PETROLEUM CORPORATION LIMITED versus GO AIRLINES (INDIA) LIMITED on 23 October 2019

1. Leave granted.G

2. This appeal arises out of the judgment dated 07.12.2011 passedby the High Court of Bombay in Arbitration Appeal (Lodging) No.14228of 2011 in and by which the High Court allowed the appeal filed by therespondent-Go Airlines by holding that the Arbitrator has the jurisdictionto consider the counter claim relating to CENVAT credit thereby settingHaside the order passed by the Arbitrator.

3. Brief facts which led to filing of this appeal are as under:- An Agreement for Aviation Fuel Supply dated 01.01.2007 wasentered into between the parties under which the appellant-BharatPetroleum Corporation Limited (BPCL) was to supply and sale of Aviationfuel to the respondent-Go Airlines (India) Limited. Initially, the agreementwas entered into for the period from 01.01.2007 to 31.03.2009. By virtueof the second agreement dated 01.04.2009, another Aviation Fuel SupplyAgreement was entered into between the appellant and the respondentfor the period from 01.04.2009 to 31.03.2011. On 06.07.2009, the appellantissued letter to the respondent along with the statement giving details ofinvoices and requesting inter alia that the payment of outstanding duesas well as the interest amount of Rs.1.45 crores be released immediately.In reply to the said letter, the respondent by its e-mail dated 06.07.2009stated inter alia that the outstanding interest was Rs.1.41 crores andnot Rs.1.45 crores as mentioned in the said letter dated 06.07.2009. Asthe payments were not made, the appellant-BPCL put the respondent-Airlines on “Cash and Carry” terms on account of default in makingpayment for supply of fuel and interest on delayed payment.

4. Dispute arose between the parties when the appellant raised aclaim for interest for the delayed payments of the fuel supplied duringthe period from 01.04.2009 to 31.03.2011. The respondent did not acceptany amount payable towards interest. Since the dispute in respect of theliability and payment of interest on delayed payment could not be resolvedthrough mutual correspondence between the parties, the appellant videits notice dated 25.03.2010 invoked arbitration clause i.e. Clause No.12of the agreement dated 01.01.2007 suggesting the name of Mrs. Justice(Retd.) Sujatha Manohar as the sole Arbitrator. The respondent vide itsletter dated 27.04.2010 agreed to the dispute being referred for arbitrationand accepted Mrs. Justice (Retd.) Sujatha Manohar as the Arbitrator.In the said letter, respondent stated that they are sure that the learnedArbitrator would be able to adjudicate the issues appropriately consideringthe respondent’s various claims against appellant-BPCL. The appellantraised a claim for an aggregate sum of Rs.1,95,21,032/- with interest atthe rate of 18% per annum from the date of presentation of the saidclaim till payment and/or realization.

5. The respondent filed its statement of defence denying the claimsmade by the appellant and it also raised two counter claims before theArbitrator seeking an award directing the appellant to issue CENVAT

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Ainvoices in favour of the respondent in respect of the Aviation fuel suppliedunder the agreement; in the alternative prayed for an award for a sumof Rs.11,60,44,466/- plus Rs.4,31,45,967/- being interest, as well as furtherinterest on the principal amount computed at the rate of 15% per annumwith effect from 01.10.2009 till payment. In its second claim, therespondent demanded damages for alleged imposition of “Cash andBCredit” terms by the appellant with effect from 04.07.2009 when theappellant refused to supply the Aviation fuel to the respondent except on“Cash and Credit” terms.

