Appeal Under Arbitration Act No. 1 of 1997

23rd January, 1998

Petitioner Counsel: Shri. C. MASCARENHAS
Respondent Counsel: Shri. H. R. BHARNE

Cases Cited:
AIR 1977 SC 2014 [Para 2]
1995(2) Arb. Law R. 577 [Para 2]
AIR 1996 SC 2965 [Para 2]
1992(2) Arb. Law R. 456 [Para 2]
1996(1) Arb. Law R. 187 [Para 2]

JUDGMENT

JUDGMENT :- The appellant was entrusted the work of Rural Water Supply Scheme to Village Deussua and surrounding areas in Salcete Taluka by the respondent. Certain disputes arose and the appellant filed his claim before the Executive engineer, calling upon him to settle and pay the amount claimed. The claim was not settled and the appellant, by letter dated 4-11-85 called upon the Chief Engineer to appoint Arbitrator, but Arbitrator was not appointed. Accordingly, the appellant filed Arbitration Suit before the District Judge, South Goa, praying that the agreement entered into between the parties be filed and requested the Court to make reference of the disputed claim contained in letter dated 16-10-85 to the Arbitrator. The learned District Judge allowed the suit and directed the Chief Engineer, P.W.D., Goa, to appoint an Arbitrator to settle the disputes existing between the parties. The chief Engineer was required to appoint arbitrator in terms of the Court Order. However, as it is clear from the Order of appointment of Arbitrator which is by the Chief Engineer and which is at page 117, the Chief Engineer also introduced the counter claims and counter charges of the Government in the order of reference which were not the subject matter of the dispute in the said arbitration Suit. It is an admitted position that no counter claim had been put up by the respondent in the said Arbitration Suit before the learned District Judge. In such enventuality, there was no question of reference of any counter claim or counter charge sought to be claimed by the respondent. The order of appointment and reference was required to be strictly in accordance with the order passed by the learned District Judge in the Arbitration Suit vide judgment dated 31st July, 1990.

2. The Arbitrator entertained the counter claims and granted the same. The appellant filed objections to the said award including the maintainability of the counter claims, but this objection was overruled by the Addl. District Judge, South Goa, Margao vide judgment dated 30th July, 1996. Besides this, the appellant had also raised certain objections and it is not necessary to make reference to the same since learned Advocate Shri C. Mascarenhas, appearing on behalf of the appellant stated that he does not wish to press the said objections and would restrict the petition only to the maintainability of the counter claims in this appeal. Learned Advocate for the appellant drew my attention to clause 25 of the agreement which deals with settlement of disputes by Arbitrators. He also drew my attention to the following sub-clause of clause 25 which reads as under:-

" It is also a term of the contract that the party invoking arbitration shall specify the dispute or disputes to be referred to arbitration under this clause together with the amount or amounts claimed in respect of each such dispute."

In view of the same, he submitted that the respondent invoking arbitration for counter claims have not only to specify the dispute to be referred to a Arbitrator, but the amounts claimed are also required to be specified. After relying upon three judgments of the Apex Court in Orissa Mining Corporation Ltd. v. M/s. Prannath Vishwanath Rawley (A.I.R. 1977 S.C. 2014), State of U.P. v. M/s. Ram Nath International Construction (P) Ltd. (1995 (2) Arbitration Law Reporter, 577) and Union of India v. M/s. G.S. Atwal and Company (Asansole) (A.I.R. 1996 S.C., 2965) and two judgments of the Delhi High Court in Food Corporation of India v. T.R. Behl & Co. (1992 (2) Arbitration Law Reporter, 456) and M.S.J. (Engineers) & Co. Pvt. Ltd. v. Union of India and others (1996 (1) Arbitration Law Reporter, 187) urged that the Arbitrator cannot expand the scope of reference and could not have entertained the counter claims as the learned District Judge in the Order of appointment on reference dated 31st July, 1990 in Arbitration Suit No. 95/85 had not referred any counter claim of the respondent to the Arbitrator when respondent no.3 was directed to appoint an Arbitrator. He, therefore, contends that the counter claims granted by the Arbitrator cannot be sustained in the circumstances and the award to the extent of counter claims has to be set aside.

3. The learned Government Advocate Shri Bharne urged before me that the Chief Engineer could have independently also referred the counter claims of the Department to the Arbitrator which was done in this case. It was also pointed out that the claim put forward by the Department was only in respect of recovery and cannot even be strictly called counter claim for the said purpose and the Department is entitled for adjustment of the said recoveries. However, it was not disputed by him that these recoveries are ultimately disputed by the appellant.

