Case Note & Summary
The dispute arose between Bharat Petroleum Corporation Limited (BPCL) and Go Airlines (India) Limited under an Aviation Fuel Supply Agreement dated 01.01.2007 and a subsequent agreement dated 01.04.2009. BPCL claimed interest for delayed payments, and Go Airlines filed a counter claim seeking CENVAT invoices or damages for non-issuance, as well as damages for imposition of cash and carry terms. The Arbitrator allowed BPCL's application under Section 16 of the Arbitration and Conciliation Act, 1996, holding that the counter claim regarding CENVAT invoices was beyond the scope and jurisdiction of the Arbitrator, as the demand for such invoices was first made after the commencement of arbitration and did not arise from the contract terms. The High Court of Bombay reversed this decision, holding that the Arbitrator had jurisdiction to consider the counter claim. The Supreme Court allowed BPCL's appeal, restoring the Arbitrator's order. The Court held that the counter claim for CENVAT invoices was not within the scope of the arbitration agreement, as the liability to issue such invoices arose only after the contract period and was never demanded during the subsistence of the agreement. The Court emphasized that the Arbitrator's decision on jurisdiction was a possible view and should not have been substituted by the High Court. The appeal was allowed, and the impugned judgment of the High Court was set aside.
Headnote
A) Arbitration Law - Jurisdiction of Arbitrator - Counter Claim - Section 16, Arbitration and Conciliation Act, 1996 - The Arbitrator has jurisdiction to decide on his own jurisdiction, including objections relating to the existence or validity of the arbitration agreement. The Arbitrator's decision on jurisdiction is subject to challenge under Section 37 of the Act. (Paras 13-14) B) Arbitration Law - Scope of Arbitration Agreement - Counter Claim - The counter claim must arise out of the same contract or be connected to the dispute referred to arbitration. A counter claim that is not within the scope of the arbitration agreement or the terms of reference cannot be entertained by the Arbitrator. (Paras 13-14) C) Contract Law - Implied Terms - Business Efficacy - An implied term must be necessary to give business efficacy to the contract and must be obvious. The claim for CENVAT invoices was not an implied term as the liability to issue such invoices arose only after the contract period and was never demanded during the subsistence of the agreement. (Paras 14-15) D) Arbitration Law - Rejection of Counter Claim at Threshold - Section 16, Arbitration and Conciliation Act, 1996 - The Arbitrator can reject a counter claim at the threshold if it is manifestly beyond the scope of the arbitration agreement. The High Court erred in substituting its view with the Arbitrator's finding that the counter claim was beyond jurisdiction. (Paras 13-15)
Issue of Consideration
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.
Final Decision
The Supreme Court allowed the appeal, set aside the impugned judgment of the High Court dated 07.12.2011, and restored the order of the Arbitrator dated 18.04.2011 rejecting the counter claim regarding CENVAT invoices as beyond the scope and jurisdiction of the Arbitrator.
Law Points
- Arbitration
- Jurisdiction of Arbitrator
- Counter Claim
- Scope of Arbitration Agreement
- CENVAT Credit
- Section 16 of Arbitration and Conciliation Act
- 1996
- Section 37 of Arbitration and Conciliation Act