6. The appellant filed its reply to the respondent’s counter claimdenying the claim of the respondent and inter alia stated that the counterCclaim filed by the respondent was beyond the scope and jurisdiction ofthe Arbitrator. It was stated that there was no dispute existing betweenthe parties in respect of the alleged obligation to supply CENVAT invoicesprior to commencement of the arbitration as it was never asked for bythe respondent-Go Airlines. The appellant averred that the respondentDhad demanded CENVAT invoices from the appellant for the suppliesmade from the year 2005 onwards for the first time by its letter only on05.05.2010 i.e. after the commencement of the present arbitration. Theappellant averred that the respondent never asked for CENVAT invoicesduring the subsistence of the said agreement and that the counter claimraised by the respondent was an afterthought.E

7. The appellant also filed an application under Section 16 of theArbitration and Conciliation Act, 1996 inter alia submitting that the counterclaim filed by the respondent was beyond the scope and jurisdiction ofthe Arbitrator and that the respondent demanded the CENVAT invoicesfrom the appellant for the supplies made from the year 2005 onwardsFfor the first time only by letter dated 05.05.2010 i.e. after thecommencement of the arbitration. The respondent filed its reply to thesaid application filed under Section 16 of the Act inter alia stating thatthe counter claim filed by the respondent was well within the scope andjurisdiction of the Arbitrator.G8. The learned Arbitrator vide order dated 18.04.2011 allowed

8. The learned Arbitrator vide order dated 18.04.2011 allowedthe application filed by the appellant under Section 16 of the Act interalia holding that the counter claim relating to CENVAT invoices is beyondthe scope and jurisdiction of the Arbitrator and rejected that part of thecounter claim. Insofar as the counter claim of the respondent praying H

for damages for the alleged imposition of “Cash and Credit”, the learnedArbitrator held that the same is maintainable before the Arbitrator.

9. Being aggrieved by the order of the Arbitrator dated18.04.2011, the respondent filed appeal before the High Court of Bombayunder Section 37 of the Act. The High Court vide impugned judgmentdated 07.02.2011 allowed the appeal preferred by the respondent andset aside the order of the Arbitrator dated 18.04.2011 by holding that theArbitrator has jurisdiction to entertain the counter claim filed by therespondent relating to non-furnishing of invoices for CENVAT credit.Insofar as the observations of the Arbitrator, the High Court held thatthe learned Arbitrator may be well within the rights to reject the counterclaim on merits after the parties put forth their case. The High Courthowever held that the rejection of the counter claim at the threshold,was not justified in view of the arbitration agreement between the parties.Being aggrieved, the appellant-BPCL has filed this appeal.

10. Mr. S. Guru Krishnakumar, learned Senior counsel appearingfor the appellant has submitted that as per the arbitration clause in theagreement dated 01.01.2007, the Arbitrator could adjudicate disputesarising out of the terms and conditions of the agreement and the counterclaim raised by the respondent in an arbitration proceeding does notarise from the terms and conditions of the contract/agreement underwhich the Arbitrator has been appointed. It was submitted that underSection 16 of the Act, the Arbitrator can refuse to entertain the saidcounter claim even at the time of filing of such counter claim on theground that the same is beyond the jurisdiction and the findings arrivedat by the learned Arbitrator is a possible view and the High Court oughtnot to have substituted its own view in the place of the finding arrived atby the Arbitrator. The learned Senior counsel further submitted that thelevy of service tax on domestic air travel was introduced by the FinanceAct, 2010 (w.e.f. 01.04.2010) and on economy class from 01.07.2010and in any event, the need for issuance of CENVAT credit invoicesarises only after 01.04.2010 and as such, the said counter claim couldnot be considered under Clause 7(ii) of the said agreement which expiredon 31.03.2009. The learned Senior counsel further submitted that sincethe respondent was not liable to pay service tax on domestic air travelprior to 01.04.2010, there was no requirement for issuance of CENVATcredit invoices. It was submitted that at no point of time before thecommencement of the arbitration proceeding, the respondent ever claimed A

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Afurnishing of CENVAT invoices and the learned Arbitrator rightly heldthat the counter claim is beyond the specific reference to the ArbitralTribunal and the High Court erred in substituting its view with the findingsof the learned Arbitrator which is in contravention of the settled position.

