When Arbitration Clause Covers All The Disputes, Jurisdiction Can’t Be Limited To A Particular Dispute: Allahabad High Court

The bench of Justices Prashant Kumar and Manoj Kumar Gupta held that all the disputes that have arisen before the appointment of the arbitrator can be referred to him for adjudication as the claim for damages which has been made prior to invocation of arbitration, becomes a dispute within the meaning of the provision of 1996 Act and the arbitrator’s jurisdiction cannot be confined to a particular dispute.

The Court further held that a party that has failed to file its written statement despite several opportunities given cannot challenge an arbitration award on the merits of the case.

Facts

The parties entered into an agreement dated 15.05.2008 wherein the respondent was to construct 54 Multistorey Super Delux Flats for the appellant. Clause 33 of the agreement provided for all the disputes to arbitration.

The project work was extended beyond the stipulated completion date. As per the respondent, the delay in the completion of the project work was attributable solely to the respondent. It had also issued several letters dated 27.07.2008, 17.07.2008, 22.09.2008 and 21.11.2008 registering its grievances with the appellant.

Thereafter, on 18.03.2010, the respondent raised a bill and asked the appellant to pay the service tax. A dispute arose when the tax was not paid. Hence, the respondent requested the appellant for appointing the arbitrator. Accordingly, the appellant vide letter dated 13.01.2011 appointed the arbitrator.

The arbitrator entered reference and directed the parties to file their statements. The respondent filed its statement of claim on 23.03.2011, however, the appellant despite several opportunities did not file its written statement. However, it chose to file an application under Section 16 of the A&C Act on the ground that the arbitrator’s jurisdiction is confined to adjudication of dispute qua payment of service tax and it cannot decide any other claims preferred by the respondents.

The arbitrator ordered the preliminary objection to be decided after the submission of the written statement and completion of the evidence for both the parties.

On failure of the appellant to file its written statement, the arbitrator proceeded ex-parte under Section 25(b) of the Act. The arbitrator delivered an award dated 05.01.2012 wherein it rejected the objection raised by the appellant to its jurisdiction and it partly allowed the claims of the respondent.

Aggrieved by the award, the appellant unsuccessfully challenged it under Section 34 of the Act. Thereafter, it filed an appeal under Seton 37 of the Act against the decision of the lower court refusing to set-aside the award.

Grounds of appeal

The appellant challenged the order on the following grounds:

• The arbitrator acted beyond the terms of reference by deciding claims other than the claim pertaining to the issue of service tax.
• The arbitrator erred in not deciding the objection raised by the appellant regarding its jurisdiction at the very threshold.
• No reasonable opportunity was granted to the appellant to present its case and the arbitrator committed an error by proceeding ex-parte.
• The arbitrator has assigned no reason for arriving at its finding in the award. Moreover, the rate of interest awarded is also excessive.

Analysis by the Court

The Court observed that Clause 33 of the agreement provided for reference of any dispute to arbitration. The Court held that the arbitration clause subsumed all the disputes between the parties and not the just the dispute pertaining to the issue of payment of service tax.

The Court also observed that the respondent vide its letters dated dated 27.07.2008, 17.07.2008, 22.09.2008 and 21.11.2008 raised several grievances with the appellant. Moreover, the letter of appointment of arbitrator did not mention that his appointed was limited to the adjudication of issue of payment of service tax.

^[1] wherein the Apex Court held that, the claim for damages which has been made prior to invocation of arbitration, becomes a dispute within the meaning of the provision of 1996 Act.

^[2] , wherein it was held thatt, it is open to the parties to enlarge the scope of reference by inclusion of fresh disputes that must be held to have done so when they filed the statements putting forward claims not covered by the original reference.

^[3] in which the Court held that, where the arbitration agreement provides for referring all disputes between the parties, the arbitrator will have jurisdiction to entertain any claim including counter-claim even though it was not raised at a stage earlier to the stage of pleading before the arbitrator. The scope of arbitrator can be curtailed only if the arbitration agreement requires any specific dispute to be referred to the arbitrator in absence of any such specific requirements, the arbitrator is free to decide all the issues raised before the arbitrator.

Relying on the above-mentioned judgments of the Apex Court, the Court held that when the arbitration clause cover all the dispute arising out of the contract within its ambit then the scope of the arbitrator cannot be limited to decide only a particular dispute.

The Court further held that a party that has failed to file its written statement despite several opportunities given cannot challenge an arbitration award on the merits of the case.

Accordingly, the Court dismissed the appeal.

Case Title: Agra Development Authority v. Baba Construction Pvt. Ltd. FAO No. 1033 of 2021

Case Citation: 2023 LiveLaw (AB) 110

Date: 24.03.2023

Counsel for the Appellant: Anand Prakash Paul, Senior Advocate with Krishna Agarawal

Counsel for the Respondent: S.P.K Tripathi and Abhinav Gaur, Senior Advocate Anoop Trivedi

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