Arbitral Tribunal’s Order Rejecting Party’s Request To File Counter Claims On Ground Of Delay, Doesn’t Foreclose Its Right To Invoke Arbitration: Delhi High Court

The bench of Justice Prateek Jalan remarked that, when arbitration proceedings are invoked at the instance of one party, it is generally open to the other party to file its counter-claims in the same proceedings. However, this does not per se signify that the Court has also referred the claims of the prospective counter-claimant to arbitration, so as to bar its right to assert its claims at a future date.

A Master Franchise Agreement was executed between the petitioner, Prime Interglobe Pvt Ltd, and the respondent, Super Milk Products Pvt Ltd, under which the petitioner was appointed as the “Master Franchisee” in respect of the trademark “KEVENTERS”, for the purpose of selling milkshakes.

After certain disputes arose between the parties under the Agreement, the petitioner invoked the arbitration clause. In a petition filed by the respondent under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Delhi High Court, the Court appointed a Sole Arbitrator and referred the parties to arbitration.

In the proceedings before the arbitrator, the respondent, Super Milk Products, was designated as the “claimant” and petitioner, Prime Interglobe, was designated as the “respondent/counter-claimant”.

Before the Sole Arbitrator, the petitioner moved an application seeking permission to file its counterclaims after it failed to file the same by the appointed date, which was dismissed by the Arbitrator.

The petitioner, thereafter, served a fresh notice on the respondent, invoking the arbitration clause, for adjudication of its claims under the Agreement, and filed a petition under Section 11 of the A&C Act before the Delhi High Court seeking appointment of an Arbitrator.

The petitioner, Prime Interglobe, argued before the Court that the relief sought by it in the present Section 11 petition was entirely independent of the ongoing arbitration proceedings. It pleaded that the refusal of the arbitrator, in the ongoing arbitration proceedings, to entertain the petitioner’s counter-claims on account of delay, ought not to bar it from availing independent remedies.

To this, the respondent, Super Milk Products, averred that the disputes raised by petitioner in the present Section 11 petition had already been referred to arbitration and thus, second arbitration cannot lie in respect of disputes which have already been referred to arbitration.

The respondent argued that before the original Section 11 petition was filed by it, the parties had exchanged correspondence between them, in which they had raised their respective claims. Although, consequently, the Section 11 petition was filed by the respondent, it was in effect a petition in which both the parties stood as petitioners, it claimed.

While conceding that the provisions of Section 25 (a) of the A&C Act were inapplicable to counterclaims, by virtue of Section 2(9), the respondent argued that both the petitioner and the respondent stood in the position of claimants before the arbitrator in the arbitral proceedings, and thus, the provisions of Section 25(a) of the A&C Act were attracted.

Section 25 (a) provides that, unless otherwise agreed by the parties, where, without showing sufficient cause, the claimant fails to communicate his statement of claim in accordance with Section 23(1), the arbitral tribunal shall terminate the proceedings.

While holding that the parties had, indeed, raised their claims against each other in the correspondence exchanged between them, which culminated into filing of the Section 11 petition by the respondent, the High Court, however, observed that the respondent- in the Section 11 petition filed by it- only sought reference of its own claims before the arbitrator.

Noting that in its Section 11 petition, the respondent had specifically asserted that the petitioner’s notice invoking arbitration was void ab initio, the Court said, “In the context of these averments, it is not possible to hold that the respondent intended the petitioner’s claims also to be referred to arbitration, or that the order of this Court dated 26.07.2019 in ARB. P. 474/2019 so implied.”

The Court added: “Of course, when arbitration proceedings are invoked at the instance of one party, it is generally open to the other party to file its counter-claims in the same proceedings, but this does not per se signify that the Court has referred the claims of the prospective counter-claimant, so as to bar its right to assert its claims at a future date.”

Concluding that the arbitral reference made in the Section 11 petition filed by the respondent, was only in respect of the respondent’s claims, the Court ruled that Section 25(a) of the A&C Act was not applicable to the case. “I am instead of the view that Section 2(9) of the Act clearly protects the petitioner”, the Court said.

The bench held that the Arbitral Tribunal’s order rejecting the petitioner’s request to file counter claims on the ground that the request was belated, does not foreclose the petitioner’s right to raise its claims in independent proceedings.

The bench added that the petitioner was not required to challenge the Tribunal’s order declining its application for filing counter-claims on the ground of delay, before filing the Section 11 petition seeking independent reference of its claims. “The petitioner was not required to challenge the said order before filing proceedings for arbitration in respect of its claims, as the order only declined the petitioner’s application for filing of its counter-claims on the ground of delay. It did not suggest that the counter-claims were not maintainable, or reject them on merits, so as to require setting aside of that order, prior to adjudication of the petitioner’s claims,” the bench said.

While ruling that an elaborate enquiry into the maintainability of the claims raised by the petitioner is not appropriate at the stage of considering a Section 11 petition, the Court allowed the petition, appointed a Sole Arbitrator, and referred the disputes arising out of the petitioner’s claims under the Agreement, to arbitration.

“It is made expressly clear that this order is without prejudice to the rights and contentions of the parties with regard to the maintainability of the claims before the learned arbitrator, including on grounds of abandonment of claims, issue estoppel, res judicata, limitation, etc. and on merits. The parties will be entitled to raise these contentions before the learned arbitrator and also seek appropriate orders in light of the proceedings taken at the instance of the respondent, and the award rendered therein,” the Court added.

Case Title: Prime Interglobe Pvt Ltd vs. Super Milk Products Pvt Ltd

Citation: 2023 LiveLaw (Del) 244

Counsel for the Petitioner: Mr. Sameer Jain, Mr. Suvigya Awasthy, Mr. Vivek Joshi, Mr. Rohan Gulati, Ms. Radha Gupta, Advocates.

Counsel for the Respondent: Mr. Ashish Dholakia, Senior Advocate with Mr. Aseem Chaturvedi, Mr. Shivank Diddi, Mr. Milind Jain, Ms. Abhipriya, Mr. Arpit Kumar Singh, Advocates.

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