11. Per contra, Mr. Ritin Rai, learned Senior counsel appearingBfor the respondent submitted that the counter claim raised by therespondent in respect to issuance of CENVAT invoices by the appellantfalls within the terms of the agreement dated 01.01.2007 and the secondagreement dated 01.04.2009 entered into between the appellant and therespondent for supply of Aviation fuel. Taking us through the clauses ofthe agreement, the learned Senior counsel submitted that as per ClauseC7(ii) of the agreement dated 01.01.2007, the appellant-BPCL was dutybound to provide invoices to the respondent-Company including thosefor taxes and duties as applicable on the date of supply of Aviation fuel.The learned Senior counsel further submitted that even assuming, thoughnot admitting, that such liability to issue CENVAT invoices does not directlyarise out of the Clause 7(ii) of the agreement dated 01.01.2007,Dconsidering the business efficacy, the same is to be held as an “impliedterm of the contract” and the appellant-Company was under a duty toissue CENVAT invoices pertaining to all taxes and duties as applicable.

12. The learned Senior counsel for the respondent furthercontended that the question whether or not the counter claim raised byEthe respondent-Company falls within the scope of the agreement enteredinto between the parties or within the terms of reference is a question offact and the same could be decided by the learned Arbitrator after dueenquiry and the learned Arbitrator was not right in rejecting the counterclaim at the threshold which is not in accordance with the settled positionof law.F

13. We have carefully considered the rival contentions and perusedthe impugned judgment and materials on record. The points falling forconsideration are whether the counter claim regarding CENVAT invoiceswas beyond the scope of reference to arbitration and whether the HighCourt was right in holding that the learned Arbitrator had jurisdiction toGconsider the counter claim regarding CENVAT invoices raised by therespondent.

14. Relevant facts are not in dispute. Admittedly, there is AviationFuel Supply Agreement dated 01.01.2007 (for the period from 01.01.2007to 31.03.2008) and another Fuel Supply Agreement dated 01.04.2009H

(for the period from 01.04.2009 to 31.03.2011). Dispute arose betweenthe parties relating to payment and interest payable on the delayedpayment. The appellant sent notice dated 25.03.2010 suggesting theappointment of Arbitrator Mrs. Justice Sujatha Manohar. The respondentsent the reply dated 27.04.2010 whilst accepting the appellant’s suggestionhas recorded that “….we are sure that she would be able to adjudicatethe issues appropriately considering our various claims againstBPCL”. According to the respondent, they have accepted the nominationof a Single Arbitrator conditional that the Arbitrator would also adjudicateits counter claim against the appellant. According to the respondent, intheir reply dated 27.04.2010, they have laid the basis for making thecounter claim though they have not specifically stated about CENVATinvoices. Once a claim is made, the defendant has a right to make acounter claim. The respondent relies upon clause 7(ii) of the agreementin the counter claim of CENVAT invoices. Whether or not the counterclaim is part of the reference and whether it is arbitrable and whetherthe dispute are traceable to contractual rights or obligations or whollyoutside the contract could be determined only after the enquiry by theArbitrator.

15. Contention of the respondent is that as per Clause 7(ii) of theagreement, the appellant was required to issue CENVAT invoicespursuant to supply of Aviation fuel under the agreement and the appellantdid not do so and therefore, issuance of CENVAT invoices and disputebetween the parties relating to the terms and conditions set forth in theagreement and consequently, the Tribunal has the jurisdiction to adjudicateupon the same.

16. Clause 7(ii) of the agreement requires issuance of taxes invoicesby the appellant. Clause 7 of the agreement reads as under:- “7. Invoicing and Payment Terms:

i.Seller shall invoice Buyer for the fuel deliveries (Jet A-1);

ii. Invoices in Indian Rupees containing the date of delivery,locations, Aircraft Registration No., Grade, Quantity ofFuel, Unit Price, taxes and duties (applicable on the dateof delivery) with delivery ticket attached shall be submittedto Buyer’s local office/designated bank for payment/factoring in full. Cost of factoring & insurance shall beborne by Go Air.

