon by the parties for filing the counterclaimby the respondent, and if there is no date fixed or agreed upon forfiling of the counterclaims, the question of its extension does notarise. Therefore, the AT orders that the request for an extensionof time for filing of the counterclaim made by the respondent isnot in accordance with applicable law and is irrelevant in view ofthe factual circumstances as above.

In view of the delay in filing of the SOD by the respondent, theclaimant shall file its rejoinder thereon, if any, on or before05.08.2017 and the statement of admission and denial of documentsshall be filed by the parties on or before 11.08.2017i.e. the date ofthe next meeting of the AT.

The above decision of the AT does not preclude the respondentfrom having another legal remedy in respect of its claims.

The above Order is issued by the Presiding Arbitrator in consultationwith and on behalf of the AT.”

13.3 However, thereafter, when the NHAI filed the applicationunder sub-section (2A) of Section 23 of the Arbitration Act, 1996 seekingto place on record its counter claim, by order dated 15.09.2017, theArbitral Tribunal rejected the said application by observing that in theapplication for permitting the NHAI to place on record the counter claim,the NHAI has not stated anything about having made an attempt forsuch amicable settlement. However, it is required to be noted that fromthe very beginning, the NHAI reserved its right to claim the damagesand even in the Statement of Defence also claimed such a set off ofRs.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 theArbitral Tribunal had rejected the application of NHAI to place on recordthe counter claim can be said to be contrary to the intent between theparties to resolve the dispute (which was for termination of the Contractby the NHAI) through conciliation first. In the facts and circumstancesof the case, by such a narrow interpretation, the Arbitral Tribunal hastaken away the valuable right of the NHAI to submit counter claim,which is of a very huge amount thereby negotiating the statutory andcontractual rights of the NHAI and paving way for a piecemeal andinchoate adjudication.

13.4 When there is a provision for filing the counter claim – setoff, which is expressly inserted in Section 23 of the Arbitration Act,1996, there is no reason for curtailing the right of the appellant for makingthe counter claim or set off. If we do not allow the counter claim madeby the NHAI in the proceedings arising out of the claims made by theContractor, it may lead to parallel proceedings before various fora. Whilepassing the impugned judgment and order, the High Court has lost sightof the aforesaid aspect, which ought to have been considered whileconsidering the request on behalf of the NHAI to place on record itscounter claim. Clauses 26.1 and 26.2 have to be interpreted in apragmatic and practical manner, as they require that the parties must atfirst try to settle, resolve and even try conciliation but when the procedureunder Clauses 26.1 and 26.2 fails to yield desired result, in the form ofsettlement within the period specified in Clause 26.2, the Dispute can beresolved through arbitration in terms of Clause 26.3. Once any dispute,difference or controversy is notified under Clause 26.1, the entire subjectmatter including counter claim/set off would form subject matter ofarbitration as “any dispute which is not resolved in Clauses 26.1 and26.2”.

13.5 At this stage, it is required to be noted that as such therewas no delay at all on the part of the NHAI initially praying for extensionof time to file the counter claim and/or thereafter to file application underSection 23(2A) permitting it to place on record the counter claim. In thefacts and circumstances of the case, we are of the opinion that notpermitting the NHAI to file the counter claim would defeat the objectand purpose of permitting to file the counter claim/set off as providedunder Section 23(2A) of the Arbitration Act, 1996. Without appreciatingthe aforesaid aspects, the High Court has by the impugned judgment AB

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Aand order, and on narrow interpretation of Clause 26 has seriously erredin rejecting the application under Section 34/37 of the Arbitration Act,1996 and confirming the order passed by the Arbitral Tribunal in notpermitting the NHAI to file the counter claim. The High Court ought tohave appreciated that permitting the NHAI to file the counter claim mayavoid multiplicity of proceedings.B

14. In view of the above and for the reasons stated above, theorder passed by the Arbitral Tribunal dated 15.09.2017 and the impugnedjudgment and order passed by the High Court deserve to be quashedand set aside and are accordingly quashed and set aside. Consequently,the application submitted by NHAI to permit it to file the counter claimCis hereby allowed and the NHAI is permitted to file the counter claim,which the Arbitral Tribunal to consider alongwith the Statement of Claimsubmitted by the Contractor and the Statement of Defence of claimsubmitted by the NHAI on its own merits. In view of the delay occasionedby the impugned orders, we direct that the period between 18.07.2017

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

Pending applications, if any also stand disposed of.

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Nidhi Jain

Appeal allowed.

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