State of Goa v. Praveen Enterprises

by Rohit Bhat | July 24, 2011

Is an arbitrator empowered to entertain counter claims when these counter claims are not placed before a court in proceedings under Section 11 of the Arbitration and Conciliation Act, 1996 and when these counter claims were not specifically referred by the court to arbitration?

This was the question for consideration before Justices R.V. Raveendran and A.K. Patnaik in State of Goa v. Praveen Enterprises, 2011 (7) SCALE 131. The judges, through a detailed judgment, have held that the answer to the question depends on the nature of the agreement and if the agreement provides for reference of all disputes to arbitration, then irrespective of whether the Section 11 court specifically referred the dispute or not, the arbitrator will have the power to decide all disputes, including the disputes raised in a counter claim. This judgment is useful as the Court has elaborately discussed the meaning of the term ‘reference to arbitration’ and the scope of Sections 11, 21, and 23 of the Arbitration Act (“the Act”).

Justice A.K. Patnaik

Image above is taken from the website of the Supreme Court of India.  

The arbitration in State of Goa v. Praveen Enterprises was the result of certain disputes which arose between the parties under an agreement dated November 4, 1992. The agreement was subsequently terminated by the appellant and the respondent raised certain claims and gave notice to the appellant to appoint an arbitrator in terms of the arbitration clause. As the appellant failed to do so, the respondent filed an application under Section 11 of the Act for appointment of an arbitrator and the Court, on December 4, 1998 appointed a sole arbitrator. Before the arbitrator, the appellant filed a counter claim and the arbitrator, by way of his award dated July 10, 2000, allowed some of the claims of the respondent and also allowed one of the counter claims made by the appellant.

The respondent challenged the award under Section 34 of the Act and the Civil Court held that the arbitrator could not have enlarged the scope of the reference and entertained either fresh claims by the claimants or counter claims from the respondent. The High Court in appeal confirmed the judgment of the Civil Court and held that the counter claims were bad in law as they were never placed before the court by the appellant (in proceedings under Section 11 of the Act for appointment of arbitrator) and they were not referred to arbitration.

In examining the correctness of the judgment, the Supreme Court first ascertained the meaning of the term ‘reference to arbitration’ and held that the term described various acts and can be by the parties themselves or by an appointing authority named in the arbitration agreement or by a court on an application by a party to the arbitration agreement. It was also held that reference to arbitration can be in respect of all disputes between the parties or all disputes regarding a contract or in respect of specific enumerated disputes. The Court held that when all disputes are referred, the arbitrator has the jurisdiction to decide all disputes raised in the pleadings (both claims and counter claim) subject to any limitations placed by the arbitration agreement.

Justice R.V. Raveendran

Image above (and on thumbnail) is taken from the website of the Supreme Court of India.  

After having held as above, the Court then examined the contention of the respondent that while making a reference to arbitration, the court must specifically draw up the list of disputes and refer them to arbitration and that such list drawn up must also include counter claims, if any, proposed to be raised by the respondent. After having examined in detail the nature of the jurisdiction exercised by the Chief Justice under Section 11, the Court finally concluded as follows:

a. Section 11 of the Act requires the Chief Justice or his designate to either appoint the arbitrators or take necessary measures in accordance with the appointment procedure contained in the arbitration agreement. The Chief Justice or the designate is not required to draw up the list of disputes and refer them to arbitration. The appointment of arbitral tribunal is an implied reference in terms of the arbitration agreement.

b. Where the arbitration agreement provides for referring all disputes between the parties (whether without any exception or subject to exceptions), the arbitrator will have jurisdiction to entertain any counter claim, even though it was not raised at a stage earlier to the stage of pleadings before the arbitrator.

c. Where however, the arbitration agreement requires specific disputes to be referred to arbitration and provides that the arbitrator will have the jurisdiction to decide only the disputes so referred, the arbitrators jurisdiction is controlled by the specific reference and he cannot travel beyond the reference, nor entertain any additional claims or counter claims which are not part of the disputes specifically referred to arbitration.

The judgment of the Court clears a lot of confusion as to the power of the arbitrator to decide claims and counter claims. What the Supreme Court has made clear is that the power of the arbitrator to decide disputes flows from the arbitration agreement and does not depend on the reference made by a court.

Rohit Bhat is an advocate at the Supreme Court of India.