4. The appellant had approached the District Judge, Margao, praying that the agreement entered into between the parties be filed and reference be made to the Arbitrator in respect of the claims put up by the appellant by letter dated 16-10-85. In the proceedings no counter claims had been raised by the respondent. Accordingly, the District Judge had referred the claim contained in letter dated 16-10-85 of the appellant for settlement to the Arbitrator for which the Chief Engineer was directed to appoint an Arbitrator. The order was thus clearly restricted to the appointment of Arbitrator in order to look into the claim put forward by the appellant alone. The Chief Engineer on his own could not have included the counter claims and counter charges of the Government in the order of appointment which was made on the strength of the said order of the District Court. Perhaps he could have made a separate reference independently in case it was permissible. It may also be pointed out that even though the said order dated 29th October, 1980 of appointment of Chief Engineer speaks of reference of counter claims and counter charges of the Government to the Arbitrator, but the said order clearly indicates that no specific counter claim or counter charge were enclosed in the said order of reference. As pointed out by the learned Advocate for the appellant, the party invoking arbitration has not only to specify dispute to be referred to the Arbitrator, but also the amounts claimed by them in terms of clause 25 of the agreement. It appears that no such claim containing any specific amount or amounts had been annexed by the Chief Engineer along with the said order of appointment of Arbitrator. In these circumstances, the Arbitrator had no jurisdiction to entertain the counter claims and counter charges put up on behalf of the respondent.

5. It is now well settled that an Arbitrator cannot enlarge the scope of reference made under Section 20 of the Arbitration Act. The Arbitrator derives jurisdiction from the order of reference which determines the limits of his authority to act thereunder. Therefore, he cannot travel beyond the reference and if he does so he exceeds his jurisdiction.

6. The Apex Court in Orissa Mining Corpn. v. M/s. Prannath Rawley (supra) has laid down in para 11 that when an agreement is filed in court and order of reference is made then the claim as a result of the order of reference is limited to a particular relief and the arbitrator cannot enlarge the scope of the reference and entertain fresh claims without a further order of reference from the court. No such order was obtained in the case under consideration before me by the respondent from the Court, but the Chief Engineer in the order of appointment which was made in pursuance of the order of the court which was restricted to the reference of the claims of the appellant alone to the Arbitrator, on his own added the counter claims and counter charges of the Government. The other judgments of the Apex Court upon which reliance has been placed by learned advocate for the appellant have laid down that the Arbitrator cannot entertain and decide any dispute which has not been referred to him and he cannot enlarge the scope of reference.

7. In the case before the Delhi High Court in Food Corporation of India v. T.R. Behl (supra) it was found that there was no claim made by the Food Corporation before the Court and therefore no directions were given by the Court that the counter claim of the Food Corporation should also be entertained by the Arbitrator. However, the Arbitrator had entertained the counter claim of the Corporation. The short question which came up for determination before the Delhi High Court was whether the Arbitrator could entertain counter claim which was not referred by the Court and the same was answered in the negative after placing reliance on the judgment of the Apex Court in Orissa Mining Corporation v. M/s. Prannath Rawley (supra).

8. In M.S.J. Engineers & Co. v. Union of India (supra) the disputes which were referred to the Arbitrator by the Court were the disputes raised by the contractor alone. No disputes were raised by the respondent therein before the Court nor any application was made in the Court for reference of such disputes to the Arbitrator. The operative part of the order passed for referring the dispute in the said case reads as under :-

"I accept the petition and direct the respondents to refer the disputes mentioned at S. Nos. 1, 2, 3, 5, 6, 8, 9 and 10 for arbitration. The respondents shall appoint the Arbitrator and refer the disputes within weeks from today. The prayer for the reference of Claim Nos. 4 and 7 to arbitration is declined."

In view of the same it was held that the Arbitrator who derives jurisdiction from the reference passed by the Court, could not have looked into the counter claims and had rightly not given any decision on the counterclaims which were never referred to him by the Court.

9. The position is exactly similar in the case before me. The dispute which was ordered to be referred by the District Judge in Arbitration Suit No.95/85 by judgment dated 31st July, 1990 related only to the claim put forward by the appellant vide letter dated 16-10-85. It was only the said dispute which was ordered to be referred to the Arbitrator. The counter claim was never placed by the respondent before the Court and the same was never ordered to be referred to the Arbitrator. In such circumstances, the Arbitrator had no jurisdiction to entertain the counter claims put up by the respondent.

10. Accordingly, the appeal succeeds to that extent and the award to the extent it has allowed the counter-claims of the respondent cannot be sustained and the same are required to be set aside. Accordingly, the said part of the award which deals with the counter-claims and has granted counter-claims in favour of the respondent is hereby set aside. The respondent is free to agitate the counter-claims in case it is permissible in terms of the agreement and in terms of law.

In the circumstances I leave the parties to bear their costs.

Appeal partly allowed