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Aiii. Seller will invoice the Buyer as per the following periodicity,to the designated persons/address:- Billing periodDate of Credit into BPC A/c by Bank1[st] to 7[th]16[[th]]

16[[th]]23[rd]

8[th] to 15[th]16[th] to 23[rd]24[th] to month end B

30[th]/31[st]8[th] (next month)

In case the above dates are weekend or holidays paymentwill be made on the next working day.

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iv. In case of any delay in payment beyond due date, theoutstanding amount will attract interest at PLR plus 2%.

v. In case Bank limits get choked, payment shall be made bydue dates directly by Go Air.

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vi. In case the factoring limit remains choked, exposure wouldneed to be covered with adequate BG, in absence of whichwould be constrained to review the discount arrangements& payments terms.

17. Contention of the learned Senior counsel for the respondent isEthat Clause 7(ii) of the agreement requires issuance of invoices interalia the invoices of taxes and duties available on the date of delivery.According to the respondent, the request for issuance of CENVATinvoices were in the nature of oral requests/demands which were madeby the respondent’s representative during the course of the discussionFand despite such requests, CENVAT invoices were not issued andtherefore, there is a “dispute” between the parties relating to the termsand conditions set forth in the agreement.

18. Case of the appellant is that the counter claim regardingCENVAT credit is beyond the scope of reference to arbitration and isGnot expressly covered under the terms and conditions of the agreementnor impliedly arising under the agreement dated 01.01.2007. It is submittedthat in response to the said notice dated 25.03.2010-for appointment ofArbitrator, the respondent sent the reply on 27.04.2010 accepting theArbitrator and stating that the Arbitrator would be able to adjudicate therespondent’s various claims against BPCL and in the said reply, theHrespondent has not specifically raised the plea of CENVAT invoices.

19. Clause 12 of the agreement dated 01.01.2007 deals with thearbitration clause. Clause 12 provides for reference of dispute to anArbitrator nominated by mutual consent. If the parties fail to decide theArbitrator by mutual consent, each party will nominate an Arbitrator oftheir choice and the Arbitrators so nominated shall choose the thirdArbitrator. As rightly contended by the learned Senior counsel for therespondent, in response to the notice dated 25.03.2010 issued by theappellant suggesting the appointment of Mrs. Justice Sujatha Manoharas Arbitrator, the respondent accepted the same by expressing hope“that she would be able to adjudicate the issues appropriatelyconsidering our claims against BPCL”. Merely because therespondent did not specify the nature of claims against BPCL in theletter dated 27.04.2010, that may not be a ground to reject the counterclaim of CENVAT invoices at the threshold. Whether the counter claimregarding CENVAT invoices is outside the terms of arbitration agreementand whether it is arbitrable or outside the scope of reference to arbitrationcould be seen only after enquiry by the learned Arbitrator.

20. Taking us through the relevant materials, the learned Seniorcounsel for the appellant made earnest submissions that before05.05.2010, the respondent did not make any claim of CENVAT invoicesand only for the first time on 05.05.2010 that is after the commencementof the arbitration proceeding, the respondent called upon the claimant toissue CENVAT invoices. According to the appellant, as per the terms ofthe agreement, the appellant was not bound to issue CENVAT invoicesto the respondent and levy of service tax on domestic air travel cameinto force only by the Finance Act, 2010 and therefore, the learnedArbitrator has rightly held that the counter claim is beyond the specificreference and would not fall within the jurisdiction of the Arbitrator.

