Summary
NHAI terminated an EPC highway contract in 2016, reserving its right to claim damages. The contractor invoked the three-step dispute resolution clause (notification, conciliation, arbitration) and an arbitral tribunal was constituted. NHAI filed its defence reserving its right to counter-claim, sought two days later an extension to file it, and then applied under Section 23(2A) of the Arbitration and Conciliation Act, 1996 to place a Rs 208 crore counter-claim on record. The tribunal refused, holding that NHAI had not itself followed the conciliation steps for its counter-claim so it fell outside the arbitration agreement; the Delhi High Court, treating the challenge as one under Section 37(2), affirmed. The Supreme Court reversed. The 'Dispute' notified by the contractor was the termination, which has two sides;
Issues
- Whether a respondent in arbitration must separately exhaust a contractual pre-arbitral conciliation procedure before filing a counter-claim arising from the same dispute that the claimant has already carried through that procedure to arbitration.
- Whether a counter-claim arising from the termination of the contract 'falls within the scope of the arbitration agreement' under Section 23(2A) of the Arbitration and Conciliation Act, 1996 where the claimant's reference arose from the same termination.
- What is the difference between a 'claim', which may be one-sided, and a 'Dispute', which by definition has two sides, for the purpose of a multi-tier dispute resolution clause.
Provisions considered
- Section 23(2A), Arbitration and Conciliation Act, 1996A respondent may submit a counter-claim or set-off to be adjudicated by the tribunal if it falls within the scope of the arbitration agreement; the provision, inserted on the Law Commission's recommendation to avoid separate references and multiplicity, is not to be curtailed by a narrow reading of the contract. NHAI's counter-claim arising from the same termination fell within the agreement and had to be taken on record. (¶¶ 11, 13.3, 13.4, 13.5, 14)
- Sections 16(2), 34, 37(2) and 29A, Arbitration and Conciliation Act, 1996The tribunal's refusal was treated by the High Court as an order under Section 16(2) and the challenge as one under Section 37(2); the Supreme Court set both orders aside and, because of the delay occasioned by them, excluded 18.07.2017 to 11.07.2022 from the period for making the award under Section 29A. (¶¶ 2.6, 14)
- Clauses 26.1.1, 26.2 and 26.3.1, EPC Agreement dated 13.11.2014, Clause 26 (Dispute Resolution)A dispute notified in writing by either party must first be attempted to be resolved by conciliation, failing which 'any Dispute' not so resolved is settled by arbitration. The termination was the dispute notified and taken through conciliation by the contractor; the clause is to be read pragmatically and does not require the same process to be repeated for the other side's claims arising from the same dispute. (¶¶ 10, 12, 12.1, 13, 13.4)
Held
- The cause of the dispute was NHAI's termination of the contract; that dispute was required to be, and was, taken through the conciliation procedure of Clauses 26.1 and 26.2 at the contractor's instance, whose letters of 02.01.2017 and 09.02.2017 themselves described the termination as the 'Dispute'. Having so invoked the clause, the contractor could not contend that NHAI's counter-claim arising from the same termination was barred for want of a fresh conciliation. A 'Dispute' by definition has two sides, unlike a 'claim', a distinction both the tribunal and the High Court missed. (¶¶ 12, 12.1, 13, 13.1)
- NHAI reserved its right to damages in the termination notice and in its statement of defence, pleaded a set-off of Rs 1.23 crore, sought extension within two days and applied under Section 23(2A) promptly; the tribunal's earlier order refusing extension had not suggested that the counter-claim was barred by Clause 26, and its later narrow interpretation took away a valuable statutory and contractual right, paving the way for piecemeal and inchoate adjudication. (¶¶ 8, 13.2, 13.3, 13.5)
- Clauses 26.1 and 26.2 must be interpreted pragmatically: the parties must first attempt settlement and conciliation, but once a dispute has been notified and that procedure has failed within the stipulated time, the entire subject matter including counter-claims and set-off forms the subject of arbitration as 'any Dispute which is not resolved'. Excluding the counter-claim would defeat the object of Section 23(2A) and lead to parallel proceedings before different fora, an aspect the High Court lost sight of. (¶¶ 13.4, 13.5)
Result
Appeal allowed; the arbitral tribunal's order of 15.09.2017 and the Delhi High Court's judgment of 27.02.2018 set aside; NHAI permitted to file its counter-claim, to be considered by the tribunal with the statement of claim and defence on merits; the period from 18.07.2017 to 11.07.2022 excluded for computing the time for the award under Section 29A. No costs.