Rejection of counter claim by Arbitrator for CENVAT invoices at threshold without enquiry on the ground that the Arbitrator had no jurisdiction was not proper
Rejection of counter claim by arbitrator at threshold without enquiry
ABCAUS Case Law Citation:
ABCAUS 3177 (2019) (10) SC
Important case law relied upon by the parties:
State of Goa v. Praveen Enterprises (2012) 12 SCC 581
In the instant case, the appellant had challenged the order of the High Court holding that the Arbitrator had the jurisdiction to consider the counter claim relating to CENVAT credit and setting aside the order passed by the Arbitrator.
The appellant had entered into an agreement for supply and sale of goods with the respondent. There were dispute between the appellant and the respondent with respect to payment of outstanding dues for invoices raised and interest amount on delayed payment.
The respondent did not accept any amount payable towards interest and the dispute could not be resolved mutually, the appellant invoked arbitration clause of the agreement. The respondent agreed and accepted the proposed Arbitrator.
The appellant raised a claim with interest from the date of presentation of the said claim till payment and/or realization. The respondent raised counter claims before the Arbitrator seeking an award directing the appellant to issue CENVAT invoices in favour of the respondent; in the alternative prayed for an award plus interest, as well as further interest on the principal amount.
The appellant denied the claim of the respondent and inter alia stated that the counter claim filed by the respondent was beyond the scope and jurisdiction of the Arbitrator. It was stated that there was no dispute existing between the parties in respect of the alleged obligation to supply CENVAT invoices prior to commencement of the arbitration as it was never asked for by the respondent.
The appellant also filed an application under Section 16 of the Arbitration and Conciliation Act, 1996 stating that the respondent had demanded CENVAT invoices from the appellant for the first time after the commencement of the present arbitration. The appellant averred that the respondent never asked for CENVAT invoices during the subsistence of the said agreement and that the counter claim raised by the respondent was an afterthought.
The learned Arbitrator allowed the said application u/s 16 of the Act inter alia holding that the counter claim relating to CENVAT invoices was beyond the scope and jurisdiction of the Arbitrator and rejected that part of the counter claim.
The respondent filed appeal before the High Court u/s 37 of the Act. The High Court vide impugned judgment allowed the appeal preferred by the respondent and set aside the order of the Arbitrator by holding that the Arbitrator had jurisdiction to entertain the counter claim filed by the respondent relating to non-furnishing of invoices for CENVAT credit. The High Court held that the Arbitrator may be well within the rights to reject the counter claim on merits after the parties put forth their case. The High Court however held that the rejection of the counter claim at the threshold, was not justified in view of the arbitration agreement between the parties.
The question before the Hon’ble Supreme Court was whether the counter claim regarding CENVAT invoices was beyond the scope of reference to arbitration and whether the High Court was right in holding that the learned Arbitrator had jurisdiction to consider the counter claim regarding CENVAT invoices raised by the respondent?
The respondent submitted that as per the agreement, it required issuance of invoices inter alia the invoices of taxes and duties available on the date of delivery. According to the respondent, the request for issuance of CENVAT invoices were in the nature of oral requests/demands which were made by the respondent’s representative during the course of the discussion and despite such requests, CENVAT invoices were not issued and therefore, there was a “dispute” between the parties relating to the terms and conditions set forth in the agreement.
The Hon’ble Supreme Court observed that the case of the appellant was that the counter claim regarding CENVAT credit was beyond the scope of reference to arbitration and was not expressly covered under the terms and conditions of the agreement It was submitted that in response to the notice for appointment of the arbitrator, the respondent sent the reply accepting the Arbitrator and stating that the Arbitrator would be able to adjudicate the respondent’s various claims against the appellant and in the said reply, the respondent has not specifically raised the plea of CENVAT invoices.
However, the Hon’ble Supreme Court opined that merely because the respondent did not specify the nature of claims against the appellant in the letter it might not be a ground to reject the counter claim of CENVAT invoices at the threshold. Whether the counter claim regarding CENVAT invoices was outside the terms of arbitration agreement and whether it was arbitrable or outside the scope of reference to arbitration could be seen only after enquiry by the learned Arbitrator.
The respondent contended that the clause of the agreement required the invoices issued by the respondent to contain inter alia the taxes and duties and this had been refused by the appellant and therefore, there was a dispute between the parties relating to the agreement and the learned Arbitrator ought not to have rejected the counter claim at the threshold by holding that the counter claim is outside the jurisdiction of the Arbitrator.
The Hon’ble Supreme Court opined that the questions whether the issue regarding CENVAT invoices was outside the terms of agreement or whether CENVAT invoices related to the agreement and whether it was arbitrable and whether it fall beyond the scope of reference to arbitration and such other related questions, were to be determined only during the enquiry. It may be that after enquiry, the Arbitrator might reject the counter claim for CENVAT invoices as not arbitrable and the counter claim beyond the scope of reference to arbitration. But to reject the counter claim at the threshold on the ground that the Arbitrator had no jurisdiction would not be proper.
The Hon’ble Supreme Court opined that the High Court had rightly set aside the order of the learned Arbitrator. Accordingly, the impugned judgment of the High Court was affirmed and this appeal was dismissed.
Download Full Judgment Click Here >>
- Commonality of directors of companies does not mean deposits received was bogus
- Application though named as rectification but if tax is not legitimate, it also touches merit: HC
- Cost of acquisition as on 01.04.1981 taken as per valuer report by reverse indexing of FMV
- AO was directed to serve notice of hearing through physical mode upon assessee
- ICAI Intermediate & Foundation Examinations to be held thrice in a year from May/June 2024