21. The learned Senior counsel for the appellant submitted thatwhen the jurisdiction of the Arbitrator is circumscribed by specificreference, the Arbitrator can decide only those specific disputes. Insupport of this contention, the learned Senior counsel placed relianceupon State of Goa v. Praveen Enterprises (2012) 12 SCC 581, inwhich it was held as under:- “11. Reference to arbitration can be in respect of all disputesbetween the parties or all disputes regarding a contract or in respectof specific enumerated disputes. Where “all disputes” are referred,the arbitrator has the jurisdiction to decide all disputes raised in AB

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Athe pleadings (both claims and counter claims) subject to anylimitations placed by the arbitration agreement. Where thearbitration agreement provides that all disputes shall be settled byarbitration but excludes certain matters from arbitration, then, thearbitrator will exclude the excepted matter and decide only thosedisputes which are arbitrable. But where the reference to theBarbitrator is to decide specific disputes enumerated by the parties/court/appointing authority, the arbitrator’s jurisdiction iscircumscribed by the specific reference and the arbitrator candecide only those specific disputes.”

22. The learned Senior counsel for the respondent contended thatCClause 7(ii) of the agreement requires the invoices issued by therespondent to contain inter alia the taxes and duties and this has beenrefused by the appellant and therefore, there is a dispute between theparties relating to the agreement and the learned Arbitrator ought not tohave rejected the counter claim at the threshold by holding that the counterDclaim is outside the jurisdiction of the Arbitrator. In this regard, the learnedSenior counsel for the respondent also placed reliance upon PraveenEnterprises in which it was held as under:-

“27. Similarly, Section 23 read with Section 2(9) makes it clearthat a respondent is entitled to raise a counter claim “unless theparties have otherwise agreed” and also add to or amend thecounter claim, “unless otherwise agreed”. In short, unless thearbitration agreement requires the arbitrator to decide only thespecifically referred disputes, the respondent can file counterclaims and amend or add to the same, except where the arbitrationagreement restricts the arbitration to only those disputes whichare specifically referred to arbitration, both the claimant and therespondent are entitled to make any claims or counter claims andfurther entitled to add to or amend such claims and counter claimsprovided they are arbitrable and within limitation.

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29. Where the arbitration agreement requires the disputes to beformulated and referred to arbitration by an appointing authority,and the appointing authority fails to do so, the Chief Justice or hisdesignate will direct the appointing authority to formulate thedisputes for reference as required by the arbitration agreement.

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The assumption by the courts below that a reference of specificdisputes to the arbitrator by the Chief Justice or his designate isnecessary while making appointment of arbitrator under Section11 of the Act, is without any basis. Equally baseless is theassumption that where one party filed an application under Section11 and gets an arbitrator appointed the arbitrator can decide onlythe disputes raised by the applicant under Section 11 of the Actand not the counter claims of the respondent.”

23. The questions whether the issue regarding CENVAT invoiceswas outside the terms of agreement or whether CENVAT invoices relatesto the agreement dated 01.01.2007 and 01.04.2009 and whether it isarbitrable and whether it falls beyond the scope of reference to arbitrationand such other related questions, are to be determined only during theenquiry. It may be that after enquiry, the Arbitrator might reject thecounter claim for CENVAT invoices as not arbitrable and the counterclaim beyond the scope of reference to arbitration. But to reject thecounter claim at the threshold on the ground that the Arbitrator has nojurisdiction would not be proper. The High Court, in our view, has rightlyset aside the order of the learned Arbitrator dated 18.04.2011.

24. The learned Senior counsel appearing for the parties haveinter alia raised various contentions. We are not inclined to considerthose contentions at this stage. Lest, expressing any opinion on suchcontentions might prejudicially affect the parties either in the proceedingsbefore the Arbitrator or any other proceedings that may be initiated bythe parties.

25. In the result, the impugned judgment of the High Court ofBombay dated 07.12.2011 in Arbitration Appeal (Lodging) No.14228 of2011 is affirmed and this appeal is dismissed. The observations of theHigh Court in the impugned order in para No. (10) as to the availabilityof CENVAT credit allegedly specified in the CENVAT Rules, 2004 maynot be considered as expression of opinion on the merits of the matter.The learned Arbitrator shall proceed with the matter on its own meritsand in accordance with law. No costs.

Divya Pandey.

Appeal dismissed.

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