The Baffle around Counter Claims in Arbitration: Limitation period on CounterClaims post-Ashok Kalra
Arbitration proceedings have been conducted in India for a long time now, presided by a neutral third person who strives to resolve the dispute after hearing the parties to the dispute and reaches a mutually beneficial solution. The verdict passed by such third person is not only enforceable by the law of arbitration but is also considered equivalent to a decree of a Civil Court. Hence along with the law of arbitration, such a decision can also be enforced according to the provisions of the Code of Civil Procedure, 1908 (“CPC”).
In a Civil Suit, the Defendant is allowed to present a set-off as well as a counterclaim against the plaintiff. The time for filing the counter claim as per Order VIII Rule 6A of the CPC is set to before the Respondent files the defense. Although Arbitration proceedings do not have to strictly follow the provisions of CPC, yet it should be conducted keeping in mind the basic principles of fair trial and evidence appreciation which in turn are rather derivative of the fundamental principles of natural justice.
These principles are also the fundamental pillars of CPC and Evidence Act which cannot be overlooked in an Arbitration dispute as well, In the matter of Ashok Kalra v. Wing Commander Surendra Agnihotri (“Ashok Kalra”)[iii], the Hon’ble Apex Court after careful consideration of the contents of Order VIII Rule 6A held that the counter claim, if any is to be filed by the Respondent, it needs to be filed before the framing of issues and not after that. In arbitration proceedings as well, the Respondent is allowed to bring a counter claim against the Claimant.
This article sheds light on the situations when the limitation applies to a counter claim filed by the Respondent in an arbitration. This issue arises as it is a settled fact that a counter-claim filed by the Respondent is considered as a fresh suit and owing to the fact that it is a fresh suit, and as held by the Apex Court in Ashok Kalra (Supra), the counterclaim has to be filed before framing of Issues but does that mean that the respondent can file counter claim at any point of time before the filing of issues, i.e., even if the limitation to bring the counter claim has already expired as per the Limitation Act.’
The counter claim conundrum
In a contract entered into by the parties, generally involving commercial disputes, The Parties generally insert an arbitration clause in the contract so that in case of a dispute, The Parties could resort to the arbitration clause and submit their dispute before an arbitration tribunal which in turn gives the parties the advantage of not submitting themselves to the litigation which is considered to be a time consuming and costly procedure in India and the parties also have the autonomy to decide the procedure as well.
Consider the following situation:
‘A’ entered into a contract with ‘B’ for the purchase of 100 kg of ‘X’ product within a period of thirty days on 01.01.2015 at the rate of 100 rupees per kg for which A paid an advance of Rs 3000.
The contract further mentioned that if B could not supply the product X within a period of Thirty Days, he would be liable to refund the advance amount to A after the expiry of the said period of thirty days.
The contract entered into between the parties had an arbitration clause. After the expiry of Thirty days, B could not supply 100 kg of X product and consequently, A invoked the arbitration clause and presented the claim before an Arbitral Tribunal claiming the refund of the advance amount on 01.01.2017.
B appeared before the Arbitral Tribunal and after filing the written statement on 01.01.2018, filed a counter claim on 1.01.2019 for 7000 rupees, alleging that it was A’s fault that B could not procure the product X and consequently B could not supply the same.
Considering the above illustration, since the claim before the arbitration tribunal was presented by A on 01.01.2017, the question that arises is whether the cause of action for filing the counter claim by B would accrue on 01.02.2015, i.e. the day the contract was terminated owing to the inability of B to supply product X or on 01.01.2017 when the claim was presented by A.
The Limitation Act,1963 (“Limitation Act”) is the statute that prescribes the limitation for bringing a suit before a court or a tribunal because the law cannot permit a party to come before the Court for time immemorial, i.e. if the right of a party is violated, The said party has to approach the court for the remedy within a certain time and that time has been prescribed by the Limitation Act. The Limitation Act clearly states in Rule 13 of its Schedule, that the limitation period for the balance of money advanced in payment of goods to be delivered is three years and the cause of action accrues from the day when the goods ought to be delivered. In the above illustration, the goods were to be delivered by 31.01.2015, i.e. the cause of action for filing the suit accrued from 01.02.2015. Since the Limitation is three years, and the Respondent failed to act in a timely fashion, the counter claim filed by the Respondent on 1.01.2019 is barred by limitation as per the Limitation Act, 1963. Applying the above principle in the above illustration, the counter claim filed by B is barred, However, had B served a notice to A by 01.02.2018 seeking damages, the limitation for such claim would have been the date on which B would have served the notice upon A and not the date of Institution of Counter Claim i.e. 01.01.2019. Section 43 of the Arbitration and Conciliation Act, 1996 expressly provides for the application of the Limitation Act to arbitral proceedings. As per S. 43, the Limitation Act applies to arbitral proceedings in the same manner as it applies to ordinary court proceedings.
The exception to Ashok Kalra
The issue of filing of counter claim has long been existing in the arbitral regime i.e. when can the respondent file a counter claim in an arbitral proceeding. The situation was not very clear till now as Order VIII rule 6A provides that the counter claim can be filed by the respondent before filing its defense but the courts and the arbitral tribunals were considering the counter claim filed by the respondents on the ground of natural justice even at the stage of evidence of the plaintiff or the claimant.
Finally, in the matter of Ashok Kalra (Supra), the Hon’ble Apex Court after careful consideration of the contents of Order VIII Rule 6A held that the Counter Claim, if any is to be filed by the Respondent, it needs to be filed before the framing of issues and not after that. After the judgment in Ashok Kalra (Supra), the counter claims filed have been ordered to reject the same if filed after framing of issues and the law seems to be settled in this respect.
The Hon’ble Apex Court has carved out an exception to the principle settled in Ashok Kalra, in the matter of State of Goa v. Praveen Enterprises[iv] wherein the Hon’ble Apex Court has clearly stated in ¶17 that:
“As far as counterclaims are concerned, there is no room for ambiguity in regard to the relevant date for determining the limitation. Section 3(2)(b) of the Limitation Act, 1963 provides that in regard to a counter claim in suits, the date on which the counter claim is made in court shall be deemed to be the date of Institution of Counter Claim. As the Limitation Act is made applicable to the Arbitrations, in the case of a counter claim by a respondent in an arbitral proceeding, the date on which the counter claim is made before the arbitrator will be the date of “institution” insofar as the counter claim is concerned. There is therefore, no need to provide a date of commencement as in the claims of a claimant. Section 21 is therefore not relevant for counter claims. There is however one exception. Where the respondent against whom a claim is made, had also made a claim against the claimant and sought arbitration by serving a notice to the claimant but subsequently raises that claim as a counterclaim in the arbitration proceedings initiated by the claimant, instead of filing a separate application under Section 11 of the Act, the Limitation for such counterclaim should be computed as on the date of service of notice of such claim on the claimant and the not the date of filing if the counter claim.”
The Court further opined that where an arbitration clause exists in an agreement, the arbitrator is empowered to adjudicate upon all the disputes that arise between the parties, including the claims and counterclaims that are a part of such disputes referred to it. The assumption that an arbitrator can decide only disputes raised by an applicant in an application and not counterclaims of the respondent is without basis. The arbitrator’s jurisdiction with respect to claims and counterclaims is precluded only when these are not a part of the disputes specifically referred to arbitral proceedings.
Relying on this Judgment, The Hon’ble Apex Court has passed an order in the case of Voltas Limited v. Rolta India Limited[v], wherein with regards to the concept of limitation on a counter claim in an arbitration proceeding, the contents of the above Judgment had been reiterated. The Supreme Court emphasised that the date on which the Respondent made a counter claim before the arbitrator would be considered its date of its institution, with reference to which the limitation period on the counter claim must be determined.
In conclusion, it can be determined that though as per the judgment in the matter of Ashok Kalra, the counter claim has to be submitted before framing of issues by the arbitral tribunal but this does not give the party the right to bring a counter claim at any point of time after the limitation provided as per the Limitation Act, 1963, The Respondent has to be careful before submitting the counter claim that the same should not be barred by limitation as per the Limitation Act, 1963 even though the counter claim is filed before framing of issues Since an exception has already been carved out in the Praveen Enterprises, the same needs to kept in mind before filing the counter claim.
[i] Om Kukreja is a graduate of 2017 batch of Hidayatullah National Law University and is a practicing advocate at the High Court of Chhattisgarh at Bilaspur having an interest in corporate and commercial laws, For any discussion related to the article, he can be contacted via mail email@example.com [ii] Ankush Shrivasan is a graduate of the batch of 2017 batch of Hidayatullah National Law University and is a judicial services aspirant, he has experience of working at the trial court at Bilaspur, Chhattisgarh. [iii]Ashok Kalra v. Wing Commander Surendra Agnihotri 2020 (2) SCC 394. [iv]State of Goa v. Praveen Enterprises.2012 (12) SCC 581. [v]Voltas Ltd. v. Rolta India Ltd., (2014) 4 SCC 516. Preferred Citation: Kukreja and Shrivasan, Baffle around Counter Claims in Arbitration, Arbitration & Corporate Law Review, Published on 12th July 2020.